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SECURITIES AND EXCHANGE COMMISSION
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 |
Province of Quebec, Canada
(Jurisdiction of incorporation or organization)
612 St-Jacques Street
Montreal, Quebec, Canada H3C 4M8
(Address of principal executive offices)
Title of each class | Name of each exchange on which registered | |
None | None |
(Title of Class)
73/4% Senior Notes due March 2016 (issued October 5, 2007)
(Title of Class)
2,055,000 Cumulative First Preferred Shares, Series G
Large accelerated filero | Accelerated filero | Non-accelerated filer þ |
by the International Accounting Standards Board
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PART I | ||||||||
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PART II | ||||||||
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PART III | ||||||||
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Index to Consolidated Financial Statements | 187 | |||||||
EX-1.15 | ||||||||
EX-4.18 | ||||||||
EX-7.1 | ||||||||
EX-8.1 | ||||||||
EX-11.1 | ||||||||
EX-12.1 | ||||||||
EX-12.2 | ||||||||
EX-13.1 | ||||||||
EX-13.2 | ||||||||
EX-99.1 |
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Year Ended: | Average (1) | High | Low | Period End | ||||||||||||
December 31, 2008 | 0.9381 | 1.0289 | 0.7711 | 0.8166 | ||||||||||||
December 31, 2007 | 0.9304 | 1.0905 | 0.8437 | 1.0120 | ||||||||||||
December 31, 2006 | 0.8818 | 0.9099 | 0.8528 | 0.8581 | ||||||||||||
December 31, 2005 | 0.8253 | 0.8690 | 0.7872 | 0.8577 | ||||||||||||
December 31, 2004 | 0.7683 | 0.8493 | 0.7159 | 0.8308 | ||||||||||||
Month Ended: | Average (2) | High | Low | Period End | ||||||||||||
March 2009 (through March 11, 2009) | 0.7772 | 0.7834 | 0.7692 | 0.7808 | ||||||||||||
February 28, 2009 | 0.8031 | 0.8202 | 0.7870 | 0.7870 | ||||||||||||
January 31, 2009 | 0.8155 | 0.8458 | 0.7849 | 0.8088 | ||||||||||||
December 31, 2008 | 0.8100 | 0.8358 | 0.7711 | 0.8166 | ||||||||||||
November 30, 2008 | 0.8209 | 0.8696 | 0.7779 | 0.8083 | ||||||||||||
October 31, 2008 | 0.8441 | 0.9426 | 0.7726 | 0.8220 | ||||||||||||
September 30, 2008 | 0.9449 | 0.9673 | 0.9263 | 0.9435 |
(1) | The average of the exchange rates for all days during the applicable year. | |
(2) | The average of the exchange rates for all days during the applicable month. |
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• | our ability to successfully build and deploy our new wireless services network on the timeline that we are targeting, and to implement successfully our strategy of becoming a facilities-based wireless provider; | ||
• | general economic, financial or market conditions and variations in the businesses of our local, regional or national newspapers and broadcasting advertisers; | ||
• | the intensity of competitive activity in the industries in which we operate, including competition from other communications and advertising media and platforms; | ||
• | fragmentation of the media landscape; | ||
• | 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 successfully restructure our newspapers operations to optimize their efficiency in the context of the changing newspapers industry; | ||
• | 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, including the current labour dispute affecting ourJournal de Montrealnewspaper; | ||
• | 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, the tightening of credit markets, 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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Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(in millions, except ratio) | ||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Cable | $ | 1,804.2 | $ | 1,552.6 | $ | 1,309.5 | $ | 1,080.3 | $ | 937.6 | ||||||||||
Newspapers | 1,181.4 | 1,073.9 | 966.0 | 948.2 | 913.4 | |||||||||||||||
Broadcasting | 436.7 | 415.5 | 393.3 | 401.4 | 358.0 | |||||||||||||||
Leisure and Entertainment | 301.9 | 329.8 | 315.8 | 255.4 | 241.7 | |||||||||||||||
Interactive Technologies and Communications | 89.6 | 82.0 | 73.9 | 65.1 | 51.9 | |||||||||||||||
Inter-segment | (83.7 | ) | (87.9 | ) | (59.9 | ) | (55.0 | ) | (45.7 | ) | ||||||||||
3,730.1 | 3,365.9 | 2,998.6 | 2,695.4 | 2,456.9 | ||||||||||||||||
Cost of sales, selling and administrative expenses | (2,610.6 | ) | (2,402.0 | ) | (2,199.0 | ) | (1,963.3 | ) | (1,759.7 | ) | ||||||||||
Amortization | (318.5 | ) | (290.4 | ) | (260.7 | ) | (231.9 | ) | (225.9 | ) | ||||||||||
Financial expenses | (276.0 | ) | (230.1 | ) | (212.9 | ) | (270.8 | ) | (279.7 | ) | ||||||||||
Loss on valuation and translation of financial instruments | (3.7 | ) | (9.9 | ) | (11.7 | ) | (14.5 | ) | (34.9 | ) | ||||||||||
Restructuring of operations, impairment of assets and other special items | (54.6 | ) | (11.2 | ) | (16.7 | ) | 0.3 | 6.5 | ||||||||||||
Loss on debt refinancing | — | (1.0 | ) | (342.6 | ) | (60.0 | ) | (4.8 | ) | |||||||||||
Impairment of goodwill and intangible assets | (671.2 | ) | (5.4 | ) | (180.0 | ) | — | — | ||||||||||||
Income taxes | (154.7 | ) | (74.8 | ) | 53.7 | (43.5 | ) | (37.4 | ) | |||||||||||
Non-controlling interest | (23.1 | ) | (19.2 | ) | (0.4 | ) | (16.2 | ) | (31.7 | ) | ||||||||||
Income (loss) from discontinued operations | 2.3 | 5.2 | 2.0 | 1.0 | (1.1 | ) | ||||||||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | ||||||||
OTHER FINANCIAL DATA AND RATIO: | ||||||||||||||||||||
Operating income (1) | $ | 1,119.5 | $ | 963.9 | $ | 799.6 | $ | 732.1 | $ | 697.2 | ||||||||||
Additions to property, plant and equipment | 527.3 | 468.7 | 435.5 | 319.8 | 181.1 | |||||||||||||||
Comprehensive (loss) income | (439.6 | ) | 373.1 | (168.5 | ) | 95.2 | 88.7 | |||||||||||||
Ratio of earnings to fixed charges or coverage deficiency (2)(3) (unaudited) | $ | 214.3 | 2.7 | x | $ | 231.1 | 1.5 | x | 1.5 | x |
At December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Cash and cash equivalents | $ | 22.5 | $ | 26.1 | $ | 34.1 | $ | 97.4 | $ | 108.8 | ||||||||||
Total assets | 7,996.2 | 7,560.9 | 6,583.9 | 6,675.5 | 6,509.2 | |||||||||||||||
Total debt (current and long-term portions) | 4,335.8 | 3,027.5 | 2,796.1 | 2,533.2 | 2,548.8 | |||||||||||||||
Capital stock | 1,752.4 | 1,752.4 | 1,752.4 | 1,773.7 | 1,773.7 | |||||||||||||||
Shareholders’ equity | 1,943.0 | 2,450.3 | 2,237.0 | 2,450.1 | 2,459.9 | |||||||||||||||
Cash dividends declared | 65.0 | 110.0 | 23.7 | 105.0 | 20.0 | |||||||||||||||
Number of common shares outstanding | 123.6 | 123.6 | 123.6 | 123.6 | 123.6 |
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Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(in millions, except ratio) | ||||||||||||||||||||
STATEMENT OF INCOME DATA: | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Cable | $ | 1,804.7 | $ | 1,552.0 | $ | 1,312.2 | $ | 1,086.5 | $ | 946.9 | ||||||||||
Newspapers | 1,181.4 | 1,073.9 | 966.0 | 948.2 | 913.4 | |||||||||||||||
Broadcasting | 436.7 | 415.5 | 393.3 | 401.4 | 358.0 | |||||||||||||||
Leisure and Entertainment | 301.9 | 329.8 | 315.8 | 255.4 | 241.7 | |||||||||||||||
Interactive Technologies and Communications | 89.6 | 82.0 | 73.9 | 65.1 | 51.9 | |||||||||||||||
Inter-segment | (83.7 | ) | (87.9 | ) | (59.9 | ) | (55.0 | ) | (45.7 | ) | ||||||||||
3,730.6 | 3,365.3 | 3,001.3 | 2,701.6 | 2,466.2 | ||||||||||||||||
Cost of sales, selling and administrative expenses | (2,605.3 | ) | (2,406.5 | ) | (2,207.8 | ) | (1,967.5 | ) | (1,758.8 | ) | ||||||||||
Amortization | (316.5 | ) | (287.7 | ) | (257.9 | ) | (229.6 | ) | (225.7 | ) | ||||||||||
Financial expenses | (276.0 | ) | (230.1 | ) | (212.9 | ) | (270.8 | ) | (279.7 | ) | ||||||||||
Gain (loss) on valuation and translation of financial instruments | 0.1 | 1.0 | (7.1 | ) | (33.2 | ) | (42.5 | ) | ||||||||||||
Restructuring of operations, impairment of assets and other special items | (54.6 | ) | (11.2 | ) | (16.7 | ) | 1.8 | 6.5 | ||||||||||||
Loss on debt refinancing | — | (1.0 | ) | (275.7 | ) | (48.5 | ) | (4.8 | ) | |||||||||||
Impairment of goodwill and intangible assets | (667.4 | ) | (5.4 | ) | (180.0 | ) | — | — | ||||||||||||
Income taxes | (165.1 | ) | (99.7 | ) | 13.3 | (7.6 | ) | (43.4 | ) | |||||||||||
Non-controlling interest | (24.8 | ) | (17.0 | ) | (1.3 | ) | (18.4 | ) | (35.1 | ) | ||||||||||
Income (loss) from discontinued operations | 2.3 | 5.2 | 2.0 | 1.0 | (0.8 | ) | ||||||||||||||
Net (loss) income | $ | (376.7 | ) | $ | 312.9 | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | ||||||||
OTHER FINANCIAL DATA AND RATIO: | ||||||||||||||||||||
Operating income (1) | $ | 1,125.3 | $ | 958.8 | $ | 793.5 | $ | 734.1 | $ | 707.4 | ||||||||||
Additions to property, plant and equipment | 527.3 | 468.7 | 435.5 | 319.8 | 181.1 | |||||||||||||||
Comprehensive (loss) income | (401.2 | ) | 356.9 | (56.4 | ) | 160.0 | (25.5 | ) | ||||||||||||
Ratio of earnings to fixed charges or coverage deficiency (2)(3) (unaudited) | $ | 198.9 | 2.7 | x | $ | 162.9 | 1.5 | x | 1.5 | x |
At December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Cash and cash equivalents | $ | 22.5 | $ | 26.1 | $ | 34.1 | $ | 97.4 | $ | 108.8 | ||||||||||
Total assets | 7,967.6 | 7,523.4 | 6,533.4 | 6,664.1 | 6,480.1 | |||||||||||||||
Total debt (current and long-term portion) | 4,318.6 | 3,016.1 | 2,766.3 | 2,501.1 | 2,529.0 | |||||||||||||||
Capital stock | 1,752.4 | 1,752.4 | 1,752.4 | 1,773.7 | 1,773.7 | |||||||||||||||
Shareholders’ equity | 1,953.1 | 2,407.9 | 2,155.3 | 2,275.2 | 2,204.3 | |||||||||||||||
Cash dividends declared | 65.0 | 110.0 | 23.7 | 105.0 | 20.0 | |||||||||||||||
Number of common shares outstanding | 123.6 | 123.6 | 123.6 | 123.6 | 123.6 |
(1) | Quebecor Media defines operating income, reconciled to net (loss) income under Canadian GAAP, as net (loss) income before amortization, financial expenses, loss on valuation and translation of financial instruments, restructuring of operations, impairment of assets and other special items, loss on debt refinancing, impairment of goodwill and intangible assets, income taxes, non-controlling interest and income (loss) from discontinued operations. Quebecor Media defines operating income, reconciled to net (loss) income under U.S. GAAP, as net (loss) income before amortization, financial expenses, gain (loss) on valuation and translation of financial instruments, restructuring of operations, impairment of assets and other special items, loss on debt refinancing, impairment of goodwill and intangible assets, income taxes, non-controlling interest, and income (loss) from |
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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 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 parent company, Quebecor, considers the media segment as a whole and uses operating income in order to assess the performance of its investment in Quebecor Media. Our management and Board of Directors use this measure in evaluating Quebecor Media’s consolidated results as well as results of Quebecor Media’s operating segments. As such, this measure eliminates the significant level of non-cash depreciation of tangible assets and amortization of certain intangible assets, and it is unaffected by the capital structure or investment activities of Quebecor Media and of its segments. Operating income is also relevant because it is a significant component of Quebecor Media’s annual incentive compensation programs. A limitation of this measure, however, is that it does not reflect the periodic costs of capitalized tangible and intangible assets used in generating revenues in Quebecor Media’s segments. Quebecor Media uses other measures that do reflect such costs, such as cash flows from segment operations and free cash flows from continuing operations. In addition, measures like operating income are commonly used by the investment community to analyze and compare the performance of companies in the industries in which we are engaged. Our definition of operating income may not be the same as similarly titled measures reported by other companies. The following table provides a reconciliation under Canadian GAAP of operating income to net (loss) income as presented in our consolidated financial statements: |
Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Reconciliation of operating income to net (loss) income (Canadian GAAP) (in millions of Canadian dollars) | ||||||||||||||||||||
Operating income | ||||||||||||||||||||
Cable | $ | 797.2 | $ | 642.7 | $ | 512.5 | $ | 413.3 | $ | 363.8 | ||||||||||
Newspapers | 227.1 | 232.8 | 217.7 | 231.2 | 232.3 | |||||||||||||||
Broadcasting | 66.3 | 59.4 | 42.1 | 53.0 | 80.5 | |||||||||||||||
Leisure and Entertainment | 20.5 | 27.0 | 19.3 | 27.0 | 22.7 | |||||||||||||||
Interactive Technologies and Communications | 5.1 | 2.8 | 7.5 | 3.9 | 2.3 | |||||||||||||||
Head office | 3.3 | (0.8 | ) | 0.5 | 3.7 | (4.4 | ) | |||||||||||||
1,119.5 | 963.9 | 799.6 | 732.1 | 697.2 | ||||||||||||||||
Amortization | (318.5 | ) | (290.4 | ) | (260.7 | ) | (231.9 | ) | (225.9 | ) | ||||||||||
Financial expenses | (276.0 | ) | (230.1 | ) | (212.9 | ) | (270.8 | ) | (279.7 | ) | ||||||||||
Loss on valuation and translation of financial instruments | (3.7 | ) | (9.9 | ) | (11.7 | ) | (14.5 | ) | (34.9 | ) | ||||||||||
Restructuring of operations, impairment of assets and other special items | (54.6 | ) | (11.2 | ) | (16.7 | ) | 0.3 | 6.5 | ||||||||||||
Loss on debt refinancing | — | (1.0 | ) | (342.6 | ) | (60.0 | ) | (4.8 | ) | |||||||||||
Impairment of goodwill and intangible assets | (671.2 | ) | (5.4 | ) | (180.0 | ) | — | — | ||||||||||||
Income taxes | (154.7 | ) | (74.8 | ) | 53.7 | (43.5 | ) | (37.4 | ) | |||||||||||
Non-controlling interest | (23.1 | ) | (19.2 | ) | (0.4 | ) | (16.2 | ) | (31.7 | ) | ||||||||||
Income (loss) from discontinued operations | 2.3 | 5.2 | 2.0 | 1.0 | (1.1 | ) | ||||||||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | ||||||||
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Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Reconciliation of operating income to net (loss) income (U.S. GAAP) (in millions of Canadian dollars) | ||||||||||||||||||||
Operating Income | ||||||||||||||||||||
Cable | $ | 799.0 | $ | 640.4 | $ | 508.8 | $ | 411.4 | $ | 362.2 | ||||||||||
Newspapers | 228.0 | 231.7 | 217.0 | 230.6 | 236.9 | |||||||||||||||
Broadcasting | 67.1 | 62.1 | 43.4 | 58.3 | 87.5 | |||||||||||||||
Leisure and Entertainment | 20.5 | 26.9 | 19.3 | 26.2 | 22.9 | |||||||||||||||
Interactive Technologies and Communications | 5.1 | 2.8 | 7.5 | 3.9 | 2.3 | |||||||||||||||
Head office | 5.6 | (5.1 | ) | (2.5 | ) | 3.7 | (4.4 | ) | ||||||||||||
1,125.3 | 958.8 | 793.5 | 734.1 | 707.4 | ||||||||||||||||
Amortization | (316.5 | ) | (287.7 | ) | (257.9 | ) | (229.6 | ) | (225.7 | ) | ||||||||||
Financial expenses | (276.0 | ) | (230.1 | ) | (212.9 | ) | (270.8 | ) | (279.7 | ) | ||||||||||
Gain (loss) on valuation and translation of financial instrument | 0.1 | 1.0 | (7.1 | ) | (33.2 | ) | (42.5 | ) | ||||||||||||
Restructuring of operations, impairment of assets and other special items | (54.6 | ) | (11.2 | ) | (16.7 | ) | 1.8 | 6.5 | ||||||||||||
Loss on debt refinancing | — | (1.0 | ) | (275.7 | ) | (48.5 | ) | (4.8 | ) | |||||||||||
Impairment of goodwill and intangible assets | (667.4 | ) | (5.4 | ) | (180.0 | ) | — | — | ||||||||||||
Income taxes | (165.1 | ) | (99.7 | ) | 13.3 | (7.6 | ) | (43.4 | ) | |||||||||||
Non-controlling interest | (24.8 | ) | (17.0 | ) | (1.3 | ) | (18.4 | ) | (35.1 | ) | ||||||||||
Income (loss) from discontinued operations | 2.3 | 5.2 | 2.0 | 1.0 | (0.8 | ) | ||||||||||||||
Net (loss) income | $ | (376.7 | ) | $ | 312.9 | $ | (142.8 | ) | $ | 128.8 | $ | 81.9 | ||||||||
(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 2008 coverage deficiency was significant due to the non-cash charge related to an impairment of goodwill and intangible assets in the amount of $671.2 million pursuant to Canadian GAAP ($667.4 million pursuant to U.S. GAAP). 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, 2008. |
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• | Videotron is party to 5 collective bargaining agreements, representing approximately 2,850 employees. Of these collective bargaining agreements, one (representing approximately 40 employees) has expired, and negotiations are ongoing. Two others, representing approximately 2,510 employees, or 88% of Videotron’s unionized employees, will expire in December 2009. The remaining two collective bargaining agreements, representing approximately 300 employees, or 10% of Videotron’s unionized workforce will expire between December 31, 2010 and August 31, 2011; | ||
• | Sun Media (including Osprey Media) is party to 84 collective bargaining agreements, representing approximately 2,480 employees. One collective bargaining agreement, representing 6 employees, is under negotiation. 8 collective bargaining agreements, representing approximately 510 employees, or 20% of its unionized workforce, have expired. Negotiations regarding these collective bargaining agreements are either in progress or will be undertaken in 2009. One collective agreement, representing approximately 40 employees, is under arbitration. The other collective bargaining agreements are scheduled to expire on various dates through April 2012; | ||
• | TVA Group is party to 15 collective bargaining agreements, representing approximately 810 employees. Of this number, 5 collective bargaining agreements, representing approximately 120 employees, or 15% of its unionized workforce, have expired. Negotiations regarding these collective bargaining agreements are either in progress or will be undertaken in 2009. 3 collective bargaining agreements, representing approximately 550 employees, or 68% of its unionized workforce, will expire at the end of 2009. The others are scheduled to expire at various dates between April 20, 2011 and October 31, 2013; and | ||
• | The other 8 collective bargaining agreements, representing approximately 520 employees or 8% of our unionized employees, will expire between the end of April 2009 and June 2010. |
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Company — Regulation — Canadian Broadcasting Distribution (Cable Television) — Distribution of Canadian Content and Broadcasting Distribution Regulations”.
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• | increase our vulnerability to general adverse economic and industry conditions; | ||
• | require us to dedicate a substantial portion of our cash flow from operations to making interest and principal payments on our indebtedness, thereby 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 |
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• | 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. |
• | 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 March 5, 2009, Videotron issued US$260.0 million aggregate principal amount of its 91/8% Senior Notes due 2018 for net proceeds of $332.4 million (including accrued interest and net of financing expenses). Videotron used the proceeds to repay drawings on its senior secured credit facility and for general corporate purposes. | ||
• | In October 2008, we and Videotron announced our intention to invest between $800.0 million and $1.0 billion over the next four years to roll out our own AWS network. This amount includes the cost of the acquired spectrum and operating licenses (which has already been paid), the cost of network buildout and initial operating costs (but excludes any capitalized interest). We plan to fund future investments in AWS through cash flow generation and available credit facilities. We currently anticipate that our new High Speed Packet Access (HSPA) network will be operational in 9 to 15 months. | ||
• | In July 2008, in the context of Canada’s spectrum auction for third generation AWS, we acquired spectrum licenses for AWS covering all regions of the province of Quebec and certain areas of Ontario. We were the successful bidder for 40 MHz spectrum licenses in all parts of the Province of Quebec, except the Outaouais region where we obtained 20 MHz spectrum licenses and certain regions of Quebec where we obtained 50 MHz spectrum licenses. We also acquired 20 MHz spectrum licenses in Eastern Ontario and 10 MHz spectrum licenses in the city of Toronto. These licenses, the control of which was transferred from Quebecor Media to Videotron subsequent to the completion of the auction, were issued by Industry Canada on December 23, 2008. The spectrum enables Videotron to pursue the buildout of an AWS network infrastructure and become a facilities-based provider offering advanced wireless services, including high-speed Internet, mobile television |
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and a variety of other advanced functions that can be accessed through mobile devices referred to as smartphones. | |||
• | On June 2, 2008, TVA Group repurchased 3,000,642 Class B shares under the Substantial Issuer Bid filed on March 31, 2008 and amended on May 14, 2008, for aggregate cash consideration of $51.4 million. During the financial year ended December 31, 2006, Quebecor Media’s interest in TVA Group increased as a result of various Normal Course Issuer Bids. In 2006, 9,800 Class B shares were repurchased under Normal Course Issuer Bids for cash consideration of $0.2 million. As a result of these repurchases, Quebecor Media’s interest in TVA Group increased by 5.7%, from 45.2% on January 1, 2006 to 50.9% as of December 31, 2008. | ||
• | On April 15, 2008, Videotron issued US$455.0 million aggregate principal amount of its 91/8% Senior Notes due 2018 for net proceeds of $447.8 million. Videotron used the proceeds to repay drawings on its senior secured credit facility and for general corporate purposes. | ||
• | On April 7, 2008, Videotron amended its Senior Secured Credit Facility to increase its commitments under the facility from $450.0 million to $575.0 million and extend the maturity date to April 2012. Pursuant to these amendments, Videotron may, subject to certain conditions, increase the commitments under its Senior Secured Credit Facility by an additional $75.0 million (for aggregate commitments of $650.0 million). | ||
• | On February 26, 2008, Quebecor Media, through a wholly-owned subsidiary, completed its acquisition, pursuant to a public offer and subsequent compulsory acquisition procedure, of all of the issued and outstanding common shares of Nurun (including common shares issuable upon the exercise of outstanding options, conversion or exchange rights) not already held by Quebecor Media and its affiliates, at a price of $4.75 per common share. The Nurun common shares were delisted from the Toronto Stock Exchange on February 27, 2008. The aggregate cash consideration paid by Quebecor Media pursuant to this public offer was approximately $75.2 million. | ||
• | On October 31, 2007, Sun Media entered into a Fifth Amending Agreement to its credit agreement. The agreement extends the term to October 31, 2012 and modifies covenants related to leverage and interest coverage ratios, removes the fixed charge ratio and modifies certain definitions. | ||
• | On October 5, 2007, Quebecor Media completed a placement of US$700.0 million aggregate principal amount of its 73/4% senior notes due 2016. Quebecor Media used the net proceeds of $672.2 million (including accrued interest of $16.6 million and before financing costs of $9.8 million) from the placement, as well as its cash and cash equivalents, to repay in full the $420.0 million drawn on the senior bridge credit facility entered into to finance the acquisition of Osprey Media (which facility was then terminated), to repay US$179.7 million outstanding under Sun Media Corporation’s Term Loan B, and to settle the $106.0 million liability related to derivative financial instruments connected to the Sun Media Corporation Term Loan B. | ||
• | In early August 2007, Quebecor Media completed its acquisition of Osprey Media for an aggregate purchase price of approximately $414.4 million (excluding assumed Osprey Media debt of $161.8 million). The purchase price was financed through a senior bridge credit facility that Quebecor Media fully repaid with a portion of the proceeds of the offering of its Senior Notes in October 2007. Osprey Media is one of Canada’s leading publishers of daily and non-daily newspapers, magazines and specialty publications. |
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• | On January 17, 2006, Quebecor Media issued US$525.0 million aggregate principal amount of its 73/4% Senior Notes due March 2016. Quebecor Media also established new credit facilities consisting of a Term Loan A credit facility in the amount of $125.0 million, maturing in 2011, a Term Loan B credit facility in the amount of US$350.0 million, maturing in 2013, and a five-year revolving credit facility in the amount of $100.0 million, expiring in 2011. | ||
• | Also on January 17, 2006, Quebecor Media repurchased US$561.6 million in aggregate principal amount of its 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 then-outstanding Senior Notes due 2011 and Senior Discount Notes due 2011. Quebecor Media 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. In respect of these repurchases, Quebecor Media recognized a $342.1 million loss on debt refinancing ($218.7 million net of income tax) in 2006. |
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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, which we currently offer on an MVNO-basis (utilizing wireless voice and data services provided by Rogers Wireless Inc. (“Rogers Wireless”), a subsidiary of Rogers Communications Inc.), but will offer as a facilities-based wireless provider when our AWS wireless network is operational; | ||
• | 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 Quebec’s total addressable market and five of the province’s top six urban areas. We believe that our single cluster and network architecture provides many benefits, including a higher quality and more reliable network, the ability to rapidly and efficiently launch and deploy new products and services, and a lower cost structure through reduced maintenance and technical support costs; and | ||
• | leverage our advanced broadband network, 99% 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 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 telephony service and the offering of our other advanced products and services. |
• | Strengthen our position as a telecommunications leader with our new AWS wireless services. With our newly-obtained AWS licenses, Videotron plans to bring consumers and small businesses an |
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offering of advanced wireless telecommunications services that is unprecedented in Quebec, based on effective, reliable technology, diverse and convergent content and unambiguous business policies. We currently anticipate that our new High Speed Packet Access (HSPA) network will be operational in 9 to 15 months. | |||
• | 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 (such as Wideband internet technology) and by the continuing penetration of our existing suite of products and services such as digital cable services, cable Internet access, cable 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. | ||
• | Leverage growth opportunities and convergence opportunities.We are the largest private-sector French-language programming broadcaster, a leading producer of French-language programming, the largest newspaper publisher based on total paid and unpaid circulation, and a leading English- and French-language Internet news and information portal in Canada. As a result, we are able to generate and distribute content across a spectrum of media properties and platforms. In addition, these multi-platform media assets enable us to provide advertisers with integrated advertising solutions. 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 continue to explore and implement initiatives to leverage growth and convergence opportunities, including efforts to accelerate the migration of content generated by our various publications and broadcasters to our other media platforms, and the integration of our newspapers operations and internet/portal operations under a single executive leadership. | ||
• | 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. | ||
• | Leverage geographic clustering.Our Videotron subsidiary holds cable licenses that cover approximately 80% of Quebec’s approximately 3.1 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, | ||||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | CAGR(1) | |||||||||||||||||||
(Homes passed and basic cable customers in millions, dollars in billions) | ||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||
Industry Revenue | $ | 7.1 | $ | 6.1 | $ | 5.0 | $ | 4.7 | $ | 4.4 | 12.7 | % | ||||||||||||
Homes Passed(2) | 13.6 | 13.0 | 11.2 | 10.5 | 10.9 | 5.7 | % | |||||||||||||||||
Basic Cable Customers | 7.6 | 7.5 | 6.9 | 6.9 | 7.1 | 1.7 | % | |||||||||||||||||
Basic Penetration | 55.9 | % | 57.7 | % | 61.6 | % | 65.7 | % | 65.1 | % | (3.8 | %) | ||||||||||||
Twelve Months Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | CAGR(3) | |||||||||||||||||||
(Homes passed and basic cable customers in millions, US dollars in billions) | ||||||||||||||||||||||||
U.S. | ||||||||||||||||||||||||
Industry Revenue | US$ | 81.3 | US$ | 74.7 | US$ | 68.2 | US$ | 62.3 | US$ | 57.6 | 7.1 | % | ||||||||||||
Homes Passed(2) | 124.2 | 123.0 | 111.6 | 110.8 | 108.2 | 2.8 | % | |||||||||||||||||
Basic Cable Customers | 64.7 | 65.1 | 65.6 | 65.4 | 65.4 | (0.2 | %) | |||||||||||||||||
Basic Penetration | 52.1 | % | 52.9 | % | 58.8 | % | 59.0 | % | 60.4 | % | (2.9 | %) |
Source of Canadian data: CRTC. | ||
Source of U.S. data: NCTA, A.C. Nielsen Media Research and SNL Kagan. | ||
(1) | Compounded annual growth rate from 2003 through 2007. | |
(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 2004 through 2008. |
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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 26 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 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. In 2008, we also launched and effected a gradual roll-out of our Wideband services, which offer speeds of up to 900 times the speed of a conventional telephone modem. We currently plan to continue extending the coverage of this service in 2009. As of December 31, 2008, we had 1,063,847 cable Internet access customers, representing 62.0% of our basic customers and 41.8% of our total homes passed. Based on internal estimates, we are the largest provider of Internet access services in the areas we serve with an estimated market share of 53.9% as of September 30, 2008. | ||
• | Digital Television.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. Our basic digital package includes 25 television channels, 45 audio services providing CD-quality music, 16 AM/FM radio channels, an interactive programming guide as well as television-based e-mail capability. Our extended digital basic television offering, 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 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 cartebasis 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, 2008, we had 927,322 customers for our digital television service, representing 54.1% of our basic customers and 36.5% 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, 2008, we had 1,209,595 set-top boxes deployed, of which approximately 97% were owned by customers and 3% were leased. | ||
• | Cable Telephony. In January 2005, we launched our cable telephony service using VoIP technology in selected areas of the Province of Quebec, and since then we have been progressively rolling-out |
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this offering among our other residential and commercial customers in the Province of Quebec. As of December 31, 2008, our cable telephony service is available to 99% of our homes passed. Our cable telephony service includes both local and long-distance calling, and permits all of our telephony customers, both residential and commercial, to access all service features mandated by CRTC Decision 97-8 and other regulatory decisions and orders, including: enhanced 911 Emergency service; number portability from and to any local exchange carrier; a message relay service allowing subscribers to communicate with the hearing impaired; and a variety of personal privacy features including universal call tracing. We also offer free basic listings in local telephone directories, as well as full operator assistance, including: operator-assisted calls; collect and third-party calls; local, national and international directory assistance; person-to-person calls; and busy-line verification. Finally, we offer as part of our 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, 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 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. On October 24, 2007, we launched our Softphone service, our new computer-based service providing users with more flexibility when traveling, the ability to make local calls anywhere in the world, and new communications management capabilities. As of December 31, 2008, we had 851,987 subscribers to our cable telephony service, representing a penetration rate of 49.7% of our basic cable subscribers and 33.5% of our homes passed. | |||
• | 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 99% of the homes passed by us. We sometimes group movies, events or TV programs available on video-on-demand and offer them on a weekly basis. Regulations prevent from offering such blocks of programs for a longer period. We also offer pay television channels on a subscription basis that permits our customers to access and watch most of the movies available on the linear Pay TV channels these clients subscribe to. | ||
• | 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. |
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Overview — Cable”.
As of December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Homes passed(1) | 2,542,859 | 2,497,403 | 2,457,213 | 2,419,335 | 2,383,443 | |||||||||||||||
Cable | ||||||||||||||||||||
Basic customers(2) | 1,715,616 | 1,638,097 | 1,572,411 | 1,506,113 | 1,452,554 | |||||||||||||||
Penetration(3) | 67.5 | % | 65.6 | % | 64.0 | % | 62.3 | % | 60.9 | % | ||||||||||
Digital customers | 927,322 | 768,211 | 623,646 | 474,629 | 333,664 | |||||||||||||||
Penetration(4) | 54.1 | % | 46.9 | % | 39.7 | % | 31.5 | % | 23.0 | % | ||||||||||
Number of digital set-top boxes | 1,209,595 | 953,393 | 738,530 | 537,364 | 362,053 | |||||||||||||||
Dial-up Internet Access | ||||||||||||||||||||
Dial-up customers | 6,533 | 9,052 | 13,426 | 18,034 | 23,973 | |||||||||||||||
Cable Internet Access | ||||||||||||||||||||
Cable modem customers | 1,063,847 | 932,989 | 791,966 | 637,971 | 502,630 | |||||||||||||||
Penetration(3) | 41.8 | % | 37.4 | % | 32.2 | % | 26.4 | % | 21.1 | % | ||||||||||
Telephony Services | ||||||||||||||||||||
Cable telephony customers | 851,987 | 636,352 | 397,860 | 162,979 | 2,135 | |||||||||||||||
Penetration(3) | 33.5 | % | 25.5 | % | 16.2 | % | 6.7 | % | 0.1 | % | ||||||||||
Wireless telephony lines | 63,402 | 45,077 | 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. | |
(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 | $15.07 – $29.88 | |
Extended basic analog cable | $28.50 – $42.19 | |
Basic digital cable | $13.98 – $15.98 | |
Extended basic digital cable | $27.98 – $76.98 | |
Pay-television | $ 3.99 – $29.99 | |
Pay-per-view (per movie or event) | $ 3.99 – $54.99 | |
Video-on-demand (per movie or event) | $ 4.49 – $64.99 | |
Dial-up Internet access | $ 9.95 – $19.95 | |
Cable Internet access | $27.95 – $89.95 | |
Cable telephony | $16.95 – $22.95 | |
Mobile wireless telephony | $22.65 – $78.35 |
450 MHz | 480 to | 750 to | Two-Way | |||||||||||||
and Under | 625 MHz | 860 MHz | Capability | |||||||||||||
December 31, 2004 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2005 | 2 | % | 23 | % | 75 | % | 98 | % | ||||||||
December 31, 2006 | 2 | % | 23 | % | 75 | % | 98 | % | ||||||||
December 31, 2007 | 1 | % | 2 | % | 97 | % | 99 | % | ||||||||
December 31, 2008 | 1 | % | 0 | % | 99 | % | 99 | % |
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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; | ||
• | 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 Videotron 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 the1-900service for audience voting during reality television shows popular in Quebec) 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 Videotron 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 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. |
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• | Private Cable.Additional competition is posed by satellite master antenna television systems known as “SMATV systems” serving multi-dwelling units, such as condominiums, apartment complexes, and private residential communities. | ||
• | Other Cable Distribution.Currently, a cable operator offering television distribution and providing cable-modem Internet access service is serving the greater Montreal area. This cable operator 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 Quebec, which controls a significant portion of the telephony market in Quebec, as well as other VoIP telephony service providers and mobile wireless telephone service providers. | ||
• | Mobile wireless telephony services. Our current MVNO-based 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. As a facilities-based wireless provider, we will compete primarily with established incumbent wireless service providers and MVNOs, and could in the future compete with other new entrant companies, including other MVNOs. In addition, users of wireless voice and data systems may find their communications needs satisfied by other current or developing technologies, such as Wi-Fi, WiMax, “hotspots” or trunk radio systems, which have the technical capability to handle wireless data communication and mobile telephone calls. Our wireless business will also compete with rivals for dealers and retail distribution outlets. | ||
• | 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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2007 Average Readership | Market Position by | |||||||||||||||
Newspaper | Saturday | Sunday | Mon-Fri | readership(1) | ||||||||||||
Journal de Montreal | 611,600 | 397,500 | 588,000 | 1 | ||||||||||||
Journal de Quebec | 199,500 | 119,900 | 165,700 | 1 | ||||||||||||
Toronto Sun | 515,200 | 731,100 | 638,000 | 2 | ||||||||||||
London Free Press | 170,700 | 111,600 | 167,000 | 1 | ||||||||||||
Ottawa Sun | 106,400 | 98,000 | 123,100 | 2 | ||||||||||||
Winnipeg Sun | 97,500 | 92,200 | 115,700 | 2 | ||||||||||||
Edmonton Sun | 131,300 | 158,100 | 168,100 | 2 | ||||||||||||
Calgary Sun | 121,400 | 148,100 | 155,600 | 2 | ||||||||||||
Total Average Readership | 1,953,600 | 1,856,500 | 2,121,200 | |||||||||||||
(1) | Based on paid weekly readership data published by by the NADbank® Study. |
Year Ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Journal de Montreal | ||||||||||||
Saturday | 302,500 | 303,700 | 309,300 | |||||||||
Sunday | 257,600 | 260,600 | 263,700 | |||||||||
Monday to Friday | 260,700 | 262,900 | 263,400 |
Source: Internal Statistics |
Year Ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Journal de Quebec | ||||||||||||
Saturday | 124,300 | 125,200 | 127,400 | |||||||||
Sunday | 104,100 | 107,000 | 107,300 | |||||||||
Monday to Friday | 103,100 | 104,300 | 104,500 |
Source: Internal Statistics |
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Year Ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Toronto Sun | ||||||||||||
Saturday | 159,200 | 160,800 | 149,000 | |||||||||
Sunday | 322,300 | 332,500 | 328,500 | |||||||||
Monday to Friday | 187,200 | 188,900 | 189,900 |
Source: Internal Statistics |
Year Ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
London Free Press | ||||||||||||
Saturday | 92,000 | 96,400 | 100,400 | |||||||||
Sunday | 60,300 | 61,900 | 62,800 | |||||||||
Monday to Friday | 79,100 | 81,600 | 84,200 |
Source: Internal Statistics |
Year Ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Ottawa Sun | ||||||||||||
Saturday | 40,700 | 42,900 | 44,100 | |||||||||
Sunday | 45,500 | 49,700 | 51,200 | |||||||||
Monday to Friday | 48,400 | 49,800 | 50,500 |
Source: Internal Statistics |
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Year Ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Winnipeg Sun | ||||||||||||
Saturday | 37,000 | 38,000 | 38,200 | |||||||||
Sunday | 44,300 | 46,000 | 47,100 | |||||||||
Monday to Friday | 38,500 | 39,000 | 39,500 |
Source: Internal Statistics |
Year Ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Edmonton Sun | ||||||||||||
Saturday | 58,000 | 59,100 | 64,700 | |||||||||
Sunday | 77,800 | 83,100 | 90,500 | |||||||||
Monday to Friday | 62,300 | 63,900 | 68,000 |
Source: Internal Statistics |
Year ended December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Calgary Sun | ||||||||||||
Saturday | 51,600 | 55,400 | 59,000 | |||||||||
Sunday | 74,900 | 82,100 | 90,000 | |||||||||
Monday to Friday | 55,700 | 57,000 | 60,600 |
Source: Internal Statistics |
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Average Daily | ||||
Newspaper | Location | Paid Circulation | ||
Recorder and Times | Brockville, Ontario | 11,700 | ||
Beacon Herald | Stratford, Ontario | 9,200 | ||
Daily Herald Tribune | Grande Prairie, Alberta | 7,600 | ||
Simcoe Reformer | Simcoe, Ontario | 6,500 | ||
Sentinel-Review | Woodstock, Ontario | 6,300 | ||
St. Thomas Time-Journal | St. Thomas, Ontario | 5,500 | ||
Fort McMurray Today | Fort McMurray, Alberta | 3,200 | ||
Miner & News | Kenora, Ontario | 3,000 | ||
The Daily Graphic | Portage La Prairie, Manitoba | 2,400 | ||
Total Average Daily Paid Circulation | 55,400 |
Source: Internal Statistics |
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Average Daily | ||||||
Newspaper | Location | Paid Circulation | ||||
(all in Ontario) | ||||||
St. Catharines Standard | St. Catharines | 34,400 | ||||
Kingston Whig-Standard | Kingston | 24,300 | ||||
Peterborough Examiner | Peterborough | 23,200 | ||||
Sault Star | Sault Ste Marie | 23,200 | ||||
Barrie Examiner | Barrie | 21,800 | ||||
Brantford Expositor | Brantford | 21,100 | ||||
Sudbury Star | Sudbury | 20,900 | ||||
Niagara Falls Review | Niagara Falls | 19,500 | ||||
Sarnia Observer | Sarnia | 17,800 | ||||
Cornwall Standard-Freeholder | Cornwall | 16,500 | ||||
Welland Tribune | Welland | 16,400 | ||||
Owen Sound Sun Times | Owen Sound | 15,200 | ||||
North Bay Nuggett | North Bay | 14,100 | ||||
Belleville Intelligencer | Belleville | 12,700 | ||||
Chatham Daily News | Chatham | 12,100 | ||||
Orillia Packet & Times | Orillia | 11,700 | ||||
Timmins, The Daily Press | Timmins | 9,900 | ||||
Pembrooke, The Daily Observer | Pembrooke | 6,000 | ||||
Cobourg Daily Star | Cobourg | 7,600 | ||||
Port Hope Evening Guide | Port Hope | 2,200 | ||||
Total Average Daily Paid Circulation | 330,600 |
Number of | ||||
Province | Publications | |||
Ontario | 81 | |||
Quebec | 52 | |||
Alberta | 43 | |||
Manitoba | 12 | |||
Saskatchewan | 5 | |||
New Brunswick | 1 | |||
Total Publications | 194 |
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• | Canoe (canoe.ca), a bilingual, integrated media and Internet services network and one of Canada’s leading Internet portals with more than 345 million page views in November 2008, according to Canoe internal statistics; | ||
• | TVA Group and LCN (tva.canoe.comandlcn.canoe.com) dedicated websites for the TVA television network and the LCN all-news channel (both owned by our subsidiary TVA Group), which has begun |
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streaming TVA and LCN programming live on the websites; in addition, Canoe has developed and operates several websites for popular TVA Group programs, such asOccupation Double(occupationdouble.com) andStar Académie (staracademie.ca); |
• | Sun Media dedicated websites for the weeklies and dailies newspapers (such astorontosun.com,edmontonsun.com,journaldequebec.comandcanoe.com/journaldemontreal), which provide local and national news; | ||
• | Canoe.tv, the first Canadian web broadcaster with unique content commissioned by Canoe.tv in addition to content from traditional sources; | ||
• | Canoe Video (video.canoe.ca), launched in June 2007, offers easy access to a range of content from sources including Quebecor Media, the Sun Media network of newspapers and various external partners; | ||
• | Argent and Canoe Money (argent.canoe.caandmoney.canoe.ca), a financial website which offers, among other things, a variety of services ranging from financial information to portfolio management tools (the Argent website (formerly Webfin) was redesigned in early 2005 in partnership with TVA’s financial channel,Canal Argent); | ||
• | Petitmonde (petitmonde.com), a website that Canoe acquired in September 2007 dedicated to children and families; and | ||
• | CanoeKlix (canoeklix.com), a pay-per-click advertising solution developed by Canoe and launched in 2006. |
• | Jobboom.com, a unique Web-based employment site with over 2.4 million members at December 31, 2008, which also includes Édition Jobboom (careers book editors) and Jobboom Formation (an Internet directory of continuing education services); | ||
• | Autonet.ca, one of Canada’s leading Internet sites devoted entirely to automobiles; | ||
• | Canoeclassifieds.caandVitevitevite.ca(formerlycanoeclassees.ca), classified ad sites through which visitors can view more than 100,000 classified ads, reaching potential purchasers across the country by integrating more than 200 dailies and community newspapers. Since June 2007, classifiedextra.ca (vitevitevite.cain French) operates in partnership withSympatico.MSN.ca, which uses theclassifiedextra.cabanner for all classified advertisements, allowing it to reach more than 20 million users; | ||
• | 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; | ||
• | ReseauContact.com, a French dating and friendship site with approximately 356,000 unique visitors per month, as of November 2008, according to ComScore Media Metrix; and | ||
• | EspaceCanoe.ca,an advanced technology platform for social communities that supports the sharing of videos, photos and opinions by users in an innovative Web 2.0-type environment. |
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Share of Province | ||||
Network | of Quebec Television | |||
TVA Network | 26.7 | % | ||
Societé Radio-Canada | 14.1 | % | ||
Réseau TQS | 7.3 | % | ||
Various French-language specialty cable channels | 45.3 | % | ||
Others | 6.6 | % |
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Source: BBM People Meters 2008 for the period between January 1, 2008 and December 31, 2008. |
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Type of Service | Language | Voting Interest | ||||||
Analog Specialty Services: | ||||||||
•LCN — Le Canal Nouvelles | French | TVA1 99.9% | ||||||
•Canal Évasion | French | TVA1 8.3% | ||||||
•CPAC | French and English | V2 21.7 | % | |||||
Category One Digital Specialty Services: | ||||||||
•MenTV | English | TVA1 51.0% | ||||||
•Mystery | English | TVA1 50.0% | ||||||
•Mystère | French | TVA1 99.9% | ||||||
•Argent (LCN — Affaires) | French | TVA1 99.9% | ||||||
Category Two Digital Specialty Services: | ||||||||
•Prise 2 | French | TVA1 99.9% | ||||||
•Les idées de ma maison | French | TVA1 99.9% | ||||||
Pay Per View Services (terrestrial & direct broadcasting satellite): | ||||||||
•Canal Indigo | French | TVA1 99.9% | ||||||
Video-on Demand Services: | ||||||||
•illico sur Demande | French and English | V2 100 | % | |||||
Exempted Programming Service: | ||||||||
•Canal Shopping TVA | French | TVA1 99.9% |
(1) | TVA Group (“TVA”) controls the programming services. Quebecor Media controls TVA Group. | |
(2) | Videotron (“V”) controls the programming services. Quebecor Media controls Videotron. |
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Floor Space | ||||||
Address | Use of Property | Press Capacity(1) | Occupied (sq. ft.) | |||
Islington, Ontario | Operations building, | 3 Colorman presses | 531,400 | |||
2250 Islington Avenue(2) | including printing plant — | (36 units) | ||||
Toronto Sun | ||||||
24 Hours(Toronto) | ||||||
Mirabel, Quebec | Operations building, | 3 Colorman presses | 235,000 | |||
1280 Brault Street | including printing plant — | (52 units) | ||||
Journal de Montreal | ||||||
24 Heures(Montreal) | ||||||
London, Ontario | Operations building, | 2 Headliner presses | 147,600 | |||
369 York Street | including printing plant — | (12 units) and | ||||
London Free Press | 1 Urbanite press | |||||
(9 units) | ||||||
Toronto, Ontario | Operations building — | N/A(2) | 140,000 | |||
333 King Street East | Toronto Sun | |||||
Calgary, Alberta | Operations building, | 1 Headliner press | 90,000 | |||
2615-12 Street NE | including printing plant — | (7 units) | ||||
Calgary Sun | ||||||
Montreal, Quebec | Operations building — | N/A(3) | 81,000 | |||
4545 Frontenac Street | Journal de Montreal | |||||
St. Catharines, Ontario | Operations building — | N/A | 75,000 | |||
17 Queen Street | St. Catharines Standard | |||||
Vanier, Quebec | Operations building, | 2 Urbanite presses | 74,000 | |||
450 Bechard Avenue | including printing plant — | (24 units) | ||||
Journal de Quebec | ||||||
Peterborough, Ontario | Operations building, | 1 Urbanite press | 63,500 | |||
730 Kingsway | including printing plant — | (12 units) | ||||
Peterborough Examiner | ||||||
Winnipeg, Manitoba | Operations building, | 1 Urbanite press | 63,000 | |||
1700 Church Avenue | including printing plant — | (14 units) | ||||
Winnipeg Sun | ||||||
Brantford, Ontario | Operations building — | N/A | 57,300 | |||
53 Dalhousie Street | Brantford Expositor | |||||
Edmonton, Alberta | Printing plant — | 1 Metro press | 50,700 | |||
9300-47 Street | Edmonton Sun | (8 units) | ||||
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Floor Space | ||||||
Address | Use of Property | Press Capacity(1) | Occupied (sq. ft.) | |||
Edmonton, Alberta | Operations building — | N/A | 45,200 | |||
4990-92 Avenue | Edmonton Sun | |||||
(leased until December 2013) | ||||||
Gloucester, Ontario | Printing plant — | 1 Urbanite press | 23,000 | |||
4080 Belgreen Drive(4) | Ottawa Sun | (14 units) | ||||
Ottawa, Ontario | Operations building | N/A | 19,300 | |||
6 Antares Drive | (leased until October 2013) — | |||||
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 14 units. | |
(2) | In 2008, printing of theToronto Sunwas fully transferred to a printing facility owned by Quebecor Media in Islington, Ontario. | |
(3) | In 2008, printing of theJournal de Montrealwas fully transferred to a printing facility owned by Quebecor Media in Mirabel, Quebec. | |
(4) | In 2008, the press facilities of theOttawa Sunwere re-opened. |
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• | In the first phase, theTelecommunications Actshould 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% 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% 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%. | ||
• | 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. | ||
• | Canadian Programming and Community Expression Financing Rules. All distributors, except systems with fewer 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. On October 30, 2008, the CRTC issued a new distribution regulatory framework in which it announced that a further 1% will be added to the 5% contribution in order to finance a new national programming fund. Depending on the final terms of this regulatory framework, Videotron may institute proceedings challenging its validity. | ||
• | 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. |
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(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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• | a common and standard nature of service definition; | ||
• | common Canadian programming exhibition and spending obligations; |
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• | no access rights; and | ||
• | no regulated wholesale fee. |
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Quebecor Media’s interest in its main subsidiaries
as of December 31, 2008
Percentage | Percentage | |||||||
of equity | of votes | |||||||
Videotron Ltd. | 100 | % | 100 | % | ||||
Sun Media Corporation | 100 | % | 100 | % | ||||
Osprey Media Publishing Inc. | 100 | % | 100 | % | ||||
Canoe Inc. | 93.2 | % | 99.9 | % | ||||
TVA Group Inc. | 50.9 | % | 99.9 | % | ||||
Archambault Group Inc. | 100 | % | 100 | % | ||||
Sogides Group Inc. | 100 | % | 100 | % | ||||
CEC Publishing Inc. | 100 | % | 100 | % | ||||
Nurun Inc. | 100 | % | 100 | % |
• | Quebecor Media acquired, for a cash consideration of $554.6 million, 17 operating licences for an AWS network with a bandwidth of 40 MHz throughout Quebec, except the Ottawa Valley and certain other regions of Quebec, where the acquired bandwidth is 20 MHz and 50 MHz, respectively, 20 MHz of bandwidth in eastern Ontario and 10 MHz in Toronto. |
o | October 2008: Quebecor Media and Videotron confirmed their intention to invest between $800.0 million and $1.0 billion in Videotron’s AWS network over the next four years. This amount includes the cost of the 17 acquired spectrum and operating licenses (which has already been paid), the cost of network buildout and initial operating costs (but excludes any capitalized interest). | ||
o | Quebecor Media and Videotron plan to fund future investments in its AWS network through cash flow generation and available credit facilities. Quebecor Media therefore does not currently anticipate that the challenging recent financial and capital markets will have a significant negative impact on the implementation of this business plan. Quebecor Media and Videotron currently anticipate that the new High Speed Packet Access (HSPA) network will be operational in 9 to 15 months. | ||
o | The spectrum will enable Videotron to offer, on its own network, advanced wireless services, including high-speed Internet access, mobile television and many other advanced functionalities supported by smartphones. |
• | March 2009: Videotron issued US$260.0 million aggregate principal amount of its 91/8% Senior Notes due 2018 for net proceeds of $332.4 million (including accrued interest and net of financing expenses). These notes were sold at a price of 985/8% of par, bear interest at 91/8% per year (for an effective rate of 9.35%) and mature on April 15, 2018. The net proceeds of this offering were used to repay all drawings on Videotron’s revolving credit facilities and for general corporate purposes. In the context of the current instability in the financial markets, Videotron seized an opportunity to optimize its liquidity position through this issuance. These notes form part of a single series with Videotron’s existing 91/8% Senior Notes due 2018 that were issued in 2008, were issued under the same indenture and have the same terms as these existing notes. |
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• | In the fourth quarter of 2008, the combined customer base for cable television services registered its 14th consecutive quarter of growth since the third quarter of 2005. Since that quarter, the number of customers has increased by 272,500 (18.9%) from 1,443,100 to 1,715,600. | ||
• | November 7, 2008: Pierre Karl Péladeau, President and Chief Executive Officer of Quebecor Media, was appointed President and Chief Executive Officer of Sun Media Corporation. He will oversee the integration of Sun Media Corporation and Canoe in order to capitalize on opportunities for growth, capture synergies and accelerate the migration of the information and content generated by Quebecor Media’s various publications to multiplatform media. | ||
• | The difficult financial and economic environment for some of the Company’s lines of business at the end of the fourth quarter of 2008 triggered goodwill and masthead impairment tests in the Newspapers, Leisure and Entertainment, and Interactive Technologies and Communications segments. Based on preliminary results, a non-cash goodwill impairment charge of $631.0 million, without any tax consequences, was recorded, primarily in the Newspapers segment. | ||
• | Céline Dion’s special concert for Quebec City’s 400th anniversary celebrations on August 22, 2008 was seen by approximately 130,000 television viewers, who ordered the uncut version of the show live (pay-per-view) or the taped version (video on demand). It was one of the biggest successes in the history of pay-per-view and video on demand in Canada. | ||
• | July 18, 2008: The number of subscribers to the cable Internet service provided by Quebecor Media’s Cable segment passed the 1 million mark. In the fourth quarter of 2008, the subscriber base for the Cable segment’s illico Digital TV increased by 50,600, the largest quarterly customer growth in absolute terms since the service was introduced in 1999. | ||
• | June 2, 2008: TVA Group repurchased 3,000,642 Class B shares under the Substantial Issuer Bid filed on March 31, 2008 and amended on May 14, 2008, for a total cash consideration of $51.4 million. The transaction had the effect of increasing Quebecor Media’s interest in TVA Group from 45.24% to 50.90% as of December 31, 2008. | ||
• | April 15, 2008: Videotron issued US$455.0 million aggregate principal amount of Senior Notes for net proceeds of $447.8 million. The Notes bear interest at 91/8% (for an effective rate of 93/8%) and mature on April 15, 2018. | ||
• | April 7, 2008: Videotron amended its senior secured credit facility to increase commitments under the facility from $450.0 million to $575.0 million and extend the maturity date to April 2012. Videotron may further increase commitments under the facility by an additional $75.0 million, subject to certain conditions, bringing the total to $650.0 million. | ||
• | February 26, 2008: Quebecor Media acquired all outstanding Common Shares of Nurun it did not already hold for a total cash consideration of $75.2 million. Following this transaction, Nurun became a wholly-owned subsidiary of Quebecor Media and its shares were delisted from the Toronto Stock Exchange. |
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Reconciliation of the operating income measure used in this annual report and the net (loss) income as presented in our consolidated financial statements
(in millions of Canadian dollars)
Three months ended | ||||||||||||||||||||||||||||
Year Ended December 31 | December 31 | |||||||||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | 2008 | 2007 | ||||||||||||||||||||||
Operating Income | ||||||||||||||||||||||||||||
Cable | $ | 797.2 | $ | 642.7 | $ | 512.5 | $ | 413.3 | $ | 363.8 | $ | 218.1 | $ | 175.7 | ||||||||||||||
Newspapers | 227.1 | 232.8 | 217.7 | 231.2 | 232.3 | 54.8 | 79.4 | |||||||||||||||||||||
Broadcasting | 66.3 | 59.4 | 42.1 | 53.0 | 80.5 | 22.4 | 22.8 | |||||||||||||||||||||
Leisure and Entertainment | 20.5 | 27.0 | 19.3 | 27.0 | 22.7 | 11.1 | 10.3 | |||||||||||||||||||||
Interactive Technologies and Communications | 5.1 | 2.8 | 7.5 | 3.9 | 2.3 | 3.0 | — | |||||||||||||||||||||
Head Office | 3.3 | (0.8 | ) | 0.5 | 3.7 | (4.4 | ) | 1.0 | (1.0 | ) | ||||||||||||||||||
1,119.5 | 963.9 | 799.6 | 732.1 | 697.2 | 310.4 | 287.2 | ||||||||||||||||||||||
Amortization | (318.5 | ) | (290.4 | ) | (260.7 | ) | (231.9 | ) | (225.9 | ) | (83.1 | ) | (75.9 | ) | ||||||||||||||
Financial Expenses | (276.0 | ) | (230.1 | ) | (212.9 | ) | (270.8 | ) | (279.7 | ) | (66.2 | ) | (70.1 | ) | ||||||||||||||
(Loss) on valuation and translation of financial instruments | (3.7 | ) | (9.9 | ) | (11.7 | ) | (14.5 | ) | (34.9 | ) | (26.7 | ) | (2.1 | ) | ||||||||||||||
Restructuring of operations, impairment of assets and other special items | (54.6 | ) | (11.2 | ) | (16.7 | ) | 0.3 | 6.5 | (50.3 | ) | 3.5 | |||||||||||||||||
Loss on debt refinancing | — | (1.0 | ) | (342.6 | ) | (60.0 | ) | (4.8 | ) | — | (1.0 | ) | ||||||||||||||||
Impairment of goodwill and intangible assets | (671.2 | ) | (5.4 | ) | (180.0 | ) | — | — | (671.2 | ) | (5.4 | ) | ||||||||||||||||
Income taxes | (154.7 | ) | (74.8 | ) | 53.7 | (43.5 | ) | (37.4 | ) | (41.3 | ) | (15.6 | ) | |||||||||||||||
Non-controlling interest | (23.1 | ) | (19.2 | ) | (0.4 | ) | (16.2 | ) | (31.7 | ) | (7.2 | ) | (8.2 | ) | ||||||||||||||
Income (loss) from discontinued operations | 2.3 | 5.2 | 2.0 | 1.0 | (1.1 | ) | — | — | ||||||||||||||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | $ | 96.5 | $ | 88.2 | $ | (635.6 | ) | $ | 112.4 | |||||||||||
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Reconciliation between free cash flows from continuing operating activities and the cash flows provided by continuing operating activities measure reported in the financial statements
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Free cash flows from continuing operations (see Table 4) | $ | 264.4 | $ | 289.5 | $ | (73.8 | ) | |||||
Additions to property, plant and equipment | 527.3 | 468.7 | 435.5 | |||||||||
Proceeds from disposal of assets | (5.7 | ) | (6.1 | ) | (9.4 | ) | ||||||
Cash flows provided by continuing operating activities | $ | 786.0 | $ | 752.1 | $ | 352.3 | ||||||
• | Revenues increased in: Cable (by $251.6 million or 16.2% of segment revenues), reflecting customer growth for all services; Newspapers ($107.5 million or 10.0%), due primarily to the impact of the acquisition of |
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Osprey Media; Broadcasting ($21.2 million or 5.1%); and Interactive Technologies and Communications ($7.6 million or 9.3%). | |||
• | Revenues decreased in Leisure and Entertainment ($27.9 million or -8.5%). |
• | Operating income increased in: Cable (by $154.5 million or 24.0% of segment operating income), Broadcasting ($6.9 million or 11.6%) and Interactive Technologies and Communications ($2.3 million or 82.1%). | ||
• | Operating income decreased in Leisure and Entertainment ($6.5 million or -24.1%) and Newspapers ($5.7 million or -2.4%). | ||
• | An unfavourable variance of $37.4 million (including $29.0 million in the Cable segment and $8.4 million in the Broadcasting segment) related to recognition in 2008 of a provision for CRTC Part II licence fees following the Federal Court of Appeal decision of April 29, 2008 overturning the Federal Court decision on these fees. The Federal Court judgement had been favourable to Quebecor Media and had led to the reversal, in the third quarter of 2007, of current Part II licence fee accruals (see also “Part II licence fees” in the sections on the results of the Cable and Broadcasting segments below). | ||
• | Despite the increase in operating income for 2008, the fair value of Quebecor Media, based on market comparables, decreased in 2008, compared with an increase in 2007, resulting in a $59.1 million decrease in the consolidated stock option expense, including $40.6 million in the Cable segment and $14.7 million in the Newspapers segment. | ||
• | Excluding the operating income of Osprey Media and the impact of the consolidated stock option expense, and if the figures for prior periods were restated to reflect the Part II licence fee adjustment, the increase in operating income in 2008 would have been 11.6%, compared with 17.8% in 2007. |
• | The unfavourable variance of $707.1 million was mainly due to: |
o | recognition of a $671.2 million non-cash charge for impairment of goodwill and intangible assets in the fourth quarter of 2008, primarily in the Newspapers segment, including $631.0 million without any tax consequences; | ||
o | $79.9 million increase in income tax expense; | ||
o | $45.9 million increase in financial expenses; | ||
o | $43.4 million increase in reserves for restructuring of operating activities, impairment of assets and other special charges; | ||
o | $28.1 million increase in the amortization charge. |
o | $155.6 million increase in operating income. |
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• | The increase was mainly due to significant capital expenditures in 2007 and 2008, largely in the Cable and Newspapers segments, and the acquisition of Osprey Media. |
• | The increase was mainly due to the impact of higher average indebtedness, which resulted in a $50.4 million increase in interest expense, which was offset by an increase in interest capitalized to the cost of additions to property, plant and equipment, and of intangible assets. | ||
• | The increase in Quebecor Media’s average indebtedness in 2008 was mainly due to: |
o | additional financing (through Videotron) in April 2008 in an aggregate principal amount of US$455.0 million in connection with the acquisition of AWS licences for aggregate cash consideration of $554.6 million; | ||
o | financing, beginning in August 2007, of the acquisition of Osprey Media for a total consideration of $414.4 million (excluding assumed liabilities as described below); | ||
o | assumption of debt totalling $161.8 million as part of the acquisition of Osprey Media in August 2007; | ||
o | financing of the settlement in October 2007 of a $106.0 million liability in connection with derivative financial instruments related to Sun Media Corporation’s term loan “B”; | ||
o | financing of the payment in July 2007 of the Additional Amount payable, for a total consideration of $127.2 million. |
• | The Newspapers segment recognized a $33.3 million charge for restructuring of operations in 2008. The Newspapers segment is contending with the fundamental industry-wide changes of the past several years, combined with a difficult economic environment that is impacting its advertising revenues. Therefore, in December 2008, Quebecor Media introduced a staff-reduction program as part of a major restructuring of the operations of its Newspapers segment across Canada. The charges for restructuring in 2008 and 2007 also relate to the project to acquire new presses, voluntary workforce-reduction programs, and the project to streamline newsgathering in the Newspapers segment. Quebecor Media also recognized charges for restructuring totalling $2.3 million in other segments in 2008. | ||
• | In the fourth quarter of 2008, Quebecor Media concluded that the restructuring initiatives and the loss of a major printing contract were a triggering event for impairment tests and that write-downs of some long-lived assets would be necessary. As a result, a non-cash impairment charge totalling $19.1 million was recorded against buildings, machinery and equipment |
• | The difficult financial and economic environment for some of the Company’s lines of business at the end of the fourth quarter of 2008 triggered a goodwill and masthead impairment test in the Newspapers, Leisure and Entertainment, and Interactive Technologies and Communications segments. Based on preliminary results of this test, a $631.0 million non-cash charge for goodwill impairment, without any tax consequences, was |
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recorded, including $595.0 million in the Newspapers segment, $10.0 million in the Leisure and Entertainment segment, and $26.0 million in the Interactive Technologies and Communications segment. Quebecor Media also recorded a masthead impairment charge of $40.2 million ($28.9 million net of income tax). | |||
• | When performing the second step of the goodwill impairment test, the fair value of goodwill is determined in the same manner as for a business combination. The Company allocates the fair value of a reporting unit to all of the identifiable assets and liabilities of the reporting unit, whether or not recognized separately, and the excess of the fair value over the amounts assigned to the reporting unit’s identifiable assets and liabilities is the fair value of goodwill. In the process of performing the second step of the test, an estimated fair value of $675.0 million was attributed to intangible assets such as mastheads and customer relationships without recognition in the books, representing an estimated excess of $340.0 million, net of future income tax, over the carrying value of these related intangibles assets. Therefore, a lesser portion of the reporting units’ fair value was attributed to goodwill. As a result, the magnitude of the estimated goodwill impairment exceeded significantly the reporting units’ overall carrying value impairment. |
• | The $79.9 million increase was mainly due to: |
o | unfavourable tax rate mix in 2008 in the various components of the gains and losses on valuation and translation of financial instruments, including derivative financial instruments, which accounted for an unfavourable variance of $39.3 million. The rate mix was relatively favourable in 2007; | ||
o | recognition in 2007 of the estimated $25.4 million favourable impact of lower tax rates introduced by the Canadian federal government; | ||
o | recognition in 2007 of tax benefits totalling $10.5 million following the adoption on third reading by the federal government of Canada of a higher non-capital loss conversion rate for tax benefits related to Part VI.1 tax. These tax benefits, which were acquired from Quebecor World Inc. (“Quebecor World”), related to tax that corporations must pay on preferred dividends paid during a financial year. |
• | The $25.1 million decrease was mainly due to: |
o | $51.0 million increase in use of funds for non-cash balances related to operations, due primarily to disbursements of $94.1 million in connection with the exercise of stock options (the Quebecor Media stock option plan did not allow the exercise of any option before 2008, at which time it covered a six year compensation value), partially offset by a decrease in accounts receivable and an increase in accounts payable and accrued charges; | ||
o | $58.6 million increase in additions to property, plant and equipment, mainly because of network investments by the Cable segment and phase two of the project to acquire new presses; | ||
o | $41.4 million increase in the cash interest expense, mainly as a result of the impact of higher indebtedness; and | ||
o | $24.3 million increase in cash reserve for restructuring of operations and other special charges. |
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o | $155.6 million increase in operating income. |
Free cash flows from continuing operating activities
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Cash flows from segment operations | ||||||||||||
Cable | $ | 396.3 | $ | 314.7 | $ | 210.5 | ||||||
Newspapers | 142.0 | 118.3 | 100.0 | |||||||||
Broadcasting | 44.5 | 43.2 | 33.4 | |||||||||
Leisure and Entertainment | 13.1 | 24.2 | 16.1 | |||||||||
Interactive Technologies and Communications | 1.5 | (0.5 | ) | 5.7 | ||||||||
Head Office and other | 0.5 | 1.4 | 7.8 | |||||||||
$ | 597.9 | $ | 501.3 | $ | 373.5 | |||||||
Cash interest expense1 | $ | (266.7 | ) | $ | (225.3 | ) | $ | (402.9 | ) | |||
Cash portion of charge for restructuring of operations, impairment of assets and other special items | (35.5 | ) | (11.2 | ) | (16.7 | ) | ||||||
Current income taxes | (12.7 | ) | (11.3 | ) | (5.4 | ) | ||||||
Other | (0.3 | ) | 3.3 | (0.1 | ) | |||||||
Net change in non cash balances related to operations | (18.3 | ) | 32.7 | (22.2 | ) | |||||||
Free cash flows from continuing operating activities | $ | 264.4 | $ | 289.5 | $ | (73.8 | ) | |||||
1 | Interest on long-term debt and other interest, less interest capitalized to cost of property, plant and equipment and other assets (see Note 2 to the consolidated financial statements). |
Cash flows from segment operations
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Operating income | $ | 1,119.5 | $ | 963.9 | $ | 799.6 | ||||||
Additions to property, plant and equipment | (527.3 | ) | (468.7 | ) | (435.5 | ) | ||||||
Proceeds from disposal of assets | 5.7 | 6.1 | 9.4 | |||||||||
Cash flows from segment operations | $ | 597.9 | $ | 501.3 | $ | 373.5 | ||||||
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• | Combined revenues from all cable television services increased $74.1 million (10.1%) to $809.9 million, due primarily to customer base growth, migration from analog to digital service, increased video on demand orders, the success of high definition (“HD”) packages, and increases in some rates. | ||
• | Revenues from Internet access services increased $77.2 million (18.3%) to $499.6 million. The improvement was due to customer growth, as well as customer migration to higher speed services. | ||
• | Revenues from cable telephone service increased $90.6 million (46.3%) to $286.1 million, almost entirely due to customer growth. The increase would have been greater had there not been a decrease in average per-customer long-distance revenues. | ||
• | Revenues from wireless telephone service increased $13.9 million (78.5%) to $31.6 million, mainly due to customer growth. | ||
• | Revenues of Le SuperClub Videotron ltée decreased $2.9 million (-4.9%) to $57.0 million. The decrease was mainly due to the sale of StarStruck stores in Ontario and the franchising or closing of some locations, partially offset by an increase in revenues from rentals and retail sales on a comparable basis, as well as by increased royalty revenues. |
• | The customer base for illico Digital TV stood at 927,300 at the end of 2008, an increase of 159,100 (20.7%) during the year, compared with 144,600 and 149,000 in 2007 and 2006 respectively. During 2008, illico Digital TV passed the analog service in number of subscribers for the first time. As of December 31, 2008, illico Digital TV had a household penetration rate of 36.5% versus 30.8% a year earlier. | ||
• | Migration from analog to digital service was the main reason for the decrease of 81,600 (-9.4%) in the customer base for analog cable television services in 2008. By comparison, the number of subscribers to analog cable services decreased by 78,900 and 82,700 in 2007 and 2006 respectively. |
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Cable segment year-end customer numbers, 2004-2008
(in thousands of customers)
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Cable television: | ||||||||||||||||||||
Analog | 788.3 | 869.9 | 948.8 | 1,031.5 | 1,118.9 | |||||||||||||||
Digital | 927.3 | 768.2 | 623.6 | 474.6 | 333.7 | |||||||||||||||
Total cable television | 1,715.6 | 1,638.1 | 1,572.4 | 1,506.1 | 1,452.6 | |||||||||||||||
Cable Internet | 1,063.8 | 933.0 | 792.0 | 638.0 | 502.6 | |||||||||||||||
Cable telephone | 852.0 | 636.4 | 397.8 | 163.0 | — | |||||||||||||||
Wireless telephone (in thousands of activated lines) | 63.4 | 45.1 | 11.8 | — | — |
• | The increase was due primarily to: |
o | customer growth for all services; | ||
o | increases in some rates, mainly for cable television and cable Internet service; | ||
o | $40.6 million favourable variance in expenses related to Quebecor Media’s stock option plan that are charged to its operating segments as a direct charge to reflect participation by segment managers in the plan, and management fees. |
o | an unfavourable variance of $29.0 million related to the recognition in 2008 of a provision for CRTC Part II licence fees following the decision by the Federal Court of Appeal on April 29, 2008 overturning the Federal Court ruling on the matter. The Federal Court judgment had been favourable to Quebecor Media and had led to the reversal of current CRTC Part II licence fee accruals in the third quarter of 2007 (see “Part II licence fees” below). |
• | Excluding the favourable variation in the stock option expense, and if the figures for prior periods were restated to reflect the CRTC Part II licence fee adjustment, operating income would have increased by 21.3% in 2008, compared with 26.0% in 2007. |
• | the significant fixed component of costs, which does not fluctuate in proportion to revenue growth; | ||
• | the marginal impact on costs of increases in some rates and in consumption; | ||
• | the favourable variance in the stock option expense, which was partially offset by the increase in Part II licence fees. |
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• | The $81.6 million increase was due to the $154.5 million increase in operating income, partially offset by a $74.3 million increase in additions to property, plant and equipment compared with 2007, mainly because of spending on the AWS network and network modernization. |
Cash flows from operations
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Operating income | $ | 797.2 | $ | 642.7 | $ | 512.5 | ||||||
Additions to property, plant and equipment | (404.4 | ) | (330.1 | ) | (302.6 | ) | ||||||
Proceeds from disposal of assets | 3.5 | 2.1 | 0.6 | |||||||||
Cash flows from segment operations | $ | 396.3 | $ | 314.7 | $ | 210.5 | ||||||
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• | The increase mainly reflects a favourable variance related to the acquisition of Osprey Media ($120.2 million), which closed in August 2007. | ||
• | Excluding the impact of that acquisition, total revenues decreased by $12.7 million (-1.3%): advertising revenues decreased 3.1%, circulation revenues decreased 3.0%, and combined revenues from commercial printing and other sources increased 28.9%. The Newspapers segment is going through a period of dramatic transformation due to the industry-wide changes of the past several years, combined with the impact of the difficult economic environment on its advertising revenues. | ||
• | The revenues of the urban dailies decreased 2.9%; excluding the acquisition of Osprey Media, the revenues of the community newspapers decreased 0.4%. | ||
• | At the urban dailies, revenues of the free dailies increased 12.6%, due to strong results posted by the Vancouver, Montreal, Calgary and Edmonton dailies. | ||
• | 15.1% increase in revenues at general-interest portals, due mainly to website creation and maintenance, including the sites of affiliated companies, and 8.5% increase in revenues at special-interest portals, primarily attributable to revenue growth at the autonet.ca site resulting mainly from the acquisition of ASL Ltd. (“ASL”). |
• | Osprey Media generated operating income of $45.6 million in 2008, compared with $25.3 million in August through December 2007, for an increase of $20.3 million in 2008 compared with 2007. | ||
• | Excluding the impact of Osprey Media, operating income decreased $26.1 million (-12.6%) in the Newspapers segment. | ||
• | The decrease was due primarily to: |
o | impact of the decrease in advertising and circulation revenues, on a comparable basis; | ||
o | wage indexing and certain unusual payroll expenses, including charges related to the transition plan for printing facilities in Ontario and Quebec; | ||
o | expenditures related to the start-up of Quebecor MediaPages; |
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o | cost of introducing a new business development strategy for portals. |
o | $14.7 million favourable impact related to the Quebecor Media stock option plan expense; | ||
o | $3.1 million decrease in newsprint costs. |
• | increase in the proportion of fixed costs, given the decrease in revenues on a comparable basis; | ||
• | unfavourable net cost factors, described above in the discussion of operating income. |
• | The $23.7 million increase was mainly due to a $29.2 million decrease in additions to property, plant and equipment. The impact of increased equipment purchases due to implementation in 2008 of phase two of the project to acquire new presses and investment in portal development was outweighed by the favourable variance related to the acquisition of a building from Quebecor World in 2007 for a cash consideration of $62.5 million. |
Cash flows from operations
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Operating income | $ | 227.1 | $ | 232.8 | $ | 217.7 | ||||||
Additions to property, plant and equipment | (86.8 | ) | (116.0 | ) | (118.2 | ) | ||||||
Proceeds from disposal of assets | 1.7 | 1.5 | 0.5 | |||||||||
Cash flows from segment operations | $ | 142.0 | $ | 118.3 | $ | 100.0 | ||||||
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• | Revenues from broadcasting operations increased $21.8 million, mainly because of: |
o | higher advertising, video on demand and other revenues at the TVA Network; | ||
o | higher advertising and subscription revenues at the specialty channels; | ||
o | higher revenues from the Internet, commercial production and Canal Indigo (100% of the revenues of Canal Indigo have been included since the buyout on August 31, 2008 of the interest TVA Group did not already hold). |
• | Revenues from distribution operations decreased by $0.6 million. | ||
• | Publishing revenues decreased $1.3 million, primarily as a result of decreases in advertising and newsstand revenues, partially offset by an increase in custom publishing operations. |
• | Operating income from broadcasting operations increased $5.5 million, mainly because of: |
o | impact of revenue growth at the TVA Network and the specialty channels; | ||
o | decrease in selling and administrative expenses at the TVA Network; | ||
o | $2.4 million favourable variance related to stock option expense. |
o | unfavourable variance of $8.4 million related to the recognition in the second quarter of 2008 of a provision for CRTC Part II licence fees following the Federal Court of Appeal decision of April 29, 2008 overturning the Federal Court decision on these fees. The Federal Court judgment had been favourable to Quebecor Media and had led to the reversal of current Part II licence fee accruals in the third quarter of 2007 (see “Part II licence fees” below); |
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o | higher content and production costs at the TVA Network. |
• | Operating income from distribution operations was flat. | ||
• | Operating income from publishing operations increased by $1.5 million, mainly as a result of the decrease in advertising, marketing, distribution and printing expenses, partially offset by the unfavourable impact of the decrease in revenues. |
• | decrease in the proportion of fixed costs, given revenue growth, on a comparable basis, partially offset by the unfavourable impact of the Part II licence fee expense. |
• | The impact of the $6.9 million increase in operating income was offset by a $5.7 million increase in additions to property, plant and equipment, resulting mainly from expenditures related to migration to HD television and computer equipment purchases. |
Cash flows from operations
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Operating income | $ | 66.3 | $ | 59.4 | $ | 42.1 | ||||||
Additions to property, plant and equipment | (21.9 | ) | (16.2 | ) | (9.0 | ) | ||||||
Proceeds from disposal of assets | 0.1 | — | 0.3 | |||||||||
Cash flows from segment operations | $ | 44.5 | $ | 43.2 | $ | 33.4 | ||||||
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• | 8.8% decrease in the Book division’s revenues, due primarily to lower distribution volume in 2008 than 2007 and decreased sales in the academic segment. | ||
• | The revenues of Archambault Group decreased by 7.4%, mainly because of fewer CDs released and distributed and lower retail sales of music. The impact of higher broadcast revenues due to the success of the Paul McCartney concert during Quebec City’s 400th anniversary celebrations was outweighed by a decrease in revenues due to the transfer of video on demand operations to the Cable segment. |
• | The $11.1 million decrease was mainly due to: |
o | $6.5 million decrease in operating income; | ||
o | $6.2 million increase in additions to property, plant and equipment, mainly at Archambault Group essentially as a result of the opening of an Archambault store in Laval, Quebec, as well as the expansion and renovation of other stores. |
Cash flows from operations
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Operating income | $ | 20.5 | $ | 27.0 | $ | 19.3 | ||||||
Additions to property, plant and equipment | (9.1 | ) | (2.9 | ) | (3.4 | ) | ||||||
Proceeds from disposal of assets | 1.7 | 0.1 | 0.2 | |||||||||
Cash flows from segment operations | $ | 13.1 | $ | 24.2 | $ | 16.1 | ||||||
• | The increase was mainly due to: |
o | impact of increased volumes from customers in Europe, particularly France and Italy, as well as in Asia and Canada, and favourable variance in currency translation, partially offset by a decrease in volume in the United States. |
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• | The increase was due mainly to: |
o | impact of increased revenues in Canada, Europe and Asia; | ||
o | increase in tax credits for e-commerce R&D; | ||
o | favourable variance in currency translation. |
o | impact of decreased volume in the United States; | ||
o | increases in some operating expenses, including those related to labour. |
Cash flows from operations
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Operating income | $ | 5.1 | $ | 2.8 | $ | 7.5 | ||||||
Additions to property, plant and equipment | (3.6 | ) | (3.3 | ) | (1.8 | ) | ||||||
Cash flows from segment operations | $ | 1.5 | $ | (0.5 | ) | $ | 5.7 | |||||
• | Revenues increased in: Cable (by $46.2 million or 10.8% of segment revenues), reflecting continued customer growth for all services; Interactive Technologies and Communications ($3.9 million or 19.4%) and Broadcasting ($2.8 million or 2.3%). | ||
• | Revenues decreased in Newspapers ($17.6 million or -5.5%) and Leisure and Entertainment ($3.0 million or -2.9%). |
• | Operating income increased in: Cable (by $42.4 million or 24.1% of segment operating income), due primarily to customer growth; Interactive Technologies and Communications ($3.0 million); and Leisure and Entertainment ($0.8 million or 7.8%). | ||
• | Operating income decreased in Newspapers ($24.6 million or -31.0%) and Broadcasting ($0.4 million or -1.8%). | ||
• | Despite the increase in operating income in the fourth quarter of 2008, the fair value of Quebecor Media, based on market comparables, decreased during the quarter, compared with an increase in the same period of 2007. The changes in fair value generated a $21.1 million favourable variance in the stock option expense in the fourth quarter of 2008, compared with the same period of 2007. |
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• | A $4.1 million provision for CRTC Part II licence fee accruals was recognized in the fourth quarter of 2008, compared with nil in the same quarter of 2007 (see “Part II licence fees” in the sections on the results of the Cable and Broadcasting segments for 2008). | ||
• | Excluding the operating income of Osprey Media and the impact of the consolidated stock option expense, and if the figures for prior periods were restated to reflect the Part II licence fee adjustment, the increase in operating income in the fourth quarter of 2008 would have been 3.9%, compared with 11.7% in the same period of 2007. |
• | The $748.0 million unfavourable variance was due primarily to: |
o | recognition of a $671.2 million non-cash charge for impairment of goodwill and intangible assets, including $631.0 million without any tax consequences, in the fourth quarter of 2008 ($5.4 million in the same period of 2007); | ||
o | unfavourable variance of $53.8 million in the charge for restructuring of operations, impairment of assets and other special items; | ||
o | $25.7 million increase in income tax expense; | ||
o | $24.6 million increase in losses on valuation and translation of financial instruments; | ||
o | $7.2 million increase in amortization charges. |
o | $23.2 million increase in operating income; | ||
o | $3.9 million decrease in financial expenses; |
• | The increase was mainly due to significant capital expenditures in 2007 and 2008, largely in the Cable and Newspapers segments, and the acquisition of Osprey Media. |
• | The decrease was mainly due to lower base interest rates and an increase in interest capitalized to additions to property, plant and equipment and to intangible assets, as well as foreign-exchange losses recorded in the fourth quarter of 2007 in connection with non-cash balances related to operations. |
• | The $24.6 million increase in the loss on valuation and translation of financial instruments was due to: |
o | unfavourable variance related to the ineffectiveness of cross-currency interest rate swaps as a result of changing yield curves and counterparty risks; | ||
o | unfavourable variance related to re-measurement of embedded derivatives. |
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• | In December 2008, Quebecor Media introduced a staff-reduction program as part of a major restructuring of the operations of its Newspapers segment across Canada, leading to the recognition of a $28.8 million charge for restructuring of operations in the fourth quarter of 2008. The Newspapers segment is contending with the dramatic industry wide changes of the past several years, combined with a difficult economic environment that is impacting its advertising revenues. | ||
• | Quebecor Media also concluded that the restructuring initiatives launched in December 2008 and the loss of a major printing contract were a triggering event for impairment tests and that write-downs of some long-lived assets were necessary. As a result, an impairment charge totalling $19.1 million was recorded against buildings, machinery and equipment. | ||
• | The reversal of the reserve in the fourth quarter of 2007 related primarily to changes in plans to close the London, Ontario, plant. |
• | The $25.7 million increase was mainly due to: |
o | unfavourable tax rate mix in the various components of the gains and losses on financial instruments, derivative financial instruments and foreign currency translation of financial instruments; | ||
o | recognition in the fourth quarter of 2007 of a $22.2 million favourable impact related to lower tax rates introduced by the federal government. |
• | Total revenues from cable television services increased $17.1 million (9.0%) to $208.1 million. | ||
• | Revenues from Internet access services increased $17.5 million (15.3%) to $132.2 million. | ||
• | Revenues from cable telephone service increased $19.2 million (32.4%) to $78.5 million. | ||
• | Revenues from the wireless telephone service increased $2.5 million (41.0%) to $8.6 million. | ||
• | Revenues of Le SuperClub Videotron decreased $3.8 million (-19.1%) to $16.1 million. |
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• | The customer base for illico Digital TV increased by 50,600 in the fourth quarter of 2008, the largest quarterly increase since the service was introduced in 1999. It grew by 47,900 in the same quarter of 2007. | ||
• | The customer base for analog cable television services decreased by 26,500, compared with 26,100 in the same period of 2007, primarily as a result of customer migration to illico Digital TV. |
• | The increase was due primarily to: |
o | customer growth for all services; | ||
o | higher volume of orders on illico on Demand; | ||
o | $14.6 million favourable variance in expenses related to Quebecor Media’s stock option plan. |
o | an unfavourable variance related to $3.2 million in CRTC Part II licence fee accruals recognized in the fourth quarter of 2008, compared with nil in the same quarter of 2007 (see “Part II licence fees” in the section on the Cable segment’s results for 2008). |
• | Excluding the favourable variation in the stock option expense, and if the figures for prior periods were restated to reflect the Part II licence fee adjustment, operating income would have increased by 16.7% in the fourth quarter of 2008, compared with 22.7% in the same period of 2007. |
• | the significant fixed component of costs, which does not fluctuate in proportion to revenue growth; | ||
• | the favourable variance in the stock option expense. |
• | Advertising revenues decreased 8.2%, circulation revenues increased 2.9%, commercial printing and other revenues combined increased 10.7%. |
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• | The revenues of the urban dailies and the community newspapers decreased by 5.2% and 4.3% in the fourth quarter of 2008. | ||
• | 19.1% increase in revenues at the general-interest portals, due mainly to website creation and maintenance, and 6.8% increase at the special-interest portals, primarily attributable to revenue growth at theautonet.casite resulting mainly from the acquisition of ASL. |
• | The decrease was due primarily to: |
o | impact of the decrease in revenues, on a comparable basis; | ||
o | wage indexing; | ||
o | expenditures related to the start-up of Quebecor MediaPages; | ||
o | increase in operating expenses at the portals, including advertising expenses and investment in new products. |
o | $4.3 million favourable variance related to the stock option expense. |
• | increase in the proportion of fixed costs, on a comparable basis, given the decrease in revenues; | ||
• | unfavourable net cost factors, described above in the discussion of operating income. |
• | Revenues from broadcasting operations increased $3.4 million, mainly because of: |
o | higher advertising and video on demand revenues at the TVA Network; | ||
o | higher subscription revenues and advertising revenues at the specialty channels (Mystère, Argent, Prise 2, LCN, MenTV, Mystery and Les idées de ma maison); | ||
o | higher revenues from the Internet and Canal Indigo. |
• | Distribution revenues increased $0.2 million. | ||
• | Publishing revenues decreased $0.5 million, primarily as a result of the decrease in advertising revenues, partially offset by an increase in custom publishing operations. |
• | The favourable impact of the revenue increase and the decrease in selling and administrative expenses for broadcasting operations was more than offset by higher content costs and the unfavourable variance related to the $1.0 million provision for Part II licence fee accruals recognized in the fourth quarter of 2008 (see “Part II licence fees” in the section on the Cable segment’s results for 2008). |
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• | Operating income from distribution operations decreased by $0.4 million, mainly because of lower revenues from television products. | ||
• | Operating income from publishing operations increased by $0.3 million, mainly as a result of the decrease in advertising, marketing and distribution expenses, partially offset by the unfavourable impact of the decrease in revenues. |
• | 7.9% increase in revenues in the Book division, due primarily to increased international sales by the publishing houses and higher revenues from academic publishing, partially offset by lower distribution volume. | ||
• | 6.0% decrease in revenues at Archambault Group. The favourable impact of increased CD releases on distribution and production revenues, and higher sales at Archambault stores, essentially due to the opening of a store in Laval, Quebec, were outweighed by a decrease in revenues due to the transfer of video on demand operations to the Cable segment and lower same-store sales of music at Archambault stores. |
• | The increase was mainly due to the impact of: |
o | increased revenues from customers in Europe, particularly France and Italy, including a favourable variance in currency translation; | ||
o | increased revenues in Asia and Canada, including government customers in Quebec. |
o | decreased volume from customers in the United States. |
• | The $3.0 million increase was mainly due to: |
o | favourable impact of new tax credits for research and development related to e-commerce; | ||
o | recognition of a foreign-exchange gain in the fourth quarter of 2008; | ||
o | impact of revenue increase; | ||
o | favourable variance due to one-time charges related to taking Nurun private, recorded in the fourth quarter of 2007. |
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o | impact of the decrease in revenues in the United States, combined with increases in some market development costs in that country. |
• | Revenues increased in all segments: Cable (by $243.1 million or 18.6% of segment revenues), due mainly to customer growth; Newspapers ($107.9 million or 11,2%), mainly because of the impact of the acquisition of Osprey Media in August 2007; Broadcasting ($22.2 million or 5.6%); Leisure and Entertainment ($14.0 million or 4.4%); and Interactive Technologies and Communications ($8.1 million or 11.0%). |
• | Operating income increased in Cable (by $130.2 million or 25.4% of segment operating income), Newspapers ($15.1 million or 6.9%), Broadcasting ($17.3 million or 41.1%) and Leisure and Entertainment ($7.7 million or 39.9%). | ||
• | Operating income decreased in Interactive Technologies and Communications ($4.7 million or -62.7%). | ||
• | The growth in the fair value of Quebecor Media was greater in 2007 than in 2006, resulting in a $26.0 million increase in the consolidated stock option charge. | ||
• | In 2007, the Cable and Broadcasting reversed their provisions for CRTC Part II licence fees, which had a favourable impact in the amount of $16.7 million (see “Part II licence fees” in the sections on the results of the Cable and Broadcasting segments for 2008). | ||
• | Excluding Osprey Media’s operating income, the impact of the consolidated stock option plan and the provision for Part II licence fees, operating income increased by 17.8% in 2007, compared with 11.0% in 2006. |
• | The $496.8 million improvement was mainly due to: |
o | favourable impact on the 2007 analysis of the recognition in 2006 of a $342.6 million loss on debt refinancing ($219.0 million net of income tax); | ||
o | favourable impact on the 2007 analysis of the recognition in 2006 of a $180.0 million charge for impairment of goodwill and broadcasting licences in the Broadcasting segment ($156.6 million net of income tax and non-controlling interest). | ||
o | $164.3 million increase in operating income. |
o | $29.7 million increase in amortization charges; | ||
o | $15.4 million increase in financial expenses. |
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• | The increase was due to: |
o | approximately $15.0 million impact of increased indebtedness and higher interest rates. |
o | the favourable impact, which extended over a full year for the first time, of the refinancing of Quebecor Media’s notes at more advantageous interest rates in early 2006. |
• | The increase in Quebecor Media’s indebtedness in 2007 compared with 2006 was due primarily to: |
o | financing, beginning in August 2007, of the acquisition of Osprey Media for a total consideration of $414.4 million; | ||
o | liabilities totalling $161.8 million assumed as part of the acquisition of Osprey Media; | ||
o | financing of the settlement in October 2007 of a $106.0 million liability in connection with derivative financial instruments related to Sun Media Corporation’s term loan “B”; | ||
o | financing of the payment in July 2007 of the Additional Amount payable, for a total consideration of $127.2 million (see “Financing Activities” below for details of the increase in the long-term debt in 2007). |
• | The decrease was primarily due to the $5.3 million decrease in the loss on re-measurement of the Additional Amount payable, which was partially offset by a $3.5 million unfavourable variance related to recognition on the income statement of fluctuations in the fair value of derivative financial instruments and financial instruments. |
• | The Newspapers segment recorded a $2.3 million net charge in connection with the project to acquire new presses, including a $6.7 million charge for termination benefits related to the elimination of production jobs at theToronto Sunand theOttawa Sun, and the reversal of a reserve in the amount of $4.4 million related to changes in plans for the closing of the London, Ontario plant. | ||
• | A $5.3 million charge was also recorded for termination benefits related to the elimination of jobs at theLondon Free Press, theToronto Sunand Bowes Publishers in connection with the voluntary workforce reduction program. | ||
• | A $2.3 million charge was recognized for termination benefits in connection with the project to streamline newsgathering announced in the second quarter of 2006 and the elimination of newsroom positions throughout the organization. | ||
• | Quebecor Media’s other segments recorded total reserves for restructuring of operations in the amount of $1.7 million, primarily in the Broadcasting segment, in 2007 ($1.9 million in 2006). |
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• | Quebecor Media also recorded a gain on the sale of businesses and other assets of $0.4 million in 2007 ($2.2 million in 2006). |
• | The unfavourable variance of $128.5 million resulted primarily from: |
o | unfavourable impact on the 2007 analysis of tax savings recognized in 2006 in connection with the loss on debt refinancing related to the repurchase of Quebecor Media’s Senior Notes and impairment of broadcasting licences. |
o | the tax rate reduction by the Canadian federal government in 2007, which was greater than in 2006; | ||
o | the adoption in 2007 of a more favourable conversion rate for Part VI.1 tax benefits acquired from a related party (tax that corporations must pay on preferred dividends paid during a financial year). |
(see Table 4).
• | The $363.3 million improvement was mainly due to: |
o | payment in 2006 of $197.3 million in accrued interest on Senior Discount Notes as part of the refinancing carried out on January 17, 2006; |
o | $164.3 million increase in operating income; | ||
o | $54.9 million net change in non-cash balances related to operations. |
o | $33.2 million increase in additions to property, plant and equipment. |
o | Combined revenues from all cable television services: $735.8 million, an increase of $58.6 million (8.7%), due to the impact of customer base growth, increases in some rates, revenues from the HD package, and the favourable impact of the growth in the illico Digital TV customer base on revenues from illico on Demand, pay TV and pay-per-view. |
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• | Revenues from Internet access services: $422.4 million, an increase of $77.3 million (22.4%). The favourable variance was mainly due to customer growth, as well as heavier consumption and the impact of increases in some rates. | ||
• | Revenues from the cable telephone service: $195.5 million, an increase of $88.1 million (82.0%) essentially due to customer growth. | ||
• | Revenues from the wireless telephone service: $17.7 million, an increase of $16.5 million. | ||
• | Revenues of Le SuperClub Videotron: $60.0 million, an increase of $4.4 million (7.9%), due primarily to increased same-store sales in the Microplaytm sections, the opening of Videotron stores and the impact of store acquisitions. |
• | The increase was primarily due to: |
o | customer growth for all services; | ||
o | increases in some rates; | ||
o | $12.6 million favourable variance related to reversal in 2007 of current Part II licence fee accruals (see ”Part II licence fees” in the section on the results of the Cable segment for 2008). |
o | $20.9 million unfavourable impact of expenses related to Quebecor Media’s stock option plan. |
• | Excluding the favourable variation in the stock option expense, and if the figures were restated to reflect the Part II licence fee adjustment, operating income would have increased by 26.0% in 2007, compared with 26.9% in 2006. |
• | The 2.3 percentage point decrease was mainly due to: |
o | the significant fixed component of costs, which does not fluctuate in proportion to revenue growth; | ||
o | the marginal impact on costs of increases in some rates. |
(Table 7).
• | The impact of the $130.2 million increase in operating income was partially offset by a $27.5 million increase in additions to property, plant and equipment, primarily attributable to investments in network upgrades and to modernization by the Cable segment, as well as purchases of cable telephony equipment for use by customers. |
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• | Excluding the impact of that acquisition, revenues increased by $12.4 million. | ||
• | Commercial printing and other revenues combined increased by 33.7%, advertising revenues grew by 1.0%, and circulation revenues decreased by 5.7% in comparison with 2006. | ||
• | The revenues of the urban dailies decreased by 1.5% in 2007. Excluding the acquisition of Osprey Media, the revenues of the community newspapers increased by 1.1%. | ||
• | Within the urban dailies group, revenues of the free dailies increased by 62.7%, due to excellent results posted by the Montreal, Toronto and Vancouver dailies, and the launch of free dailies in Ottawa and Ottawa-Gatineau in November 2006, and in Calgary and Edmonton in February 2007. | ||
• | 23.8% increase in revenues at the special-interest portals, primarily attributable to increases in revenues from packages and other revenue streams atjobboom.com, and 6.5% increase in revenues at the general-interest portals. |
• | The favourable impact of the acquisition of Osprey Media ($25.3 million) was partially offset by: |
o | investments and one-time charges, including investments related to the launch of four new free dailies (Ottawa, Ottawa-Gatineau, Calgary and Edmonton) and the launch of Quebecor MediaPages; | ||
o | the impact of the labour disputes atLe Journal de MontrealandLe Journal de Quebecin 2006 and 2007 respectively; | ||
o | variances in the charge for Quebecor Media’s stock option plan. |
• | Excluding these items, operating income was $232.1 million in 2007, an increase of $7.8 million (3.5%) due to: |
o | lower newsprint costs; | ||
o | the impact of restructuring initiatives; | ||
o | decrease in operating losses at the free dailies, on a comparable basis (i.e., at the Montreal, Toronto and Vancouver dailies). |
o | cost of implementing certain projects; | ||
o | increase in some portal operating costs, including labour costs and advertising and promotion expenses, due in part to the introduction of a new business development strategy and investments in new products. |
• | Operating income from the dailies in the Western Group (those published in the Western provinces and Ontario) increased 13.8% in 2007. | ||
• | Osprey Media’s operating income increased by 12.6% in 2007, on a comparable basis. |
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• | Excluding the launch of the four new free dailies and the impact on results of the labour disputes atLe Journal de MontrealandLe Journal de Quebec, operating income increased by 5.5% at the urban dailies. | ||
• | Excluding the impact of the acquisition of Osprey Media, operating income increased by 6.3% at the community newspapers. |
• | The $18.3 million increase was mainly due to the $15.1 million increase in operating income (Table 8). | ||
• | During 2007, the Newspapers segment acquired a building from Quebecor World for a cash consideration of $62.5 million. The corresponding increase in additions to property, plant and equipment, and spending on website launches and on computer projects at the portals, was offset by a year-over-year decrease in instalment payments in 2007 under contracts to acquire six new presses. |
• | Revenues from broadcasting operations increased by $11.7 million, primarily as a result of: |
o | higher advertising revenues at the TVA Network and Sun TV; | ||
o | higher subscription and advertising revenues at the specialty channels (Mystère, Argent, Prise 2, LCN, MenTV and Mystery); | ||
o | higher revenues from video on demand, Shopping TVA and commercial production. |
• | Revenues from distribution operations increased by $5.5 million due to: |
o | more theatrical releases in 2007 than in 2006; | ||
o | increased revenues from video releases. |
• | Revenues from publishing operations increased by $1.8 million in 2007. The favourable impact of the acquisition of the interest inTV HebdoandTV 7 Joursnot already held by TVA Group was partially offset by a decrease in newsstand revenues. |
• | Operating income from broadcasting operations increased by $7.2 million, mainly because of: |
o | impact of higher revenues from the specialty channels, Sun TV and video on demand; | ||
o | non-recognition in 2007 of current CRTC Part II licence fee accruals for a favourable variance of $4.1 million. |
• | Operating income from distribution operations improved by $3.0 million in 2007, mainly because of higher revenues from video releases. |
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• | Operating income from publishing operations increased by $6.5 million, primarily as a result of reductions in some operating expenses, including printing costs. |
• | decrease in the proportion of fixed costs, on a comparable basis, given revenue growth, coupled with the favourable impact of the reversal of current CRTC Part II licence fee accruals. |
• | The $9.8 million increase (Table 9) was mainly due to: |
o | $17.3 million increase in operating income, partially offset by a $7.2 million increase in additions to property, plant and equipment, primarily due to building improvements and certain data processing projects. |
• | 11.1% increase in the revenues of the Book division in 2007, mainly due to higher revenues in the academic segment and at Messageries A.D.P., due in the latter case to the distribution of several successful releases, including the French translation of the international bestsellerThe Secretby Rhonda Byrne. | ||
• | 0.8% increase in the revenues of Archambault Group. |
• | The increase was mainly due to: |
o | recruitment of new customers; | ||
o | positive impact of the acquisition of Crazy Labs in July 2006. |
o | impact of lower volume in the U.S. |
• | The decrease was due primarily to: |
o | lower volume in the U.S.; | ||
o | impact of a change in the stock option plan; |
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o | one-time charges related to the purchase of all Nurun shares by Quebecor Media; | ||
o | increase in the conditional compensation charge related to the acquisition of Ant Farm Interactive LLC (“Ant Farm”) in 2004; | ||
o | recognition in 2006 of federal research and development tax credits from previous years. |
o | impact of increased revenues from new customers. |
• | The unfavourable variance of $6.2 million was mainly due to: |
o | decrease in operating income; | ||
o | increase in additions to property, plant and equipment, caused in part by higher investments in certain computer projects and leasehold improvements. |
• | The $33.9 million increase was mainly due to: |
o | $155.6 million increase in operating income: |
o | $51.0 million increase in use of funds for non-cash balances related to operations, due primarily to disbursements of $94.1 million in connection with the exercise of stock options (the Quebecor Media stock option plan did not allow the exercise of any option before 2008, at which time it covered a six year compensation value). This factor was partially offset by a decrease in accounts receivable and an increase in accounts payable and accrued charges: | ||
o | $41.4 million increase in cash interest expense, mainly as a result of the impact of higher indebtedness: | ||
o | $24.3 million increase in cash charge for restructuring of operations, impairment of assets and other special items. |
• | The $399.8 million increase was mainly due to: |
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o | payment of $197.3 million in accrued interest in connection with the repurchase and cancellation of Senior Discount Notes in 2006 as part of the refinancing carried out in January 2006: | ||
o | $164.3 million increase in operating income: | ||
o | $54.9 million positive net change in non-cash balances related to operations. |
• | The increase was due mainly to: |
o | estimated $673.0 million unfavourable impact of exchange rate fluctuations. The impact of this item was offset by a decrease in the liability (or increase in the asset) related to cross-currency swap agreements entered under “Derivative financial instruments”; | ||
o | issuance by Videotron on April 15, 2008 of US$455.0 million in aggregate principal amount of Senior Notes for net proceeds of $447.8 million (after financing expenses). The Senior Notes were sold at a price equivalent to 98.43% of face value, bear 9 1/8% interest (an effective rate of 9 3/8%) and mature on April 15, 2018; | ||
o | increased drawings on the revolving bank credit facilities, long-term credit facilities and bank borrowings of Videotron, TVA Group and Quebecor Media in the amounts of $55.1 million, $37.7 million and $21.2 million respectively; | ||
o | $89.4 million increase in debt related to hedged interest rate exposure and embedded derivatives, due mainly to interest rate fluctuations. |
o | debt repayments of $25.7 million, mainly by Quebecor Media. |
• | Long-term debt and free cash flows from continuing operating activities were used to finance: the disbursement of a cash consideration of $554.6 million for the purpose of acquiring AWS licences; for business acquisitions, including buyouts of minority interests in Nurun, for a cash consideration of $75.2 million when Nurun was taken private; and, in TVA Group, for the disbursement of a cash consideration of $51.4 million under its Substantial Issuer Bid. | ||
• | Assets and liabilities related to derivative financial instruments totalled a net asset of $200.6 million at December 31, 2008 (net of a $117.3 million liability at that date), compared with a net liability of $538.5 million at December 31, 2007. The favourable variance was caused by fluctuations in the Canadian dollar against the U.S. dollar, which were partially offset by changes in estimates of the fair value of derivative |
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• | $809.4 million increase in long-term debt due to the following transactions: |
o | completion of a placement on October 5, 2007 of US$700.0 million in aggregate principal amount of Senior Notes due 2016 by Quebecor Media. The notes were sold at a price equivalent to 93 3/4% of face value, bear interest at 7 3/4% (an effective rate of 8.81%) and mature on March 15, 2016. Quebecor Media used the net proceeds of $662.4 million (including accrued interest of $16.6 million) from the placement, as well as its revolving credit facilities, to: |
§ | finance the acquisition of Osprey Media for a total consideration of $414.4 million; | ||
§ | repay, on October 31, 2007, US$179.7 million drawn on Sun Media Corporation’s term loan “B”; | ||
§ | settle the $106.0 million liability related to derivative financial instruments connected to the term loan “B”; |
o | assumption of debt totalling $161.8 million as part of the acquisition of Osprey Media; | ||
o | financing of the settlement of the Additional Amount payable, for a total consideration of $127.2 million. |
• | The increase in long-term debt caused by the above transactions was partially offset by: |
o | favourable impact of the exchange rate, estimated at $392.4 million. The decrease in debt related to changes in the exchange rate was, however, generally offset by an increase in liabilities related to the value of the cross-currency swap agreements, entered under “Derivative financial instruments”; | ||
o | reduction in drawings on revolving bank credit facilities and mandatory debt repayments in the total amount of $118.5 million, using cash flows generated by operating activities; | ||
o | $65.5 million favourable impact of the adoption of new accounting standards for financial instruments and hedge accounting (see “Changes in Accounting Policies” below). |
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• | The value of liabilities related to Quebecor Media’s derivative financial instruments increased from $231.3 million as of December 31, 2006 (or $320.2 million on January 1, 2007, following the adoption of new accounting standards for financial instruments and hedge accounting) to $538.5 million as of December 31, 2007. The repayment of $106.0 million in liabilities related to Sun Media Corporation’s term loan “B” credit facility is reflected in the change in liabilities related to derivative financial instruments. |
• | The $58.6 million increase was mainly due to investments in network modernization by the Cable segment and phase two of the project to acquire new presses in the Newspapers segment. In 2007, the Newspapers segment acquired a building from Quebecor World for a cash consideration of $62.5 million. |
• | Business acquisitions in 2008 were as follows: |
o | acquired all outstanding Common Shares of Nurun not already held in the first quarter of 2008 for a total cash consideration of $75.2 million; | ||
o | repurchased by TVA Group of 3,000,642 of its Class B Shares in the second quarter of 2008 for a total cash consideration of $51.4 million; | ||
o | acquired certain businesses in 2008, primarily in the Newspapers segment, for a total cash consideration of $15.1 million; | ||
o | made a $5.0 million payment in 2008 in connection with the acquisition of Sogides in 2005. |
• | In the third quarter of 2007, Quebecor Media closed the acquisition of Osprey Media for a total cash consideration of $414.4 million (excluding assumed liabilities). |
• | The $33.2 million increase was mainly due to: |
o | increased investments in network upgrades and modernization by the Cable segment in 2007; | ||
o | acquisition of a building by Quebecor Media from Quebecor World for a cash consideration of $62.5 million: |
o | decrease in instalment payments in 2007 under contracts to acquire six new presses to be used, among other things, to print some of Quebecor Media’s newspapers. |
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• | The substantial increase was mainly due to the acquisition of Osprey Media in August 2007 for a total cash consideration of $414.4 million (excluding $161.8 million in assumed debt). |
• | Consolidated debt included Videotron’s $1.81 billion debt ($960.8 million at December 31, 2007), Sun Media Corporation’s $294.3 million debt ($225.1 million at December 31, 2007), Osprey Media’s $134.1 million debt ($150.0 million at December 31, 2007), TVA Group’s $93.9 million debt ($56.1 million at December 31, 2007) and Quebecor Media’s $2.01 billion corporate debt ($1.65 billion at December 31, 2007). |
Aggregate amount of minimum principal payments on long-term debt required in each of the next five years and thereafter
(in millions of Canadian dollars)
2009 | $ | 37.1 | ||
2010 | 162.1 | |||
2011 | 166.2 | |||
2012 | 269.6 | |||
2013 | 651.7 | |||
2014 and thereafter | 3,013.9 | |||
Total | $ | 4,300.6 | ||
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Consolidated balance sheet of Quebecor Media
Analysis of main variances between December 31, 2007 and December 31, 2008
(in millions of Canadian dollars)
Dec. 31 | Dec. 31 | |||||||||||||
2008 | 2007 | Difference | Main reasons for difference | |||||||||||
Assets | ||||||||||||||
Accounts receivable | $ | 483.9 | $ | 496.2 | $ | (12.3 | ) | Impact of current variance in activities | ||||||
Inventory and investment in television products and films | 189.3 | 169.0 | 20.3 | Opening of Archambault store in Laval, Quebec and enlargement of other stores, and impact of customer increase on subscriber equipment in the Cable segment. | ||||||||||
Property, plant and equipment | 2,334.7 | 2,110.2 | 224.5 | Additions to property, plant and equipment (see “Investing activities” above), less amortization. | ||||||||||
Derivative financial instruments | 317.9 | 0.2 | 317.7 | Increase in assets related to derivative financial instruments (see “Financing Activities” above). | ||||||||||
Intangible assets | 858.6 | 334.4 | 524.2 | Acquisition of 17 operating licences in Advanced Wireless Services spectrum auction (see “Advanced Wireless Services (AWS)” above), partially offset by $40.2 million impairment of mastheads in the Newspapers segment in December 2008. | ||||||||||
Goodwill | 3,516.7 | 4,081.3 | (564.6 | ) | $631.0 million goodwill impairment in December 2008, including $595.0 million in the Newspapers segment, partially offset by increase in Company’s interest in Nurun and TVA Group, payment of a contingent consideration related to the acquisition of Sogides, acquisition of other businesses, and finalization of purchase price equation for Osprey Media acquisition. | |||||||||
Liabilities | ||||||||||||||
Accounts payable and accrued charges | $ | 793.7 | $ | 756.0 | $ | 37.7 | Increase in provision for CRTC Part II licence fees at Videotron and TVA Group, increase in volume in Cable segment, and increase in reserve for restructuring in Newspapers segment, partially offset by disbursements in connection with stock option plan. | |||||||
Deferred revenue | 224.0 | 202.7 | 21.3 | Increase in Cable segment customer base and increased volume at Quebecor MediaPages. | ||||||||||
Long-term debt | 4,298.7 | 3,002.8 | 1,295.9 | See “Financing activities” above | ||||||||||
Derivative financial instruments | 117.3 | 538.7 | (421.4 | ) | See “Financing activities” above | |||||||||
Net future tax liabilities(1) | 242.3 | 81.5 | 160.8 | Use of tax benefits, decrease in future tax assets resulting from exercise of stock options, and increase in future tax liabilities related to temporary differences in property, plant and equipment. | ||||||||||
Non-controlling interest | 106.0 | 154.2 | (48.2 | ) | Partial buyout of non-controlling interest by TVA Group and full buyout by Quebecor Media of non-controlling interest in Nurun |
(1) | Long-term liabilities less current and long-term assets. |
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Contractual obligations of Quebecor Media as of December 31, 2008
(in millions of Canadian dollars)
Under | 5 years | |||||||||||||||||||
Total | 1 year | 1-3 years | 3-5 years | or more | ||||||||||||||||
Long-term debt | 4,300.6 | 37.1 | 328.3 | 921.3 | 3,013.9 | |||||||||||||||
Interest payments1 | 1,746.0 | 241.4 | 549.0 | 491.4 | 464.2 | |||||||||||||||
Operating leases | 259.6 | 54.1 | 67.1 | 43.2 | 95.2 | |||||||||||||||
Additions to property, plant and equipment and other commitments | 138.6 | 80.8 | 38.6 | 7.2 | 12.0 | |||||||||||||||
Derivative financial instruments2 | (176.4 | ) | (0.2 | ) | (0.3 | ) | 48.3 | (224.2 | ) | |||||||||||
Total contractual obligations | 6,268.4 | 413.2 | 982.7 | 1,511.4 | 3,361.1 | |||||||||||||||
1. | Estimated interest payable on long-term debt, based on interest rates, hedging interest rates and hedging of foreign exchange rates as of December 31, 2008. | |
2. | Estimated future receipts, net of disbursements related to derivative financial instruments used for foreign exchange hedging. |
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Fair value of derivative financial instruments
(in millions of dollars)
December 31, 2008 | December 31, 2007 | |||||||||||||||||||
Book value | Book value and | |||||||||||||||||||
Notional | and fair value | Notional | fair value | |||||||||||||||||
value | asset (liability) | value | asset (liability) | |||||||||||||||||
Derivative financial instruments: | ||||||||||||||||||||
Interest rate swap agreements | CA$ | 217.2 | (7.5 | ) | CA$ | 75.0 | 0.2 | |||||||||||||
Foreign exchange forward contracts: | ||||||||||||||||||||
— In US$ | US$ | 274.5 | 9.0 | US$ | 73.1 | (4.2 | ) | |||||||||||||
— In € | € | 12.9 | 0.1 | € | 13.0 | (0.2 | ) | |||||||||||||
— In CHF | CHF | 2.3 | — | CHF | 6.7 | (0.1 | ) | |||||||||||||
Cross-currency interest rate swap agreements | US$ | 3,050.4 | 199.0 | US$ | 2,598.9 | (534.2 | ) |
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• | From January 1, 2008 to January 21, 2008, the Company made purchases from Quebecor World Inc. of $3.0 million ($55.3 million in 2007 and $74.8 million in 2006) and made sales to Quebecor World Inc. of $1.3 million ($17.9 million in 2007 and 2006). | ||
• | On January 10, 2008, the Company settled a balance of $4.3 million payable to Quebecor World Inc. by set-off. As the balance was due in 2013 and recorded at present value, the difference of $2.7 million between the settled amount of $7.0 million and the carrying value of $4.3 million was recorded as a reduction in contributed surplus. | ||
• | In October 2007, the Company increased its investment in Nurun Inc. by acquiring. 500,000 Common Shares of Nurun Inc. from Quebecor World Inc. at the exchange amount, for a cash consideration of $1.7 million. | ||
• | On October 11, 2007, the Company acquired a property from Quebecor World Inc. for a total net consideration of $62.5 million. Simultaneously, Quebecor World Inc. entered into a long-term operating lease with the Company to rent a portion of the property for a 17-year term. The consideration for the two transactions was settled by the payment of a net amount of $43.9 million to Quebecor World Inc. as of the date of the transactions, and the assumption by the Company of a $7.0 million balance of sale, including interest, payable in 2013. The transactions were concluded and accounted for at the exchange amount. | ||
• | During the year ended December 31, 2006, some of the Company’s subsidiaries acquired tax benefits amounting to $6.5 million from Quebecor World Inc. that were recorded as income taxes receivable. These |
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transactions allowed the Company to realize a gain of $0.4 million (net of non-controlling interest), which was recorded as contributed surplus. |
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Foreign Exchange Forward Contracts
At December 31, 2008
(in millions of dollars)
Average | ||||||||||||
Currencies (sold/bought) | Maturing | Exchange Rate | Notional Amount | |||||||||
Quebecor Media Inc. | ||||||||||||
$/Euro | Less than 1 year | 1.6796 | $ | 21.6 | ||||||||
$/CHF | Less than 1 year | 1.1304 | 2.6 | |||||||||
Sun Media Corporation | ||||||||||||
$/US$ | February 15, 2013 | 1.5227 | 312.2 | |||||||||
Videotron Ltd. and its subsidiaries | ||||||||||||
$/US$ | Less than 1 year | 1.0865 | 75.5 |
Cross-Currency Interest Rate Swaps
as at December 31, 2008
(in millions of dollars)
CDN dollar | ||||||||||||||||||||
Annual | exchange rate on | |||||||||||||||||||
Annual effective | nominal | interest and | ||||||||||||||||||
Period | Notional | interest rate | interest | capital payments | ||||||||||||||||
covered | amount | using hedged rate | rate of debt | per one US dollar | ||||||||||||||||
Quebecor Media Inc. | ||||||||||||||||||||
Senior Notes | 2007 to 2016 | US$ | 700.0 | 7.69 | % | 7.75 | % | 0.9990 | ||||||||||||
Senior Notes | 2006 to 2016 | US$ | 525.0 | 7.39 | % | 7.75 | % | 1.1600 | ||||||||||||
Term loan “B” credit facilities | 2006 to 2009 | US$ | 194.5 | 6.27 | % | LIBOR plus 2.00 | % | 1.1625 | ||||||||||||
Term loan “B” credit facilities | 2009 to 2013 | US$ | 194.5 | Bankers’ acceptances 3 months plus 2.22 | % | LIBOR plus 2.00 | % | 1.1625 | ||||||||||||
Term loan “B” credit facilities | 2006 to 2013 | US$ | 145.9 | 6.44 | % | LIBOR plus 2.00 | % | 1.1625 | ||||||||||||
Videotron Ltd. | ||||||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 190.0 | Bankers’ acceptances 3 months plus 2.80 | % | 6.875 | % | 1.2000 | ||||||||||||
Senior Notes | 2004 to 2014 | US$ | 125.0 | 7.45 | % | 6.875 | % | 1.1950 | ||||||||||||
Senior Notes | 2003 to 2014 | US$ | 200.0 | Bankers’ acceptances 3 months plus 2.73 | % | 6.875 | % | 1.3425 | ||||||||||||
Senior Notes | 2003 to 2014 | US$ | 135.0 | 7.66 | % | 6.875 | % | 1.3425 | ||||||||||||
Senior Notes | 2005 to 2015 | US$ | 175.0 | 5.98 | % | 6.375 | % | 1.1781 | ||||||||||||
Senior Notes | 2008 to 2018 | US$ | 455.0 | 9.65 | % | 9.125 | % | 1.0210 | ||||||||||||
Sun Media Corporation | ||||||||||||||||||||
Senior Notes | 2008 to 2013 | US$ | 155.0 | Bankers’ acceptances 3 months plus 3.70 | % | 7.625 | % | 1.5227 | ||||||||||||
Senior Notes | 2003 to 2013 | US$ | 50.0 | Bankers’ acceptances 3 months plus 3.70 | % | 7.625 | % | 1.5227 |
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Interest Rate Swaps
At December 31, 2008
(in millions of dollars)
Maturity | Notional Amount | Pay/Receive | Fixed Rate | Floating Rate | ||||||||||||
Osprey Media Publishing Inc. | ||||||||||||||||
December 2010 | $ | 50.0 | Pay fixed/Receive floating | 3.53 | % | Bankers’ acceptances 3 months | ||||||||||
December 2010 | $ | 43.3 | Pay fixed/Receive floating | 2.13 | % | Bankers’ acceptances 1 month | ||||||||||
December 2010 | $ | 40.0 | Pay fixed/Receive floating | 2.73 | % | Bankers’ acceptances 3 months | ||||||||||
Sun Media Corporation | ||||||||||||||||
October 2012 | $ | 38.9 | Pay fixed/Receive floating | 3.75 | % | Bankers’ acceptances 3 months | ||||||||||
TVA Group Inc. | ||||||||||||||||
March 2010 | $ | 45.0 | Pay fixed/Receive floating | 1.88 | % | Bankers’ acceptances 1 month |
Fair Value of Financial Instruments
At December 31, 2008
(in millions of dollars)
Carrying | 2008 | Carrying | 2007 | |||||||||||||
value | Fair value | value | Fair value | |||||||||||||
Quebecor Media Inc. | ||||||||||||||||
Long-term debt1 | $ | (2 013.7 | ) | $ | (1 491.3 | ) | $ | (1 664.9 | ) | $ | (1 646.6 | ) | ||||
Cross-currency interest rate swaps | 182.5 | 182.5 | (159.8 | ) | (159.8 | ) | ||||||||||
Foreign exchange forward contracts | 0.1 | 0.1 | (0.3 | ) | (0.3 | ) | ||||||||||
Videotron Ltd. | ||||||||||||||||
Long-term debt1 | (1 766.6 | ) | (1 577.0 | ) | (973.3 | ) | (938.2 | ) | ||||||||
Cross-currency interest rate swaps | 69.5 | 69.5 | (241.3 | ) | (241.3 | ) | ||||||||||
Foreign exchange forward contracts | 9.0 | 9.0 | (4.2 | ) | (4.2 | ) | ||||||||||
Sun Media Corporation | ||||||||||||||||
Long-term debt1 | (294.2 | ) | (242.4 | ) | (238.0 | ) | (234.1 | ) | ||||||||
Cross-currency interest rate swaps and foreign exchange forward contract | (53.0 | ) | (53.0 | ) | (133.1 | ) | (133.1 | ) | ||||||||
Interest rate swaps | (3.0 | ) | (3.0 | ) | — | — | ||||||||||
Osprey Media Publishing Inc. | ||||||||||||||||
Long-term debt1 | (132.3 | ) | (128.1 | ) | (145.3 | ) | (145.3 | ) | ||||||||
Interest rate swaps | (4.1 | ) | (4.1 | ) | 0.2 | 0.2 | ||||||||||
TVA Group Inc. | ||||||||||||||||
Long-term debt1 | (93.8 | ) | (91.4 | ) | (56.3 | ) | (56.3 | ) | ||||||||
Interest rate swaps | (0.4 | ) | (0.4 | ) | — | — |
1. | The carrying value of long-term debt excludes adjustments to record changes in the fair value of long-term debt related to hedged interest risk, embedded derivatives, or financing fees. |
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Other | ||||||||
comprehensive | ||||||||
Income | income | |||||||
Increase of $0.10 | ||||||||
Gain (loss) U.S. dollar-denominated accounts payable | $ | (0.7 | ) | $ | — | |||
Gain (loss) on valuation and translation of financial instruments and derivative financial instruments | (1.2 | ) | 78.2 | |||||
Decrease of $0.10 | ||||||||
Gain (loss) U.S. dollar-denominated accounts payable | 0.7 | — | ||||||
Gain (loss) on valuation and translation of financial instruments and derivative financial instruments | 1.2 | (78.2 | ) |
Other | ||||||||
comprehensive | ||||||||
Income | income | |||||||
Increase of 100 basis point | $ | 10.3 | $ | (1.6 | ) | |||
Decrease of 100 basis point | (10.3 | ) | 1.6 |
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Capital structure of Quebecor Media
At December 31, 2008
(in millions of dollars)
2008 | 2007 | |||||||
Bank indebtedness | $ | 11.5 | $ | 16.3 | ||||
Long-term debt | 4 335.8 | 3 027.5 | ||||||
Net (assets) liabilities related to derivative financial instruments | (200.6 | ) | 538.5 | |||||
Non-controlling interest | 106.0 | 154.2 | ||||||
Cash and cash equivalents | (22.5 | ) | (26.1 | ) | ||||
Net liabilities | 4 230.2 | 3 710.4 | ||||||
Shareholders’ equity | $ | 1 943.0 | $ | 2 450.3 | ||||
• | 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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• | The Company uses foreign exchange forward contracts to hedge the foreign currency rate exposure on (i) anticipated equipment or inventory purchases in a foreign currency and (ii) principal payments on long-term debt in a foreign currency. These latest foreign exchange forward contracts are designated as cash flow hedges. |
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• | The Company uses cross-currency interest rate swaps to hedge (i) the foreign currency rate exposure on interest and principal payments on foreign currency denominated debt and/or (ii) the fair value exposure on certain debt resulting from changes in interest rates. The cross-currency interest rate swaps that set all future interest and principal payments on U.S.-denominated debt in fixed Canadian dollars are designated as cash flow hedges. The Company’s cross-currency interest rate swaps that set all future interest and principal payments on U.S.-denominated debt in fixed Canadian dollars, in addition to converting the interest rate from a fixed rate to a floating rate, or converting a floating rate index to another floating rate index, are designated as fair value hedges. | ||
• | The Company uses interest rate swaps to manage the fair value exposure on certain debt resulting from changes in interest rates. These swap agreements require a periodic exchange of payments without the exchange of the notional principal amount on which the payments are based. These interest rate swaps are designated as fair value hedges when they convert the interest rate from a fixed rate to a floating rate, or as cash flow hedges when they convert the interest rate from a floating rate to a fixed rate. |
• | For derivative financial instruments designated as fair value hedges, changes in the fair value of the hedging derivative recorded in income are substantially offset by changes in the fair value of the hedged item to the extent that the hedging relationship is effective. When a fair value hedge is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to income over the remaining term of the original hedging relationship. | ||
• | For derivative financial instruments designated as cash flow hedges, the effective portion of a hedge is reported in other comprehensive income until it is recognized in income during the same period in which the hedged item affects income, while the ineffective portion is immediately recognized in the consolidated statements of income. When a cash flow hedge is discontinued, the amounts previously recognized in accumulated other comprehensive income are reclassified to income when the variability in the cash flows of the hedged item affects income. |
• | For purchases of property, plant and equipment or inventories hedged by foreign exchange forward contracts, foreign exchange translation gains and losses were recognized as an adjustment to the cost of the hedged item when the transaction was recorded. | ||
• | For long-term debt in foreign currency hedged by foreign exchange forward contracts and cross-currency interest rate swaps, foreign exchange translation gains and losses on long-term debt were offset by corresponding gains and losses on derivative instruments recorded under other assets or other liabilities. The fees on forward foreign exchange contracts and on cross-currency swaps were recognized as an adjustment to interest expenses over the term of the agreement. | ||
• | For long-term debt hedged by interest rate swaps, interest expense on the debt was adjusted to include payments made or received under interest rate swaps. | ||
• | In addition, realized and unrealized gains or losses associated with derivative financial instruments that were terminated or ceased to be effective prior to maturity, for hedge accounting purposes were 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 was recognized. In the event a designated hedged item was sold, extinguished or matured prior to the termination of the related derivative financial instrument, any realized or unrealized gain or loss on such derivative financial instrument was recognized in income. |
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Pension | Postretirement | |||||||||||||||
benefits | benefits | |||||||||||||||
1% | 1% | 1% | 1% | |||||||||||||
Sensitivity analysis (in million) | increase | decrease | increase | decrease | ||||||||||||
Effect on benefit costs (gain) loss | $ | (6.2 | ) | $ | 6.7 | $ | (0.5 | ) | $ | 0.6 | ||||||
Effect on benefit obligations | (66.4 | ) | 76.5 | (5.0 | ) | 6.0 |
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Pension | Postretirement | |||||||||||||||
benefits | benefits | |||||||||||||||
1% | 1% | 1% | 1% | |||||||||||||
Sensitivity analysis (in million) | increase | decrease | increase | decrease | ||||||||||||
Effect on benefit costs (gain) loss | (3.7 | ) | 3.7 | — | — |
Pension | Postretirement | |||||||||||||||
benefits | benefits | |||||||||||||||
1% | 1% | 1% | 1% | |||||||||||||
Sensitivity analysis (in million) | increase | decrease | increase | decrease | ||||||||||||
Effect on benefit costs (gain) loss | $ | 2.3 | $ | (2.0 | ) | $ | — | $ | — | |||||||
Effect on benefit obligations | 9.1 | (9.0 | ) | — | — |
Postretirement | ||||||||
benefits | ||||||||
1% | 1% | |||||||
Sensitivity analysis (in million) | increase | decrease | ||||||
Effect on benefit costs (gain) loss | $ | 0.9 | $ | (0.7 | ) | |||
Effect on benefit obligations | 5.5 | (4.2 | ) |
and “— Intangible Assets with Indefinite Useful Life .”
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Name and Municipality of Residence | Age | Position | ||||
Serge Gouin Outremont, Quebec | 65 | Director, Chairman of the Board of Directors and Chairman of the Compensation Committee | ||||
Pierre Karl Péladeau Outremont, Quebec | 47 | Director, President and Chief Executive Officer | ||||
Érik Péladeau Rosemère, Quebec | 53 | Director and Vice Chairman of the Board of Directors | ||||
Jean La Couture, FCA Montreal, Quebec | 62 | Director and Chairman of the Audit Committee | ||||
André Delisle Montreal, Quebec | 62 | Director and Member of the Audit Committee | ||||
A Michel Lavigne, FCA Brossard, Quebec | 58 | Director and Member of the Audit Committee and the Compensation Committee | ||||
Samuel Minzberg Westmount, Quebec | 59 | Director and Member of the Compensation Committee | ||||
The Right Honourable Brian Mulroney, P C , C C , LL D Westmount, Quebec | 69 | Director | ||||
Jean Neveu Longueuil, Quebec | 68 | Director | ||||
Normand Provost Brossard, Quebec | 54 | Director | ||||
Hugues Simard Outremont, Quebec | 42 | Senior Vice President, Development and Strategy | ||||
Louis Morin Kirkland, Quebec | 51 | Vice President and Chief Financial Officer | ||||
Isabelle Dessureault Verdun, Quebec | 38 | Vice President, Public Affairs | ||||
Michel Ethier Montreal, Quebec | 53 | Vice President, Taxation | ||||
Bruno Leclaire Saint-Bruno, Quebec | 43 | Vice President, Interactive Media | ||||
Roger Martel Montreal, Quebec | 60 | Vice President, Internal Audit | ||||
Denis Sabourin Kirkland, Quebec | 48 | Vice President and Corporate Controller |
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Name and Municipality of Residence | Age | Position | ||||
Claudine Tremblay Nuns’ Island, Quebec | 55 | Vice President and Secretary | ||||
Julie Tremblay Westmount, Quebec | 49 | Vice President, Human Resources | ||||
Marc Tremblay Westmount, Quebec | 48 | Vice President, Legal Affairs | ||||
Jean-François Pruneau Repentigny, Quebec | 38 | Treasurer | ||||
Christian Marcoux Laval, Quebec | 34 | Assistant Secretary |
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Years of Participation | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$122,222 or more | $ | 24,444 | $ | 36,667 | $ | 48,889 | $ | 61,111 | $ | 73,333 |
Years of Credited Service | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$ 200,000 | $ | 15,556 | $ | 23,333 | $ | 31,111 | $ | 38,889 | $ | 46,667 | ||||||||||
$ 300,000 | $ | 35,556 | $ | 53,333 | $ | 71,111 | $ | 88,889 | $ | 106,667 | ||||||||||
$ 400,000 | $ | 55,556 | $ | 83,333 | $ | 111,111 | $ | 138,889 | $ | 166,667 | ||||||||||
$ 500,000 | $ | 75,556 | $ | 113,333 | $ | 151,111 | $ | 188,889 | $ | 226,667 | ||||||||||
$ 600,000 | $ | 95,556 | $ | 143,333 | $ | 191,111 | $ | 238,889 | $ | 286,667 | ||||||||||
$ 800,000 | $ | 135,556 | $ | 203,333 | $ | 271,111 | $ | 338,889 | $ | 406,667 | ||||||||||
$1,000,000 | $ | 175,556 | $ | 263,333 | $ | 351,111 | $ | 438,889 | $ | 526,667 | ||||||||||
$1,200,000 | $ | 215,556 | $ | 323,333 | $ | 431,111 | $ | 538,889 | $ | 646,667 | ||||||||||
$1,400,000 | $ | 255,556 | $ | 383,333 | $ | 511,111 | $ | 638,889 | $ | 766,667 |
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Total number | Number of employees under | Number of | ||||||||||
Operations | of employees | collective agreements | collective agreements | |||||||||
Cable | 4,770 | 2,850 | 5 | |||||||||
Newspapers(1) | 7,940 | 2,680 | 86 | |||||||||
Broadcasting | 1,980 | 810 | 15 | |||||||||
Leisure and Entertainment | 1,490 | 320 | 6 | |||||||||
Interactive Technologies and Communications | 780 | 0 | 0 | |||||||||
Head office | 140 | — | — | |||||||||
Total | 17,100 | 6,660 | 112 |
(1) | This number includes, among others, 480 employees of Canoe, which is now part of our Newspapers segment. In December 2008, Sun Media Corporation announced a reduction of approximately 600 full-time employees. There remain employees who will exit the organization over the next few months as a result of this. |
• | Videotron is party to 5 collective bargaining agreements, representing approximately 2,850 employees. Of these collective bargaining agreements, one (representing approximately 40 employees) has expired, and negotiations are ongoing. Two others, representing approximately 2,510 employees, or 88% of Videotron’s unionized employees, will expire in December 2009. The remaining two collective bargaining agreements, representing approximately 300 employees, or 10% of Videotron’s unionized workforce will expire between December 31, 2010 and August 31, 2011; | ||
• | Sun Media (including Osprey Media) is party to 84 collective bargaining agreements, representing approximately 2 480 employees. One collective bargaining agreement, representing 6 employees, is under negotiation. 8 collective bargaining agreements, representing approximately 510 employees, or 20% of its unionized workforce, have expired. Negotiations regarding these collective bargaining agreements are either in progress or will be undertaken in 2009. One collective agreement, representing approximately 40 employees, is under arbitration. The other collective bargaining agreements are scheduled to expire on various dates through April 2012; | ||
• | TVA Group is party to 15 collective bargaining agreements, representing approximately 810 employees. Of this number, 5 collective bargaining agreements, representing approximately 120 employees, or 15% of its unionized workforce, have expired. Negotiations regarding these collective bargaining agreements are either in progress or will be undertaken in 2009. 3 collective bargaining agreements, representing approximately 550 employees, or 68% of its unionized workforce, will expire at the end of 2009. The others are scheduled to expire at various dates between April 20, 2011 and October 31, 2013; and |
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• | The other 8 collective bargaining agreements, representing approximately 520 employees or 8% of our unionized employees, will expire between the end of April 2009 and June 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 |
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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 Videotron; and | ||
(f) | a non-competition covenant by Quebecor in respect of it and its affiliates pursuant to which Quebecor and its affiliates shall not compete with Quebecor Media and its subsidiaries in their areas of activity so long as Quebecor has “de jure” or “de facto” control of us, subject to certain limited exceptions. |
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• | From January 1, 2008 to January 21, 2008, the Company made purchases from Quebecor World Inc. of $3.0 million ($55.3 million in 2007 and $74.8 million in 2006) and made sales to Quebecor World Inc. of $1.3 million ($17.9 million in 2007 and 2006). | ||
• | On January 10, 2008, the Company settled a balance of $4.3 million payable to Quebecor World Inc. by set-off. As the balance was due in 2013 and recorded at present value, the difference of $2.7 million between the settled amount of $7.0 million and the carrying value of $4.3 million was recorded as a reduction in contributed surplus. | ||
• | In October 2007, the Company increased its investment in Nurun Inc. by acquiring. 500,000 Common Shares of Nurun Inc. from Quebecor World Inc. at the exchange amount, for a cash consideration of $1.7 million. | ||
• | On October 11, 2007, the Company acquired a property from Quebecor World Inc. for a total net consideration of $62.5 million. Simultaneously, Quebecor World Inc. entered into a long-term operating lease with the Company to rent a portion of the property for a 17-year term. The consideration for the two transactions was settled by the payment of a net amount of $43.9 million to Quebecor World Inc. as of the date of the transactions, and the assumption by the Company of a $7.0 million balance of sale, including interest, payable in 2013. The transactions were concluded and accounted for at the exchange amount. | ||
• | During the year ended December 31, 2006, some of the Company’s subsidiaries acquired tax benefits amounting to $6.5 million from Quebecor World Inc. that were recorded as income taxes receivable. These transactions allowed the Company to realize a gain of $0.4 million (net of non-controlling interest), which was recorded as contributed surplus. |
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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; and | ||
• | 2,055,000 Cumulative First Preferred Shares, Series G, outstanding, all of which were held by 9101-0835 Quebec Inc. |
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1. | We were incorporated, in Canada, under Part IA of theCompanies Act(Quebec) (the “Companies Act”) as 9093-9687 Quebec 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(Quebec) 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(Quebec) 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(Quebec) 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(Quebec) 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(Quebec) 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(Quebec) 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(Quebec) 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 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(Quebec) 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. | Actions necessary to change the rights of shareholders: 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(Quebec), repeal, amend or otherwise alter any provisions of the Articles relating to the Series E Shares. Under the general provisions of theCompanies Act(Quebec), (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. | Shareholder meetings: 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 any meeting of our shareholders. |
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6. | Limitations on right to own securities: There are regulations related to the ownership and control of Canadian broadcast undertakings as described under “Item 4 — Information on the Company — Regulation”. There is no other 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) and theRadiocommunication Act. 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). Radio licenses may be issued under theRadiocommunication Actto radiocommunication service providers (Service Providers) that meet the eligibility criteria of Canadian ownership and control set forth in theCanadian Telecommunications Common Carrier Ownership and Contol Regulationsor CTCCOCR. Under the CTCCOCR, the holding corporation of a Service Provider may refuse to accept any subscription for or register the transfer of any of its voting shares unless it receives a declaration that such subscription or transfer would not result in the percentage of the total voting shares of the holding corporation of the Service Provider that are beneficially owned and controlled by non-Canadians exceeding 331/3 %. | |
7. | Provisions that could have the effect of delaying, deferring or preventing a change in control: 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. | |
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 Quebec 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$700,000,000 of our 73/4% Senior Notes due March 15, 2016, dated as of October 5, 2007, by and between Quebecor Media Inc., and U.S. Bank National Association, as trustee. | ||
On October 5, 2007, we issued US$700,000,000 aggregate principal amount of our 73/4% Senior Notes due March 15, 2016 pursuant to an Indenture, dated as of October 5, 2007, 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 December 15, 2007. 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 |
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notes may declare all the notes to be due and payable immediately. These notes were issued under a different indenture from, and do not form a single series and are not fungible with, our 73/4 % Senior Notes due 2016 which we issued in 2006, as described in the next paragraph. |
(b) | 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. These notes were issued under a different indenture from, and do not form a single series and are not fungible with, our 73/4 % Senior Notes due 2016 which we issued in 2007, as described in the previous paragraph. | |||
(c) | 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 Videotron. | |||
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 |
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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. |
(d) | Indenture relating to US$650,000,000 of Videotron’s 67/8% Senior Notes due January 15, 2014, dated as of October 8, 2003, by and among Videotron 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, Videotron issued US$335.0 million aggregate principal amount of 67/8% Senior Notes due January 15, 2014 and, on November 19, 2004, Videotron 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 Videotron, 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 Videotron’s subsidiaries. The notes are redeemable, at Videotron’s option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to Videotron and certain of its subsidiaries and customary events of default. If an event of default occurs and is continuing (other than Videotron’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) | Indenture relating to US$175,000,000 of Videotron’s 63/8% Senior Notes due December 15, 2015, dated as of September 16, 2005, by and among Videotron ltée, the guarantors party thereto, and Wells Fargo, National Association, as trustee. | ||
On September 16, 2005, Videotron 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 Videotron, 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 Videotron’s subsidiaries. These notes are redeemable, at Videotron’s option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to Videotron and certain of its subsidiaries, and customary events of default. If an event of default occurs and is continuing, other than Videotron’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. | |||
(f) | Indenture relating to US$455,000,000 of Videotron’s 91/8% Senior Notes due April 15, 2018, dated as of April 15, 2008, by and among Videotron, the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee, as supplemented by a Supplemental Indenture, dated as of March 5, 2009, relating to the issuance of an additional US$260,000,000 aggregate principal amount of 91/8% Senior Notes due April 15, 2018. | ||
On April 15, 2008, Videotron issued US$455,000,000 aggregate principal amount of its 91/8% Senior Notes due April 15, 2018, pursuant to an Indenture, dated as of April 15, 2018, by and among Videotron, the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee. These notes are unsecured and are due on April 15, 2018. Interest on these notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2008. These notes are guaranteed on a senior unsecured basis by most, but not all, of Videotron’s subsidiaries. These notes are redeemable, at Videotron’s option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to Videotron and certain of its subsidiaries, and customary events of default. If an event of default occurs and is continuing, other than Videotron’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. On March 5, 2009, Videotron issued an additional US$260.0 million aggregate |
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(g) | Amended and Restated Credit Agreement, as amended as of April 7, 2008, by and among Videotron 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 April 7, 2008, Videotron amended its senior secured credit facility to increase commitments under the facility from $450.0 million to $575.0 million and extend the maturity date to April 2012. Pursuant to these amendments, Videotron may, subject to certain conditions, increase the commitments under the senior secured credit facility by an additional $75.0 million (for aggregate commitments of $650.0 million) subject to approval by existing lenders providing such commitments or by adding new lenders. The proceeds of our senior secured credit facility are to be used for general corporate purposes, including, without limitation, for distributions to our shareholder in certain circumstances. | |||
Borrowings under our 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 this revolving credit facility are repayable in full in April 2012. | |||
Borrowings under this amended and restated senior secured credit facility and under eligible derivative instruments are secured by a first-ranking hypothec or security interest (subject to certain permitted encumbrances) on all of Videotron’s current and future assets, as well as those of the guarantors party thereto, including most but not all of Videotron’s subsidiaries (the “Videotron Group”), guarantees of all the members of the Videotron Group, pledges of the shares of Videotron and the members of the Videotron Group, and other security. | |||
This amended and restated senior secured credit facility contains customary covenants that restrict and limit the ability of Videotron and the members of the Videotron 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 senior secured 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 us and the members of the Videotron Group, and the occurrence of a change of control. | |||
(h) | 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. | ||
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. |
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(i) | 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 US$230.0 million term loan B. In connection with Quebecor Media’s 2006 refinancing, Sun Media’s credit facility was amended for the addition of a $40.0 million term loan C in January 2006. On October 31, 2007, Sun Media repaid in full and terminated its term loan B. In addition, on October 31, 2007, Sun Media entered into a Fifth Amending Agreement to its credit agreement. The amendment reduces the revolving credit facility from $75.0 million to $70.0 million, extends the term of the credit facilities to October 31, 2012, and modifies certain definitions and covenants related to leverage and interest coverage ratios, while removing the fixed charge ratio. | |||
Borrowings under the revolving credit facility and the term loan C are repayable in full in October 2012. Sun Media is also required to make specified quarterly repayments of amounts borrowed under the term loan C. | |||
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 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, if any (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, if any, 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. | |||
(j) | Share Purchase Agreement dated December 22, 2003 between Carlyle VTL Holdings, L.P. and Carlyle Partners III (Videotron), L.P., and Quebecor Media Inc. and 9101-0827 Quebec Inc. relating to the purchase by 9101-0827 Quebec 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 Quebec Inc., a wholly-owned subsidiary of Quebecor Media entered into an agreement with Carlyle VTL Holdings, L.P. and Carlyle Partners III (Videotron), L.P. (collectively “Carlyle”) to purchase the 5,000 Class C Preferred Shares held by Carlyle in 3662527 Canada Inc., the parent company of Videotron 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 was subject to variation on the basis of the valuation of the common shares of Quebecor Media and was payable on demand at any time after December 15, 2004, but no later than December 15, 2008. Quebecor Media held 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. At the date of the transaction, both parties had agreed that the initial value of the Additional |
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Amount payable was $70.0 million ($122.0 million as at December 31, 2006), and on July 23, 2007, Quebecor Media exercised its option to pay in full the Additional Amount payable to The Carlyle Group for total cash consideration of $127.2 million. | |||
(k) | Fourth Amended and Restated Credit Agreement, dated as of September 28, 2007, by and among 4411986 Canada Inc., Osprey Media Income Fund, Osprey Media LP and Osprey Media Income Fund, as borrowers, the financial institutions party thereto from time to time, as lenders, and The Bank of Nova Scotia, as administrative agent, as amended. | ||
On September 28, 2007, 4411986 Canada Inc., Osprey Media LP and Osprey Media Income Fund entered into a fourth amended and restated secured credit facility consisting of a 39-month revolving credit facility of $65.0 million and a 39-month $133.3 million term facility. Borrowings under the revolving credit facility and the term facility are repayable in full in January 2011. Pursuant to a corporate reorganization following the acquisition of Osprey Media, 4411986 Canada Inc., Osprey Media L.P., Osprey Media Publishing Inc. and other subsidiaries of 4411986 Canada Inc. entered into,inter alia, a first amendment dated as of January 1, 2008, a second amendment dated as of August 31, 2008 and an assumption and confirmation agreement dated as of December 28, 2008 to evidence such corporate reorganization. | |||
Borrowings under the revolving credit facility and the term 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 facility were used to refinance existing debt. The proceeds of Osprey Media’s revolving facility may be used for general corporate purposes including acquisitions, capital expenditures and distributions to Osprey Media’s shareholder (subject in each case to certain restrictions). | |||
Borrowings under this Fourth Amended and Restated Credit Agreement and under eligible derivative instruments are secured by a first-ranking hypothec and security agreement (subject to certain permitted encumbrances) on all of Osprey Media’s current and future assets, as well as those of its subsidiaries (the “Osprey Media Group”) and other security. | |||
This credit facility contains customary covenants that restrict and limit the ability of Osprey 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, and certain bankruptcy events relating to Osprey Media and members of the Osprey Media Group. |
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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; | ||
• | regulated investment companies; | ||
• | real estate investment trusts; | ||
• | tax-exempt organizations; | ||
• | persons holding notes as part of a hedging or conversion transaction or a straddle; | ||
• | persons deemed to sell notes under the constructive sale provisions of the Code; | ||
• | persons who or that are, or may become, subject to the expatriation provisions of the Code; | ||
• | persons whose functional currency is not the U.S. dollar; and | ||
• | direct, indirect or constructive owners of 10% or more of our outstanding voting shares. |
• | an individual citizen or resident alien of the United States; | ||
• | a corporation or other entity treated as such formed in or under the laws of the United States, any state thereof or the District of Columbia; | ||
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or | ||
• | a trust, if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more “U.S. persons” (within the meaning of the Code) have the authority to control all substantial decisions of the trust, or if a valid election is in effect to be treated as a U.S. person. |
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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 or, in the case of 2007 OID notes, OID not previously included in income, which amount will be taxable as ordinary interest income); and | ||
• | the U.S. Holder’s adjusted tax basis in the note. |
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• | 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 it 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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Twelve month period ending December 31, | ||||
(in millions) | ||||
2009 | $ | 37.1 | ||
2010 | 162.1 | |||
2011 | 166.2 | |||
2012 | 269.6 | |||
2013 | 651.7 | |||
2014 and thereafter | 3,013.9 |
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A. | None. | ||
B. | Not applicable. |
A — | Material Modifications to the Rights of Security Holders | |
These have been no material modifications to the rights of security holders. | ||
B — | Use of Proceeds Not applicable. |
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Form 20-F.
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2008(1) | 2008(2) | 2007 | ||||||||||
Audit Fees(3) | $ | 2,178,643 | $ | 559,810 | $ | 2,723,699 | ||||||
Audit-related Fees(4) | 206,078 | 368,153 | 921,489 | |||||||||
Tax Fees(5) | 31,228 | 32,500 | 76,024 | |||||||||
All Other Fees(6) | — | 52,500 | 724,564 | |||||||||
Total | $ | 2,415,949 | $ | 1,012,963 | $ | 4,445,776 |
(1) | Fees of Ernst & Young LLP. | |
(2) | Fees of KPMG LLP. | |
(3) | 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. | |
(4) | 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, due diligence or accounting work related to acquisitions; employee benefit plan audits, 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 and statutory audits. | |
(5) | 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. | |
(6) | 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). |
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Exhibit | ||
Number | Description | |
1.11 | Certificate of Amendment of Articles of Incorporation of Quebecor Media, Inc., as of January 12, 2007 (translation) (incorporated by reference to Exhibit 1.11 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2006, filed on March 30, 2007). | |
1.12 | By-law number 2007-1 of Quebecor Media Inc. (translation) (incorporated by reference to Exhibit 1.12 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2006, filed on March 30, 2007). | |
1.13 | Certificate of Amendment of Articles of Incorporation of Quebecor Media Inc., as of November 30, 2007 (translation) (incorporated by reference to Exhibit 1.13 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2007, filed on March 27, 2008). | |
1.14 | By-law number 2007-2 of Quebecor Media Inc. (translation) (incorporated by reference to Exhibit 1.14 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2007, filed on March 27, 2008). | |
1.15 | By-law number 2008-1 of Quebecor Media Inc. (translation). | |
2.1 | Form of 73/4 % Senior Note due 2016 originally issued on January 17, 2006 (included as Exhibit A to Exhibit 2.2 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). | |
2.2 | 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). | |
2.3 | Form of 73/4 % Senior Note due 2016 originally issued on October 5, 2007 (included as Exhibit A to Exhibit 2.4 below) (incorporated by reference to Exhibit 4.3 of Quebecor Media’s Registration Statement on Form F-4 dated November 20, 2007, Registration Statement No. 333-147551). | |
2.4 | 73/4% Senior Notes Indenture, dated as of October 5, 2007, by and between Quebecor Media Inc., and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.4 of Quebecor Media’s Registration Statement on Form F-4 dated November 20, 2007, Registration Statement No. 333-147551). | |
2.5 | Form of Sun Media Corporation 75/8% Senior Note due 2013 (included in Exhibit A to Exhibit 2.6 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). | |
2.6 | 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). | |
2.7 | 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). | |
2.8 | Form of Videotron Ltd. 67/8% Senior Notes due January 15, 2014 (incorporated by reference to Exhibit A to Exhibit 4.3 to Videotron’s Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
2.9 | Form of Notation of Guarantee by the subsidiary guarantors of the 67/8% Videotron Ltd. Senior Notes due January 15, 2014 (incorporated by reference to Exhibit E to Exhibit 4.3 to Videotron’s Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
2.10 | Indenture relating to Videotron ltée 67/8% Notes due 2014, dated as of October 8, 2003, by and among Videotron Ltd., the subsidiary guarantors signatory thereto and Wells Fargo Bank Minnesota, N.A., as trustee (incorporated by reference to Exhibit 4.3 to Videotron’s Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
2.11 | Supplemental Indenture, dated as of July 12, 2004, by and among Videotron Ltd., SuperClub Videotron |
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Exhibit | ||
Number | Description | |
Canada inc., Les Propriétés SuperClub inc. and Wells Fargo Bank, National Association, as trustee, to the Indenture dated as of October 8, 2003 (incorporated by reference to Exhibit 4.4 to Videotron’s Registration Statement on Form F-4 dated January 18, 2005, Registration Statement No. 333-121032). | ||
2.12 | Supplemental Indenture, dated as of April 15, 2008, by and among Videotron Ltd., Videotron US Inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, to the Indenture dated as of October 8, 2003 (incorporated by reference to Exhibit 2.5 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
2.13 | Supplemental Indenture, dated as of September 23, 2008, by and among Videotron Ltd., 9193-2962 Quebec inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, to the Indenture dated as of October 8, 2003 (incorporated by reference to Exhibit 2.6 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
2.14 | Form of Videotron Ltd. 63/8 % Senior Note due 2015 (included as Exhibit A to Exhibit 2.16 below). | |
2.15 | Form of Notation of Guarantee by the subsidiary guarantors of Videotron Ltd.’s 63/8% Senior Notes due 2015 (included as Exhibit E to Exhibit 2.16 below). | |
2.16 | Indenture relating to Videotron Ltd. 63/8% Senior Notes, dated as of September 16, 2005, by and between Videotron Ltd., the guarantors party thereto, and Wells Fargo, National Association, as trustee (incorporated by reference to Exhibit 4.3 of Videotron’s Registration Statement on Form F-4 dated October 14, 2005, Registration Statement No. 333-128998). | |
2.17 | Supplemental Indenture, dated as of April 15, 2008, by and among Videotron Ltd., Videotron US Inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, to the Indenture dated as of September 16, 2005 (incorporated by reference to Exhibit 2.10 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
2.18 | Supplemental Indenture, dated as of September 23, 2008, by and among Videotron Ltd., 9193-2962 Quebec inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, to the Indenture dated as of September 16, 2005 (incorporated by reference to Exhibit 2.11 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
2.19 | Form of 91/8% Senior Notes due April 15, 2018 of Videotron Ltd. (incorporated by reference to Exhibit 2.12 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
2.20 | Form of Notation of Guarantee by the subsidiary guarantors of the 91/8% Senior Notes due April 15, 2018 of Videotron ltée (incorporated by reference to Exhibit 2.13 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
2.21 | Indenture, dated as of April 15, 2008, by and among Videotron Ltd., the subsidiary guarantors signatory thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 2.14 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
2.22 | Supplemental Indenture, dated as of September 23, 2008, by and among Videotron Ltd., 9193-2962 Quebec inc., as guarantor, and Wells Fargo Bank, National Association, as trustee, to the Indenture dated as of April 15, 2008 (incorporated by reference to Exhibit 2.15 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
3.1 | Shareholders’ Agreement dated December 11, 2000 by and among Quebecor Inc., Capital Communications 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 |
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Exhibit | ||
Number | Description | |
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 | 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). | |
4.2 | Credit Agreement, dated as of April 7, 2006, by and between Société Générale (Canada), as lender, and Quebecor Media Inc., as borrower (incorporated by reference to Exhibit 10.3 of Quebecor Media’s Registration Statement on Form F-4 dated November 20, 2007, Registration Statement No. 333-147551). | |
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 | Fourth Amending Agreement, dated as of April 27, 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 and the lenders party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.8 of Quebecor Media’s Registration Statement on Form F-4 dated November 20, 2007, Registration Statement No. 333-147551). | |
4.8 | Fifth Amending Agreement, dated as of October 31, 2007, 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 and the lenders party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.9 of Quebecor Media’s Registration Statement on Form F-4 dated November 20, 2007, Registration Statement No. 333-147551). | |
4.9 | Form of Amended and Restated Credit Agreement (the “Credit Agreement”) entered into as of November 28, 2000, (as amended by a First Amending Agreement dated as of January 5, 2001, a 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, a Seventh Amending Agreement dated as of November 19, |
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Exhibit | ||
Number | Description | |
2004, an Eighth Amending Agreement dated as of March 6, 2008 and a Ninth Amending Agreement dated as of April 7, 2008) entered into as of November 28, 2000, as amended as of April 7, 2008, by and among Videotron Ltd., Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto (incorporated by reference to Exhibit 4.1 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | ||
4.10 | Seventh Amending Agreement, dated as of November 19, 2004, to the Credit Agreement dated as of November 28, 2000, among Videotron Ltd., Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto and acknowledged by Le SuperClub Videotron ltée, Groupe de Divertissement SuperClub inc., Videotron (1998) ltée, CF Cable TV Inc., Videotron (Regional) Ltd., 9139-3256 Quebec inc., Videotron TVN inc., Les Propriétés SuperClub inc. and SuperClub Videotron Canada inc., as guarantors (the “Guarantors”), and by Quebecor Media Inc. (incorporated by reference to Exhibit 10.2 to Videotron’s Registration Statement on Form F-4 dated January 18, 2005, Registration Statement No. 333-121032). | |
4.11 | Eighth Amending Agreement, dated as of March 6, 2008, to the Credit Agreement, dated as of November 28, 2000, as amended by the First Amending Agreement, dated as of January 5, 2001, a Second Amending Agreement, dated as of June 29, 2001, a Third Amending Agreement, dated as of December 12, 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 Videotron Ltd., Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto and acknowledged by Le SuperClub-Videotron ltée, Groupe de Divertissement SuperClub inc., CF Cable TV Inc., Les Propriétés SuperClub inc. and SuperClub Videotron Canada inc., as guarantors, and by Quebecor Media Inc. (incorporated by reference to Exhibit 4.3 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
4.12 | Ninth Amending Agreement, dated as of April 7, 2008, to the Credit Agreement, dated as of November 28, 2000, as amended by the First Amending Agreement, dated as of January 5, 2001, a Second Amending Agreement, dated as of June 29, 2001, a Third Amending Agreement, dated as of December 12, 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, a Seventh Amending Agreement dated as of November 19, 2004 and an Eighth Amending Agreement dated as of March 6, 2008, among Videotron Ltd., Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto and acknowledged by Le SuperClub-Videotron ltée, Groupe de Divertissement SuperClub inc., CF Cable TV Inc., Les Propriétés SuperClub inc. and SuperClub Videotron Canada inc., as guarantors, and by Quebecor Media Inc. (incorporated by reference to Exhibit 4.2 of Videotron Ltd’s Annual Report on Form 20-F for the year December 31, 2008, filed on March 6, 2009, Commission file No. 033-51000). | |
4.13 | Form of Guarantee under the Videotron Ltd. 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). | |
4.14 | Form of Share Pledge of the shares of Videotron ltée and of the guarantors of the Videotron ltée Credit Agreement (incorporated by reference to Schedule E of Exhibit 10.5 to Videotron’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |
4.17 | Fourth Amended and Restated Credit Agreement, dated as of September 28, 2007, between 4411986 Canada Inc., Osprey Media LP, Osprey Media Income Fund, as borrowers, the financial institutions party thereto, as Credit Facility lenders, the Canadian Imperial Bank of Commerce, as syndication agent, Bank of Montreal, as documentation agent, and the Bank of Nova Scotia, as administrative agent, including the First Amendment, made as of January 1, 2008, to the Fourth Amended and Restated Credit Agreement (incorporated by reference to Exhibit 4.16 of Quebecor Media’s Annual Report on Form 20-F for fiscal year ended December 31, 2007, filed on March 27, 2008). |
184
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Exhibit | ||
Number | Description | |
4.18 | Second Amendment, dated as of August 31, 2008, to the Fourth Amended and Restated Credit Agreement, dated as of September 28, 2007, between 4411986 Canada Inc., Osprey Media LP, Osprey Media Income Fund, as borrowers, the financial institutions party thereto, as Credit Facility lenders, the Canadian Imperial Bank of Commerce, as syndication agent, Bank of Montreal, as documentation agent, and the Bank of Nova Scotia, as administrative agent. | |
7.1 | Statement regarding calculation of ratio of earnings to fixed charges. | |
8.1 | Subsidiaries of Quebecor Media Inc. | |
11.1 | Code of Ethics. | |
12.1 | Certification of Pierre Karl Péladeau, President 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, President 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. | |
99.1 | Letter from KPMG LLP |
185
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QUEBECOR MEDIA INC. | ||||
By: | /s/ Louis Morin | |||
Name: | Louis Morin | |||
Title: | Vice President and Chief Financial Officer | |||
186
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Page | ||||
Annual Financial Information as of December 31, 2008 and 2007 and for the Years Ended December 31, 2008, 2007 and 2006 | ||||
Report of Independent Registered Public Accounting Firm | F-2 | |||
Report of Independent Registered Public Accounting Firm | F-3 | |||
Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006 | F-4 | |||
Consolidated Statements of Comprehensive Income for the years ended December 31, 2008, 2007 and 2006 | F-5 | |||
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2008, 2007 and 2006 | F-6 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 | F-7 | |||
Consolidated Balance Sheets as of December 31, 2008 and 2007 | F-9 | |||
Segmented Information | F-11 | |||
Notes to Consolidated Financial Statements for the years ended December 31, 2008, 2007 and 2006 | F-14 |
F-1
Table of Contents
F-2
Table of Contents
to the Board of Directors and to the shareholder of Quebecor Media Inc.
F-3
Table of Contents
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Revenues | $ | 3,730.1 | $ | 3,365.9 | $ | 2,998.6 | ||||||
Cost of sales and selling and administrative expenses | 2,610.6 | 2,402.0 | 2,199.0 | |||||||||
Amortization | 318.5 | 290.4 | 260.7 | |||||||||
Financial expenses (note 2) | 276.0 | 230.1 | 212.9 | |||||||||
Loss on valuation and translation of financial instruments (note 3) | 3.7 | 9.9 | 11.7 | |||||||||
Restructuring of operations, impairment of assets and other special items (note 4) | 54.6 | 11.2 | 16.7 | |||||||||
Loss on debt refinancing (note 5) | — | 1.0 | 342.6 | |||||||||
Impairment of goodwill and intangible assets (note 6) | 671.2 | 5.4 | 180.0 | |||||||||
(Loss) income before income taxes and non-controlling interest | (204.5 | ) | 415.9 | (225.0 | ) | |||||||
Income taxes (note 8) | 154.7 | 74.8 | (53.7 | ) | ||||||||
(Loss) income before non-controlling interest | (359.2 | ) | 341.1 | (171.3 | ) | |||||||
Non-controlling interest | (23.1 | ) | (19.2 | ) | (0.4 | ) | ||||||
(Loss) Income from continuing operations | (382.3 | ) | 321.9 | (171.7 | ) | |||||||
Income from discontinued operations | 2.3 | 5.2 | 2.0 | |||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | ||||
F-4
Table of Contents
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | ||||
Other comprehensive (loss) income, net of income taxes: | ||||||||||||
Unrealized gain (loss) on translation of net investments in foreign operations | 5.0 | (2.0 | ) | 1.2 | ||||||||
(Loss) gain on valuation of derivative financial instruments, including income tax expense of $47.9 million in 2008 (including income tax recovery of $11.5 million in 2007) | (64.6 | ) | 48.0 | — | ||||||||
(59.6 | ) | 46.0 | 1.2 | |||||||||
Comprehensive (loss) income | $ | (439.6 | ) | $ | 373.1 | $ | (168.5 | ) | ||||
F-5
Table of Contents
Consolidated statements of shareholders’ equity
(in millions of Canadian dollars)
Accumulated | ||||||||||||||||||||
other | ||||||||||||||||||||
comprehensive | Total | |||||||||||||||||||
Capital | Contributed | income (loss) | shareholders’ | |||||||||||||||||
Stock | Surplus | Deficit | (note 21) | equity | ||||||||||||||||
Balance as of 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 | ) | |||||||||||||
Related party transaction (note 25) | — | 0.4 | — | — | 0.4 | |||||||||||||||
Other comprehensive income, net of income taxes | — | — | — | 1.2 | 1.2 | |||||||||||||||
Balance as of December 31, 2006 | 1,752.4 | 3,217.2 | (2,731.5 | ) | (1.1 | ) | 2,237.0 | |||||||||||||
Cumulative effect of changes in accounting policies | — | — | (14.3 | ) | (35.5 | ) | (49.8 | ) | ||||||||||||
Net income | — | — | 327.1 | — | 327.1 | |||||||||||||||
Dividends | — | — | (110.0 | ) | — | (110.0 | ) | |||||||||||||
Other comprehensive income, net of income taxes | — | — | — | 46.0 | 46.0 | |||||||||||||||
Balance as of December 31, 2007 | 1,752.4 | 3,217.2 | (2,528.7 | ) | 9.4 | 2,450.3 | ||||||||||||||
Net (loss) income | — | — | (380.0 | ) | — | (380.0 | ) | |||||||||||||
Dividends | — | — | (65.0 | ) | — | (65.0 | ) | |||||||||||||
Related party transaction (note 25) | — | (2.7 | ) | — | — | (2.7 | ) | |||||||||||||
Other comprehensive loss, net of income taxes | — | — | — | (59.6 | ) | (59.6 | ) | |||||||||||||
Balance as of December 31, 2008 | $ | 1,752.4 | $ | 3,214.5 | $ | (2,973.7 | ) | $ (50.2 | ) | $ | 1,943.0 | |||||||||
F-6
Table of Contents
Consolidated statements of cash flows
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Cash flows related to operating activities: | ||||||||||||
(Loss) Income from continuing operations | $ (382.3 | ) | $ | 321.9 | $ | (171.7 | ) | |||||
Adjustments for: | ||||||||||||
Amortization of property, plant and equipment | 294.2 | 275.4 | 251.2 | |||||||||
Amortization of intangible assets and deferred charges | 24.3 | 15.0 | 9.5 | |||||||||
Impairment of property, plant and equipment (note 4(a)) | 19.1 | — | — | |||||||||
Impairment of goodwill and intangible assets (note 6) | 671.2 | 5.4 | 180.0 | |||||||||
Loss on valuation and translation of financial instruments (note 3) | 3.7 | 9.9 | 11.7 | |||||||||
Loss on debt refinancing (note 5) | — | 1.0 | 342.6 | |||||||||
Repayment of accrued interest on Senior Discount Notes | — | — | (197.3 | ) | ||||||||
Amortization of financing costs and long-term debt discount (note 2) | 9.3 | 4.8 | 7.3 | |||||||||
Future income taxes (note 8) | 142.0 | 63.5 | (59.1 | ) | ||||||||
Non-controlling interest | 23.1 | 19.2 | 0.4 | |||||||||
Other | (0.3 | ) | 3.3 | (0.1 | ) | |||||||
804.3 | 719.4 | 374.5 | ||||||||||
Net change in non-cash balances related to operating activities | (18.3 | ) | 32.7 | (22.2 | ) | |||||||
Cash flows provided by continuing operating activities | 786.0 | 752.1 | 352.3 | |||||||||
Cash flows provided by discontinued operating activities | — | 1.4 | 2.1 | |||||||||
Cash flows provided by operating activities | 786.0 | 753.5 | 354.4 | |||||||||
Cash flows related to investing activities: | ||||||||||||
Acquisition of property, plant and equipment | (527.3 | ) | (468.7 | ) | (435.5 | ) | ||||||
Business acquisitions, net of cash and cash equivalents (note 7) | (146.7 | ) | (438.6 | ) | (10.5 | ) | ||||||
Acquisition of intangible assets (note 12) | (567.1 | ) | — | — | ||||||||
Net decrease in temporary investments | 0.1 | 1.2 | 39.2 | |||||||||
Acquisition of tax deductions from parent company (note 25) | (18.4 | ) | (14.9 | ) | (16.1 | ) | ||||||
Decrease in advances receivable from parent company | — | — | 15.9 | |||||||||
Other | 2.0 | 13.1 | 6.5 | |||||||||
Cash flows used in investing activities | (1,257.4 | ) | (907.9 | ) | (400.5 | ) | ||||||
Sub-total, balance carried forward | $ (471.4 | ) | $ | (154.4 | ) | $ | (46.1 | ) |
F-7
Table of Contents
Consolidated statements of cash flows (continued)
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Sub-total, balance brought forward | $ | (471.4 | ) | $ | (154.4 | ) | $ | (46.1 | ) | |||
Cash flows related to financing activities: | ||||||||||||
Net (decrease) increase in bank indebtedness | (4.8 | ) | (6.6 | ) | 7.9 | |||||||
Net borrowings (repayments) under revolving and bridge bank facilities | 98.4 | (56.7 | ) | 38.4 | ||||||||
Issuance of long-term debt, net of financing fees | 463.8 | 756.1 | 1,225.8 | |||||||||
Repayments of long-term debt and unwinding of hedging contracts | (25.7 | ) | (301.3 | ) | (1,201.2 | ) | ||||||
Repayment of the Additional Amount payable (note 15) | — | (127.2 | ) | — | ||||||||
Dividends and reduction of Common Shares paid-up capital | (65.0 | ) | (110.0 | ) | (105.0 | ) | ||||||
Dividends paid to non-controlling shareholders | (3.0 | ) | (4.0 | ) | (4.5 | ) | ||||||
Net decrease in prepayments under cross-currency swap agreements | — | — | 21.6 | |||||||||
Other | 2.7 | (3.1 | ) | (0.6 | ) | |||||||
Cash flow provided by (used in) financing activities | 466.4 | 147.2 | (17.6 | ) | ||||||||
Net decrease in cash and cash equivalents | (5.0 | ) | (7.2 | ) | (63.7 | ) | ||||||
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies | 1.4 | (0.8 | ) | 0.4 | ||||||||
Cash and cash equivalents at beginning of year | 26.1 | 34.1 | 97.4 | |||||||||
Cash and cash equivalents at end of year | $ | 22.5 | $ | 26.1 | $ | 34.1 | ||||||
Cash and cash equivalents consist of: | ||||||||||||
Cash | $ | 9.9 | $ | 6.8 | $ | 13.9 | ||||||
Cash equivalents | 12.6 | 19.3 | 20.2 | |||||||||
$ | 22.5 | $ | 26.1 | $ | 34.1 | |||||||
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 | $ | 18.3 | $ | (41.5 | ) | $ | (14.5 | ) | ||||
Inventories and investments in televisual products and movies | (26.0 | ) | (6.4 | ) | (2.7 | ) | ||||||
Accounts payable and accrued charges | 87.8 | 35.5 | (15.8 | ) | ||||||||
Stock-based compensation | (100.0 | ) | 54.1 | 24.4 | ||||||||
Other | 1.6 | (9.0 | ) | (13.6 | ) | |||||||
$ | (18.3 | ) | $ | 32.7 | $ | (22.2 | ) | |||||
Cash interest payments | $ | 282.0 | $ | 243.3 | $ | 446.3 | ||||||
Cash income taxes payments (net of refunds) | 24.4 | (1.0 | ) | 7.0 | ||||||||
F-8
Table of Contents
Consolidated balance sheets
(in millions of Canadian dollars)
2008 | 2007 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 22.5 | $ | 26.1 | ||||
Accounts receivable (note 9) | 483.9 | 496.2 | ||||||
Income taxes | 9.4 | 10.5 | ||||||
Amounts receivable from parent company and companies under common control | 5.3 | 1.9 | ||||||
Inventories and investments in televisual products and movies (note 10) | 189.3 | 169.0 | ||||||
Prepaid expenses | 31.0 | 32.7 | ||||||
Future income taxes (note 8) | 102.8 | 153.6 | ||||||
844.2 | 890.0 | |||||||
Property, plant and equipment (note 11) | 2,334.7 | 2,110.2 | ||||||
Future income taxes (note 8) | 12.3 | 57.4 | ||||||
Derivative financial instruments (note 24) | 317.9 | 0.2 | ||||||
Intangible assets (note 12) | 858.6 | 334.4 | ||||||
Other assets (note 13) | 111.8 | 87.4 | ||||||
Goodwill (note 14) | 3,516.7 | 4,081.3 | ||||||
$ | 7,996.2 | $ | 7,560.9 | |||||
F-9
Table of Contents
consolidated balance sheets (continued)
(in millions of Canadian dollars)
2008 | 2007 | |||||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Bank indebtedness | $ | 11.5 | $ | 16.3 | ||||
Accounts payable and accrued charges | 793.7 | 756.0 | ||||||
Deferred revenue | 224.0 | 202.7 | ||||||
Income taxes | 9.8 | 19.2 | ||||||
Current portion of long-term debt (note 16) | 37.1 | 24.7 | ||||||
1,076.1 | 1,018.9 | |||||||
Long-term debt (note 16) | 4,298.7 | 3,002.8 | ||||||
Derivative financial instruments (note 24) | 117.3 | 538.7 | ||||||
Other liabilities (note 17) | 97.7 | 103.5 | ||||||
Future income taxes (note 8) | 357.4 | 292.5 | ||||||
Non-controlling interest (note 18) | 106.0 | 154.2 | ||||||
Shareholders’ equity: | ||||||||
Capital stock (note 19) | 1,752.4 | 1,752.4 | ||||||
Contributed surplus (note 25) | 3,214.5 | 3,217.2 | ||||||
Deficit | (2,973.7 | ) | (2,528.7 | ) | ||||
Accumulated other comprehensive (loss) income (note 21) | (50.2 | ) | 9.4 | |||||
1,943.0 | 2,450.3 | |||||||
Commitments and contingencies (note 22) | ||||||||
Guarantees (note 23) | ||||||||
Subsequent event (note 29) | ||||||||
$ | 7,996.2 | $ | 7,560.9 | |||||
F-10
Table of Contents
Segmented information
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Revenues: | ||||||||||||
Cable | $ | 1,804.2 | $ | 1,552.6 | $ | 1,309.5 | ||||||
Newspapers | 1,181.4 | 1,073.9 | 966.0 | |||||||||
Broadcasting | 436.7 | 415.5 | 393.3 | |||||||||
Leisure and Entertainment | 301.9 | 329.8 | 315.8 | |||||||||
Interactive Technologies and Communications | 89.6 | 82.0 | 73.9 | |||||||||
Inter-segment | (83.7 | ) | (87.9 | ) | (59.9 | ) | ||||||
$ | 3,730.1 | $ | 3,365.9 | $ | 2,998.6 | |||||||
F-11
Table of Contents
Segmented information (continued)
(in millions of Canadian dollars)
2008 | 2007 | 2006 | ||||||||||
Income from continuing operations before amortization, financial expenses, loss on valuation and translation of financial instruments, restructuring of operations, impairment of assets and other special items, loss on debt refinancing, impairment of goodwill and intangible assets, income taxes and non-controlling interest: | ||||||||||||
Cable | $ | 797.2 | $ | 642.7 | $ | 512.5 | ||||||
Newspapers | 227.1 | 232.8 | 217.7 | |||||||||
Broadcasting | 66.3 | 59.4 | 42.1 | |||||||||
Leisure and Entertainment | 20.5 | 27.0 | 19.3 | |||||||||
Interactive Technologies and Communications | 5.1 | 2.8 | 7.5 | |||||||||
Head office | 3.3 | (0.8 | ) | 0.5 | ||||||||
$ | 1,119.5 | $ | 963.9 | $ | 799.6 | |||||||
2008 | 2007 | 2006 | ||||||||||
Amortization: | ||||||||||||
Cable | $ | 227.6 | $ | 219.4 | $ | 198.4 | ||||||
Newspapers | 62.1 | 46.3 | 37.6 | |||||||||
Broadcasting | 14.4 | 13.2 | 14.3 | |||||||||
Leisure and Entertainment | 9.6 | 7.9 | 7.2 | |||||||||
Interactive Technologies and Communications | 4.3 | 3.0 | 2.3 | |||||||||
Head Office | 0.5 | 0.6 | 0.9 | |||||||||
$ | 318.5 | $ | 290.4 | $ | 260.7 | |||||||
2008 | 2007 | 2006 | ||||||||||
Additions to property, plant and equipment: | ||||||||||||
Cable | $ | 404.4 | $ | 330.1 | $ | 302.6 | ||||||
Newspapers | 86.8 | 116.0 | 118.2 | |||||||||
Broadcasting | 21.9 | 16.2 | 9.0 | |||||||||
Leisure and Entertainment | 9.1 | 2.9 | 3.4 | |||||||||
Interactive Technologies and Communications | 3.6 | 3.3 | 1.8 | |||||||||
Head Office | 1.5 | 0.2 | 0.5 | |||||||||
$ | 527.3 | $ | 468.7 | $ | 435.5 | |||||||
F-12
Table of Contents
Segmented information (continued)
(in millions of Canadian dollars)
2008 | 2007 | |||||||
Assets: | ||||||||
Cable | $ | 5,275.9 | $ | 4,460.1 | ||||
Newspapers | 1,788.4 | 2,426.8 | ||||||
Broadcasting | 439.1 | 407.9 | ||||||
Leisure and Entertainment | 189.0 | 176.9 | ||||||
Interactive Technologies and Communications | 105.1 | 85.9 | ||||||
Head Office | 198.7 | 3.3 | ||||||
$ | 7,996.2 | $ | 7,560.9 | |||||
F-13
Table of Contents
Notes to consolidated financial statements
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: | |
The consolidated financial statements have been 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 27. |
(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 2007 and 2006 have been reclassified to conform to the presentation adopted for the year ended December 31, 2008. | |||
(b) | Changes in accounting policies: | ||
On January 1, 2008, the Company adopted Canadian Institute of Chartered Accountants (“CICA”) Section 3031,Inventories, which provides more extensive guidance on the recognition and measurement of inventories and related disclosures. The adoption of this new section had no impact on the consolidated financial statements; the new accounting policy is described in note 1(l). | |||
On January 1, 2008, the Company adopted the CICA Section 1535,Capital Disclosures, Section 3862,Financial Instruments — Disclosures, and Section 3863,Financial Instruments — Presentation. These sections relate to disclosures and presentation of information and did not affect the consolidated financial results. All the disclosure requirements related to these new accounting standards are presented in note 24. | |||
(c) | Changes in accounting estimates: | ||
The Company estimates the fair value of its derivative financial instruments using a discounted cash flow valuation technique, since no quoted market prices exist for such instruments. In the second quarter of 2008, the Company made some amendments to the technique used in measuring the fair value of its derivatives in a liability position and in an asset position. These amendments change the way the Company factors counterparty and its own non-performance risk in its valuation technique, considering market development and recent accounting guidelines. The cumulative impact of these changes as of December 31, 2008, is a decrease of the fair value of these derivatives by $22.7 million, a decrease of the loss on valuation and translation of financial instruments by $4.9 million, and an increase of other comprehensive loss by $27.6 million (before income taxes). | |||
(d) | 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 recorded in other comprehensive income and are reclassified in income only when a reduction in the investment in these foreign operations is realized. | |||
Foreign currency transactions are translated using the temporal method. Translation gains and losses are included in financial expenses or in gain or loss on valuation and translation of financial instruments, unless hedge accounting is used. |
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) |
(e) | 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 postretirement benefit costs, key economic assumptions used in determining the allowance for doubtful accounts, the provision for obsolescence, the allowance for sales returns, legal contingencies, the costs for 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 implied fair value of goodwill and the fair value of assets and liabilities for business purchase price allocation purposes and goodwill impairment test purposes, fair value of long-lived assets for purpose of the impairment of long-lived assets, fair value of broadcasting licences and mastheads for impairment test purposes, provisions for income taxes and determination of future income tax assets and liabilities, and the determination of fair value of financial instruments and derivative instruments. Actual results could differ from these estimates. | |||
(f) | Impairment of long-lived assets: | ||
The Company reviews long-lived assets with definite useful lives 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 an asset or 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 carrying amount of a group of assets 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. | |||
(g) | 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 revenue that is unearned 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, for which there are two separate accounting units: one for subscriber services (cable television, Internet, IP telephony or wireless telephone, including connecting fees) and the other for equipment sales to subscribers. Components of multiple deliverable arrangements are separately accounted for, provided the delivered elements have stand-alone value to the customer and the fair value of any undelivered elements can be objectively and reliably determined. |
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): |
(g) | Revenue recognition (continued): | ||
Cable segment (continued) | |||
Cable connection fee revenues of the Cable segment are deferred and recognized as revenues over the estimated average 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 period. The excess of these costs over the related revenues is recognized immediately in income. Operating revenues from cable and other services, such as Internet access, IP telephony and wireless telephone, are recognized when services are rendered. Revenues from equipment sales to subscribers and their costs are recognized in income when the equipment is delivered and, in the case of wireless phones, revenues 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 subscriber services are accounted for as a reduction in the related service revenue over the period of performance of the service contract. Promotion offers related to equipment, including wireless telephones, 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 are recognized when the publication is delivered, net of provisions for estimated returns based on the segment’s historical rate of returns. Revenues from the distribution of publications and products are recognized upon delivery, net of provisions for estimated returns. | |||
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 subscriptions to specialty 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 the publication is delivered, net of provisions for estimated returns based on the segment’s historical rate of returns. | |||
Revenues derived from the distribution of televisual products and movies and from television program rights are recognized when the customer can begin exploitation, exhibition or sale, and the licence period of the arrangement has begun. | |||
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 distribution of DVDs are recognized at the time of their delivery, less a provision for estimated 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 returns. |
(h) | Barter transactions: | ||
In the normal course of operations, the Newspapers and the Broadcasting 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, 2008, the Company recorded $19.2 million of barter advertising ($19.0 million in 2007 and $19.5 million in 2006). |
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): |
(i) | Financial instruments: | ||
Classification, recognition and measurement: | |||
Effective January 1, 2007, financial instruments must be classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities, and measurement in subsequent periods depends on their classification. The Company has classified its cash and cash equivalents and its bank indebtedness as held-for-trading. Accounts receivable, amounts receivable from parent company and companies under common control, loans and other long-term receivables included in other assets have been classified as loans and receivables. All portfolio investments included in other assets have been classified as available-for-sale. All of the Company’s financial liabilities have been classified as other liabilities. | |||
Financial instruments held-for-trading are measured at fair value with changes recognized in income as gain or loss on valuation and translation of financial instruments. Available-for-sale portfolio investments are measured at fair value or at cost in the case of equity investments that do not have a quoted market price in an active market. Changes in fair value are recorded in other comprehensive income. Financial assets classified as loans and receivables and other financial liabilities are measured at amortized cost, using the effective interest rate method of amortization. | |||
Financing fees related to long-term financing are capitalized in reduction of long-term debt and amortized using the effective interest rate method. | |||
Derivative financial instruments and hedge accounting: | |||
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 financial instruments for trading purposes. Under hedge accounting, the Company documents all hedging relationships between hedging items and hedged items, as well as its strategy for using hedges and its risk-management objective. It also designates its derivative financial instruments as either fair value hedges or cash flow hedges. The Company assesses the effectiveness of derivative financial instruments when the hedge is put in place and on an ongoing basis. | |||
The Company enters into the following types of derivative financial instruments: |
• | The Company uses foreign exchange forward contracts to hedge the foreign currency rate exposure on (i) anticipated equipment or inventory purchases in a foreign currency and (ii) principal payments on long-term debt in a foreign currency. These latest foreign exchange forward contracts are designated as cash flow hedges. | ||
• | The Company uses cross-currency interest rate swaps to hedge (i) the foreign currency rate exposure on interest and principal payments on foreign currency denominated debt and/or (ii) the fair value exposure on certain debt resulting from changes in interest rates. The cross-currency interest rate swaps that set all future interest and principal payments on U.S.-denominated debt in fixed Canadian dollars are designated as cash flow hedges. The Company’s cross-currency interest rate swaps that set all future interest and principal payments on U.S.-denominated debt in fixed Canadian dollars, in addition to converting the interest rate from a fixed rate to a floating rate, or converting a floating rate index to another floating rate index, are designated as fair value hedges. | ||
• | The Company uses interest rate swaps to manage the fair value exposure on certain debt resulting from changes in interest rates. These swap agreements require a periodic exchange of payments without the exchange of the notional principal amount on which the payments are based. These interest rate swaps are designated as fair value hedges when they convert the interest rate from a fixed rate to a floating rate, or as cash flow hedges when they convert the interest rate from a floating rate to a fixed rate. |
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): |
(i) | Financial instruments (continued): | ||
Derivative financial instruments and hedge accounting (continued): | |||
Effective January 1, 2007, under hedge accounting, the Company applies the following accounting policies: |
• | For derivative financial instruments designated as fair value hedges, changes in the fair value of the hedging derivative recorded in income are substantially offset by changes in the fair value of the hedged item to the extent that the hedging relationship is effective. When a fair value hedge is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to income over the remaining term of the original hedging relationship. | ||
• | For derivative financial instruments designated as cash flow hedges, the effective portion of a hedge is reported in other comprehensive income until it is recognized in income during the same period in which the hedged item affects income, while the ineffective portion is immediately recognized in the consolidated statements of income. When a cash flow hedge is discontinued, the amounts previously recognized in accumulated other comprehensive income are reclassified to income when the variability in the cash flows of the hedged item affects income. |
Prior to 2007, under hedge accounting, the Company recorded its hedges relationships as follows: |
• | For purchases of property, plant and equipment or inventories hedged by foreign exchange forward contracts, foreign exchange translation gains and losses were recognized as an adjustment to the cost of the hedged item when the transaction was recorded. |
• | For long-term debt in foreign currency hedged by foreign exchange forward contracts and cross-currency interest rate swaps, foreign exchange translation gains and losses on long-term debt were offset by corresponding gains and losses on derivative instruments recorded under other assets or other liabilities. The fees on forward foreign exchange contracts and on cross-currency swaps were recognized as an adjustment to interest expenses over the term of the agreement. |
• | For long-term debt hedged by interest rate swaps, interest expense on the debt was adjusted to include payments made or received under interest rate swaps. |
• | In addition, realized and unrealized gains or losses associated with derivative financial instruments that were terminated or ceased to be effective prior to maturity, for hedge accounting purposes were 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 was recognized. In the event a designated hedged item was sold, extinguished or matured prior to the termination of the related derivative financial instrument, any realized or unrealized gain or loss on such derivative financial instrument was recognized in income. |
Any change in the fair value of these derivative financial instruments recorded in income is included in gain or loss on valuation and translation of financial instruments. Interest expense on hedged long-term debt is reported at the hedged interest and foreign currency rates. | |||
Derivative financial instruments that are ineffective or that are not designated as hedges, including derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts, are reported on a mark-to-market basis in the consolidated balance sheets. Any change in the fair value of these derivative financial instruments is recorded in the consolidated statements of income as gain or loss on valuation and translation of financial instruments. |
F-18
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) | Cash and cash equivalents: | ||
Cash and cash equivalents include highly liquid investments purchased three months or less from maturity and are recorded at fair value. As of December 31, 2008, these highly liquid investments consisted mainly of Bankers’ acceptances. | |||
(k) | Tax credits and government assistance: | ||
The Broadcasting and the Leisure and Entertainment segments have access to several government programs designed to support production and distribution of televisual products and movies, as well as music products, magazine and book publishing in Canada. The financial assistance for production is accounted for as a reduction in expenses. The financial assistance for broadcast rights is applied against investments in televisual products or used directly to reduce operating expenses during the year. The financial assistance for magazine and book publishing is accounted for in revenues when the conditions of the government programs are met. | |||
The Interactive Technologies and Communications and the Leisure and Entertainment segments receive tax credits mainly related to their research and development activities and publishing activities. These tax credits are accounted for as a reduction in related costs, whether they are capitalized or expensed, in the year expenses are incurred, as long as there is reasonable assurance of their realization. | |||
(l) | 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 estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Work in progress is valued at the pro-rata billing value of the work completed. | |||
(m) | Investments in televisual products and movies: |
(i) | Programs produced and productions in progress: | ||
Programs produced and productions in progress related to broadcasting 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 related to each production. The cost of each program is charged to cost of sales when the program is broadcast. | |||
(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: (a) the cost of each program, movies or series is known or can be reasonably determined; (b) the programs, movies or series have been accepted in accordance with the conditions of the broadcast licence agreement; (c) the programs, movies or series are available for 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 estimate of the broadcast period. These rights are amortized when televisual products and movies are broadcast over the contract period, using an amortization method based on future revenues and the estimated number of showings. This amortization is recorded 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-19
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): |
(m) | Investments in televisual products and movies (continued): |
(iii) | Distribution rights: | ||
Distribution rights relate to the distribution of televisual products and movies. Costs include distribution rights for televisual products and movies and other operating costs incurred that generate 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 (a) the cost of the licence is known or can be reasonably estimated, (b) the televisual product and movie has been accepted in accordance with the conditions of the licence agreement, and (c) the televisual product or movie is available for distribution. | |||
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 distribution of 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 recorded in cost of sales and selling and administrative expenses. |
(n) | Income taxes: | ||
The Company uses the 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 carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases. Future income tax assets and liabilities are measured using 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 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. | |||
In the course of the Company’s operations, there are a number of uncertain tax positions due to the complexity of certain transactions and due to the fact that related tax interpretations and legislation are continually changing. When a tax position is uncertain, the Company recognizes an income tax benefit or reduces an income tax liability only when it is probable that the tax benefit will be realized in the future or that the income tax liability is no longer probable. | |||
(o) | Long-term investments: | ||
Investments in companies subject to significant influence are accounted for by the equity method. All portfolio investments are classified as available-for-sale and are accounted for as described in note 1 (i). Carrying values of investments are reduced to estimated fair values if there is other than a temporary decline in the value of the investment. | |||
(p) | 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 and wireless, the cost includes equipment, direct labour and direct overhead costs. Projects under development may also include advances for equipment under construction. Expenditures for additions, improvements and replacements are capitalized, whereas maintenance and repair expenditures are expensed as incurred. |
F-20
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(p) | Property, plant and equipment (continued): | ||
Amortization is principally calculated on a straight-line basis over the following estimated useful lives: |
Estimated | ||
Assets | useful life | |
Buildings | 25 to 40 years | |
Machinery and equipment | 3 to 20 years | |
Receiving, distribution and telecommunication 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 undeterminable for these assets. | |||
(q) | 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 and mastheads 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 consolidated statements of income for the excess, if any. | |||
The cost of the spectrum licences for Advanced Wireless Services (“AWS”) includes acquisition costs and interest incurred during the development period of the wireless network project, until the network is ready for commercial service. | |||
Other 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 3 to 10-year period. | |||
(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 liability and compensation cost. |
F-21
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(s) | 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 of 13-year 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 of plan assets as of the end of the year 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. |
(t) | Rates subject to CRTC regulation: | ||
The Cable segment operations are subject to rate regulations on certain services based on geographical regions, mainly by theBroadcasting Act(Canada) and theTelecommunications Act (Canada), both managed by the Canadian Radio-television and Telecommunication Commissions (“CRTC”). 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 differ from GAAP, even though the Company is subject to these regulations. |
F-22
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): |
(u) | Future changes in accounting standards | ||
In January 2008, the CICA issued Section 3064,Goodwill and Intangible Assets, which will replace Section 3062,Goodwill and Other Intangible Assets, and which results in the withdrawal of Section 3450,Research and Development Costsand Emerging Issues Committee (“EIC”) Abstract 27,Revenues and Expenditures During the Pre-operating Period, and amendments to Accounting Guideline (“AcG”) 11,Enterprises in the Development Stage. The new standard provides guidance on the recognition of intangible assets in accordance with the definition of an asset and the criteria for asset recognition, as well as clarifying the application of the concept of matching revenues and expenses, whether those assets are separately acquired or internally developed. This standard applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The Company is currently evaluating the effects of adopting this standard, although it does not expect the adoption will have a material impact on its consolidated financial statements. |
2. | FINANCIAL EXPENSES: |
2008 | 2007 | 2006 | ||||||||||
Interest on long-term debt | $ | 278.3 | $ | 232.4 | $ | 215.0 | ||||||
Amortization of financing costs and long-term debt discount | 9.3 | 4.8 | 7.3 | |||||||||
Other | 1.2 | (2.1 | ) | (0.2 | ) | |||||||
288.8 | 235.1 | 222.1 | ||||||||||
Interest capitalized to the cost of: | ||||||||||||
Property, plant and equipment | (0.3 | ) | (5.0 | ) | (9.2 | ) | ||||||
Intangible assets | (12.5 | ) | — | — | ||||||||
(12.8 | ) | (5.0 | ) | (9.2 | ) | |||||||
$ | 276.0 | $ | 230.1 | $ | 212.9 | |||||||
3. | LOSS ON VALUATION AND TRANSLATION OF FINANCIAL INSTRUMENTS: |
2008 | 2007 | 2006 | ||||||||||
(Gain) loss on embedded derivatives and derivative financial instruments for which hedge accounting is not used | $ | (47.2 | ) | $ | 44.3 | $ | 4.1 | |||||
Loss (gain) on foreign currency translation of financial instruments for which hedge accounting is not used | 34.3 | (34.8 | ) | (2.9 | ) | |||||||
Loss (gain) on the ineffective portion of fair value hedges | 16.6 | (4.8 | ) | — | ||||||||
Loss on revaluation of the Additional Amount payable | — | 5.2 | 10.5 | |||||||||
$ | 3.7 | $ | 9.9 | $ | 11.7 | |||||||
F-23
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
4. | RESTRUCTURING OF OPERATIONS, IMPAIRMENT OF ASSETS AND OTHER SPECIAL ITEMS: |
(a) | Newspapers segment | ||
Restructuring costs | |||
The Newspapers segment has been facing a fundamental transformation under way in the newspaper industry in recent years, as well as a difficult economic environment affecting its advertising revenues. In this context, in December 2008, the Company initiated a workforce-reduction plan as part of a major restructuring of its Newspapers segment operations across Canada. The Company has also implemented the following restructuring initiatives in the Newspapers segment’s operations since 2006: |
• | Transfer of the printing of several publications to two new printing facilities in Mirabel and Islington, as well as the consolidation of other printing activities. | ||
• | Implementation of voluntary and involuntary workforce-reduction programs. | ||
• | Introduction of new content-management technologies and streamlining of the news-gathering process. |
As a result of these initiatives, the Newspapers segment recorded restructuring costs of $33.3 million in 2008 ($9.9 million in 2007 and $17.0 million in 2006), mainly related to the elimination of positions at several publications. | |||
Continuity of restructuring costs payable |
2008 | 2007 | |||||||
Balance at beginning of year | $ | 6.0 | $ | 12.7 | ||||
Workforce-reduction initiatives | 33.3 | 9.9 | ||||||
Payments | (9.6 | ) | (16.6 | ) | ||||
Balance at end of year | $ | 29.7 | $ | 6.0 | ||||
Impairment of assets | |||
In the fourth quarter of 2008, the Company concluded that impairment tests were triggered by the restructuring initiatives of December 2008 and the loss of an important printing contract. The Company also concluded that certain long-lived assets were impaired. As a result, an impairment charge of $19.1 million was recorded related to certain buildings, equipment and machinery. | |||
(b) | Other segments | ||
In 2008, other segments recorded restructuring costs of $2.3 million ($1.7 million in 2007 and $1.9 million in 2006). | |||
(c) | Other special items | ||
In 2008, the Company recorded a gain on the sale of businesses and other special items of $0.1 million ($0.4 million in 2007 and $2.2 million in 2006). |
F-24
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
5. | LOSS ON DEBT REFINANCING: |
(a) | Quebecor Media Inc.: | ||
On October 5, 2007, the Company issued new Senior Notes (note 16 (iv)) for net proceeds of $672.2 million (including accrued interest of $16.6 million and before financing fees of $9.8 million). The Company used these proceeds and cash on hand to (i) repay in full the $420.0 million of advances under the Company’s Senior Bridge Credit Facility entered into to finance the acquisition of Osprey Media Publishing Inc. in August 2007 (note 7) and terminate this facility on October 9, 2007; as well as (ii) repay the Sun Media Term Loan B and settle related hedging contracts on October 31, 2007, for a total cash consideration of $277.8 million, resulting in a loss of $1.0 million. | |||
On January 17, 2006, the Company recorded a loss of $331.6 million as a result of refinancing substantially all of its 11.125% Senior Notes and 13.75% Senior Discount Notes. The loss represents the excess of the $1.3 billion consideration paid, including debt repurchase premiums and disbursements for unwinding hedging contracts, over the carrying value of the notes and the hedging contracts, and the write-off of 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 16 (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 16 (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 2012 (note 16 (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. |
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. | |||
(b) | 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 and settled a corresponding portion of its hedging contracts. As a result, a loss of $0.5 million was recorded. |
6. | IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS: | |
2008 | ||
The adverse financial and economic environment prevailing at the end of the fourth quarter of 2008 triggered a goodwill and mastheads impairment test at the Newspapers, Leisure and Entertainment, and Interactive Technologies and Communications reporting units. As a result, the Company concluded that these segments’ goodwill and mastheads were impaired. The Company is in the process of performing the second step of the goodwill impairment test and a total preliminary estimated goodwill impairment loss of $631.0 million has been recorded: $595.0 million in the Newspapers segment, $10.0 million in the Leisure and Entertainment segment, and $26.0 million in the Interactive Technologies and Communications segment. The Company will complete the measurement of the goodwill impairment loss as soon as possible and any adjustment to the estimated loss will be recognized in a subsequent reporting period. Finally, the Company has completed its impairment test on mastheads and an impairment loss of $40.2 million has been recorded. |
F-25
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
6. | IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS (continued): | |
2008 (continued) | ||
When performing the second step of the goodwill impairment test, the fair value of goodwill is determined in the same manner as for business combination. The Company allocates the fair value of a reporting unit to all of the identifiable assets and liabilities of the reporting unit, whether or not recognized separately, and the excess of the fair value over the amounts assigned to the reporting unit’s identifiable assets and liabilities is the fair value of goodwill. In the process of performing the second step of the test, an estimated fair value of $675.0 million was attributed to intangible assets such as mastheads and customer relationships, without recognition in the books, representing an estimated excess of $340.0 million, net of future income tax, over the carrying value of these related intangibles assets. Therefore, a lesser portion of the reporting units’ fair value was attributed to goodwill. As a result, the magnitude of the estimated goodwill impairment exceeded significantly the reporting units’ overall carrying value impairment. | ||
2007 | ||
In the fourth quarter of 2007, the Company concluded that the goodwill of a reporting unit of its Cable segment related to the DVDs and game rental operations in Ontario was impaired. Accordingly, an impairment charge of $5.4 million was recorded. | ||
2006 | ||
In 2006, the Company completed its annual impairment test for its broadcasting licences and goodwill. Based on the results, the Company concluded that the carrying values of the broadcasting licences and goodwill of its Broadcasting segment were impaired. Conventional television broadcasters were experiencing pressure on their advertising revenues at that time due to the fragmentation of the television market. Accordingly, the Company reviewed its business plan and recorded a total impairment charge of $179.2 million in 2006: $30.8 million for one of its broadcasting licences and $148.4 million for goodwill. | ||
In addition, in 2006, the Broadcasting segment recorded an impairment charge of $0.8 million related to an operating licence co-owned with another entity. | ||
7. | BUSINESS ACQUISITIONS: | |
During the years ended December 31, 2008, 2007, and 2006, the Company acquired or increased its interest in several businesses and has accounted for these by the purchase method. The results of operations of these businesses have been included in the Company’s consolidated financial statements from the dates of their respective acquisitions. | ||
2008 |
• | On June 2, 2008, TVA Group Inc., Broadcasting segment, repurchased 3,000,642 Class B shares at a price of $17.00 per share under a substantial issuer bid for a total cash consideration of $51.4 million, resulting in goodwill of $4.3 million. The Company’s equity interest in TVA Group Inc. increased from 45.24% to 50.90% following this transaction. | ||
• | In February 2008, the Company acquired all of the non-controlling interest in Nurun Inc., Interactive Technologies and Communications segment, pursuant to its offer to purchase the shares at a price of $4.75 per Common Share for a total cash consideration of $75.2 million, resulting in goodwill of $40.3 million. Common Shares of Nurun Inc. were delisted from the Toronto Stock Exchange following this transaction. | ||
• | The Company paid an earn-out of $5.0 million in the first quarter of 2008 in relation to the 2005 acquisition of Sogides Group Inc., Leisure and Entertainment segment. The payment was recorded as goodwill. | ||
• | The Company acquired and/or increased its interest in various businesses, mainly in the Newspapers segment, for a total cash consideration of $15.1 million, a contingent amount payable of $1.0 million as of December 31, 2008, and additional contingent payments totalling $6.0 million, based on the achievement of specific conditions in the future. These acquisitions resulted in goodwill of $11.1 million. |
F-26
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
7. | BUSINESS ACQUISITIONS (continued): | |
2007 |
• | In August 2007, the Company acquired all outstanding units of Osprey Media Income Fund, which subsequently became Osprey Media Publishing Inc. as a result of a corporate reorganization, for a total cash consideration, excluding assumed debt, of $415.2 million (including transaction costs of $0.8 million). As part of the acquisition, the Company assumed the debt of $161.8 million under Osprey Media Publishing Inc.’s credit facilities (note 16 (xii)). Osprey Media Publishing Inc. is one of Canada’s leading publishers of daily and non-daily newspapers, magazines and specialty publications. Its publications include 20 daily newspapers and 33 non-daily newspapers, together with shopping guides, magazines and other publications. | ||
• | During the year ended December 31, 2007, the Company acquired or increased its interest in several businesses, mainly in the Newspapers segment, for total consideration of $20.5 million, resulting in preliminary goodwill of $17.4 million, which was reduced by $2.3 million in 2008 when the purchase price allocation was finalized. | ||
• | In January 2007, TVA Group Inc. and Sun Media Corporation paid the balance payable in the amount of $3.4 million related to the acquisition of SUN TV in 2004. |
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. |
Business acquisitions for 2008 are summarized as follows: |
2008 | ||||
Assets acquired: | ||||
Cash and cash equivalents | $ | 0.5 | ||
Non-cash current assets | 1.1 | |||
Property, plant and equipment | 3.1 | |||
Intangible assets | 18.8 | |||
Goodwill1 | 60.7 | |||
Non-controlling interest | 73.0 | |||
157.2 | ||||
Liabilities assumed: | ||||
Non-cash current liabilities | (2.9 | ) | ||
Future income taxes | (6.1 | ) | ||
(9.0 | ) | |||
Net assets acquired at fair value | $ | 148.2 | ||
Consideration : | ||||
Cash | $ | 147.2 | ||
Contingent amount payable | 1.0 | |||
$ | 148.2 | |||
F-27
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
7. | BUSINESS ACQUISITIONS (continued): | |
Business acquisitions for 2007 and 2006 are summarized as follows: |
2007 | 2006 | |||||||||||||||
Osprey Media | ||||||||||||||||
Publishing Inc.3 | Other3 | Total | ||||||||||||||
Assets acquired: | ||||||||||||||||
Cash and cash equivalents | $ — | $ | 0.5 | $ | 0.5 | $ | 2.1 | |||||||||
Non-cash current assets | 38.5 | 0.4 | 38.9 | 2.5 | ||||||||||||
Property, plant and equipment | 42.4 | 0.5 | 42.9 | 0.2 | ||||||||||||
Intangible assets2 | 233.7 | 3.2 | 236.9 | — | ||||||||||||
Other assets | 0.3 | 0.4 | 0.7 | 4.4 | ||||||||||||
Goodwill1 | 360.4 | 15.1 | 375.5 | 7.6 | ||||||||||||
Non-controlling interest | — | 1.9 | 1.9 | 1.2 | ||||||||||||
675.3 | 22.0 | 697.3 | 18.0 | |||||||||||||
Liabilities assumed: | ||||||||||||||||
Bank indebtedness | (2.3 | ) | — | (2.3 | ) | — | ||||||||||
Non-cash current liabilities | (27.3 | ) | (0.7 | ) | (28.0 | ) | (3.1 | ) | ||||||||
Long-term debt | (161.8 | ) | — | (161.8 | ) | — | ||||||||||
Other liabilities | (6.8 | ) | — | (6.8 | ) | — | ||||||||||
Future income taxes | (61.9 | ) | (0.8 | ) | (62.7 | ) | (0.9 | ) | ||||||||
(260.1 | ) | (1.5 | ) | (261.6 | ) | (4.0 | ) | |||||||||
Net assets acquired at fair value | $ 415.2 | $ | 20.5 | $ | 435.7 | $ | 14.0 | |||||||||
Consideration: | ||||||||||||||||
Cash | $ 415.2 | $ | 20.5 | $ | 435.7 | $ | 12.6 | |||||||||
Issuance of Common Shares by Nurun Inc. | — | — | — | 1.4 | ||||||||||||
$ 415.2 | $ | 20.5 | $ | 435.7 | $ | 14.0 | ||||||||||
1 | The amount of goodwill that is deductible for tax purposes is $0.7 million in 2008 ($3.1 million in 2007 and $1.6 million in 2006). | |
2 | In connection with the Osprey Media Publishing Inc. acquisition, intangible assets are mainly comprised of customer relationship and non-competition agreements with a fair value of $130.3 million and mastheads with a fair value of $103.4 million. | |
3 | During the third quarter of 2008, the Company finalized certain purchase price allocations, mainly related to the acquisition of Osprey Media Publishing Inc. in August 2007, which resulted in a reduction in property, plant and equipment of $11.9 million, an increase in intangible assets of $3.1 million, a reduction in other assets of $0.4 million, an increase in other liabilities of $1.4 million, a reduction in future income tax liabilities of $3.5 million, and an increase in goodwill of $7.1 million. |
F-28
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
8. | INCOME TAXES: | |
Income taxes on continuing operations are as follows: |
2008 | 2007 | 2006 | ||||||||||
Current | $ | 12.7 | $ | 11.3 | $ | 5.4 | ||||||
Future | 142.0 | 63.5 | (59.1 | ) | ||||||||
$ | 154.7 | $ | 74.8 | $ | (53.7 | ) | ||||||
The following table reconciles income taxes at the Company’s domestic statutory tax rate of 30.9 % in 2008 (32.0% in 2007 and in 2006) and income taxes in the consolidated statements of income: |
2008 | 2007 | 2006 | ||||||||||
Income taxes at domestic statutory tax rate | $ | (63.2 | ) | $ | 133.2 | $ | (72.0 | ) | ||||
Increase (reduction) resulting from: | ||||||||||||
Effect of provincial tax rate differences | (3.1 | ) | (0.9 | ) | — | |||||||
Effect of non-deductible charges, non-taxable income and differences between current and future tax rates | 11.5 | (7.8 | ) | (9.8 | ) | |||||||
Change in valuation allowance | 15.3 | (3.6 | ) | (7.8 | ) | |||||||
Change in future income tax balances due to a change in substantively enacted tax rates | — | (35.9 | ) | (12.9 | ) | |||||||
Tax consolidation transactions with the parent company | (6.4 | ) | (7.7 | ) | — | |||||||
Impairment of goodwill | 196.4 | — | 47.5 | |||||||||
Other | 4.2 | (2.5 | ) | 1.3 | ||||||||
Income taxes | $ | 154.7 | $ | 74.8 | $ | (53.7 | ) | |||||
The tax effects of significant items comprising the Company’s net future income tax positions are as follows: |
2008 | 2007 | |||||||
Losses carryforwards | $ | 214.2 | $ | 245.1 | ||||
Accounts payable and accrued charges | 16.8 | 55.5 | ||||||
Long-term debt and derivative financial instruments | (10.5 | ) | 28.0 | |||||
Property, plant and equipment | (257.1 | ) | (228.1 | ) | ||||
Goodwill, intangible assets and other assets | (56.6 | ) | (65.4 | ) | ||||
Other | 3.0 | (4.8 | ) | |||||
(90.2 | ) | 30.3 | ||||||
Valuation allowance | (152.1 | ) | (111.8 | ) | ||||
Net future income tax liabilities | $ | (242.3 | ) | $ | (81.5 | ) | ||
F-29
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
8. | INCOME TAXES (continued): | |
The current and long-term future income tax assets and liabilities are as follows: |
2008 | 2007 | |||||||
Future income tax assets: | ||||||||
Current | $ | 102.8 | $ | 153.6 | ||||
Long-term | 12.3 | 57.4 | ||||||
�� | 115.1 | 211.0 | ||||||
Future income tax liabilities: | ||||||||
Long-term | (357.4 | ) | (292.5 | ) | ||||
Net future income tax liabilities | $ | (242.3 | ) | $ | (81.5 | ) | ||
As of December 31, 2008, the Company had loss carryforwards for income tax purposes of $1,014.5 available to reduce future taxable income, including $311.8 million that will expire between 2009 and 2028, and $702.7 million that can be carried forward indefinitely. Of the latter amount, $682.3 million represents capital losses to be applied against future capital gains. | ||
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, in which case the undistributed earnings might become taxable. Any such liability cannot reasonably be determined at the present time. | ||
9. | ACCOUNTS RECEIVABLE: |
2008 | 2007 | |||||||
Trade | $ | 426.7 | $ | 442.8 | ||||
Other | 57.2 | 53.4 | ||||||
$ | 483.9 | $ | 496.2 | |||||
F-30
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
10. | INVENTORIES AND INVESTMENTS IN TELEVISUAL PRODUCTS AND MOVIES: |
2008 | 2007 | |||||||
Raw materials and supplies | $ | 31.0 | $ | 23.3 | ||||
Work in progress | 17.3 | 17.1 | ||||||
Finished goods | 91.6 | 82.7 | ||||||
Investments in televisual products and movies | 49.4 | 45.9 | ||||||
$ | 189.3 | $ | 169.0 | |||||
11. | PROPERTY, PLANT AND EQUIPMENT: |
2008 | ||||||||||||
Accumulated | ||||||||||||
amortization/ | ||||||||||||
Cost | depreciation | Net amount | ||||||||||
Land | $ | 40.7 | $ — | $ | 40.7 | |||||||
Buildings and leasehold improvements | 328.9 | 74.2 | 254.7 | |||||||||
Machinery and equipment | 1,080.5 | 532.4 | 548.1 | |||||||||
Receiving, distribution and telecommunication networks | 2,466.2 | 1,086.5 | 1,379.7 | |||||||||
Projects under development | 111.5 | — | 111.5 | |||||||||
$ | 4,027.8 | $ 1,693.1 | $ | 2,334.7 | ||||||||
2007 | ||||||||||||
Accumulated | ||||||||||||
amortization/ | ||||||||||||
Cost | depreciation | Net amount | ||||||||||
Land | $ | 41.2 | $ | — | $ | 41.2 | ||||||
Buildings and leasehold improvements | 314.8 | 60.7 | 254.1 | |||||||||
Machinery and equipment | 873.2 | 447.2 | 426.0 | |||||||||
Receiving, distribution and telecommunication networks | 2,191.1 | 921.1 | 1,270.0 | |||||||||
Projects under development | 118.9 | — | 118.9 | |||||||||
$ | 3,539.2 | $ | 1,429.0 | $ | 2,110.2 | |||||||
F-31
Table of Contents
Notes to consolidated financial statements (continued)
(tabular amounts in millions of Canadian dollars, except for option data)
12. | INTANGIBLE ASSETS: |
2008 | ||||||||||||
Accumulated | ||||||||||||
amortization/ | ||||||||||||
Cost | depreciation | Net amount | ||||||||||
Customer relationships, non-competition agreements and other | $ | 179.1 | $ 41.3 | $ | 137.8 | |||||||
Mastheads (note 6) | 105.6 | 40.2 | 65.4 | |||||||||
Broadcasting licences | 88.3 | — | 88.3 | |||||||||
AWS spectrum licences1 | 567.1 | — | 567.1 | |||||||||
$ | 940.1 | $ 81.5 | $ | 858.6 | ||||||||
1 | As a result of the spectrum auction for AWS that ended on July 21, 2008, the Company acquired 17 new spectrum licences for AWS, covering all of the province of Québec and certain areas of Ontario, for an aggregate amount of $554.6 million, which was fully paid by its Cable segment in the third quarter of 2008. In addition, interest costs of $12.5 million were capitalized to the cost of these licences in 2008. The spectrum licences were issued by Industry Canada on December 23, 2008 for an initial term of 10 years. |
2007 | ||||||||||||
Accumulated | ||||||||||||
amortization/ | ||||||||||||
Cost | depreciation | Net amount | ||||||||||
Customer relationships, non-competition agreements and other | $ | 166.9 | $ | 20.1 | $ | 146.8 | ||||||
Mastheads | 103.4 | — | 103.4 | |||||||||
Broadcasting licences | 84.2 | — | 84.2 | |||||||||
$ | 354.5 | $ | 20.1 | $ | 334.4 | |||||||
13. | OTHER ASSETS: |
2008 | 2007 | |||||||
Investments in televisual products and movies | $ | 36.0 | $ | 27.2 | ||||
Deferred pension charge (note 26) | 22.9 | 20.7 | ||||||
Deferred connection costs | 19.3 | 18.8 | ||||||
Other | 33.6 | 20.7 | ||||||
$ | 111.8 | $ | 87.4 | |||||
F-32
Table of Contents
Notes to consolidated financial statements (continued)
(tabular amounts in millions of Canadian dollars, except for option data)
14. | GOODWILL: | |
For the years ended December 31, 2008 and 2007, the changes in the carrying amounts of goodwill were as follows: |
2008 | ||||||||||||||||||||
Adjustment of | ||||||||||||||||||||
Balance as at | Business | purchase price | Balance as at | |||||||||||||||||
December 31, | acquisitions | Impairment | allocation and | December 31, | ||||||||||||||||
2007 | (disposals) | (note 6) | other | 2008 | ||||||||||||||||
Cable | $ | 2,576.9 | $ (1.9 | ) | $ | — | $ | — | $ | 2,575.0 | ||||||||||
Newspapers | 1,397.1 | 9.7 | (595.0 | ) | 7.1 | 818.9 | ||||||||||||||
Broadcasting | 51.4 | 4.3 | — | (1.0 | ) | 54.7 | ||||||||||||||
Leisure and Entertainment | 43.4 | 5.0 | (10.0 | ) | — | 38.4 | ||||||||||||||
Interactive Technologies and Communications | 12.5 | 40.9 | (26.0 | ) | 2.3 | 29.7 | ||||||||||||||
Total | $ | 4,081.3 | $ 58.0 | $ | (631.0 | ) | $ | 8.4 | $ | 3,516.7 | ||||||||||
2007 | ||||||||||||||||||||
Adjustment of | ||||||||||||||||||||
Balance as at | Business | purchase price | Balance as at | |||||||||||||||||
December 31, | acquisitions | Impairment | allocation and | December 31, | ||||||||||||||||
2006 | (disposals) | (note 6) | other | 2007 | ||||||||||||||||
Cable | $ | 2,581.7 | $ | 0.6 | $ | (5.4 | ) | $ | — | $ | 2,576.9 | |||||||||
Newspapers | 1,033.4 | 363.7 | — | — | 1,397.1 | |||||||||||||||
Broadcasting | 51.4 | 0.1 | — | (0.1 | ) | 51.4 | ||||||||||||||
Leisure and Entertainment | 43.4 | — | — | — | 43.4 | |||||||||||||||
Interactive Technologies and Communications | 11.2 | 3.1 | — | (1.8 | ) | 12.5 | ||||||||||||||
Total | $ | 3,721.1 | $ | 367.5 | $ | (5.4 | ) | $ | (1.9 | ) | $ | 4,081.3 | ||||||||
15. | ADDITIONAL AMOUNT PAYABLE: | |
In July 2007, the Company exercised its right to repay the Additional Amount payable in the amount of $127.2 million. Until its repayment, the value of the Additional Amount payable, resulting from the repurchase of the redeemable preferred shares of a subsidiary in 2003, fluctuated based on a formula established as per the repurchase agreement. Changes in the amount payable were recorded as a loss on valuation and translation of financial instruments in the consolidated statements of income. |
F-33
Table of Contents
Notes to consolidated financial statements (continued)
(tabular amounts in millions of Canadian dollars, except for option data)
16. | LONG-TERM DEBT: |
Effective interest | ||||||||||||||||
rate as of | ||||||||||||||||
December 31, 2008 | Year of maturity | 2008 | 2007 | |||||||||||||
Quebecor Media Inc.: | ||||||||||||||||
Bank credit facilities (i) | 6.38 | % | 2011-2013 | $ | 505.4 | $ | 439.1 | |||||||||
Other credit facility (ii) | 3.71 | % | 2015 | 74.4 | 66.7 | |||||||||||
Senior Notes (iii) | 7.75 | % | 2016 | 634.8 | 514.8 | |||||||||||
Senior Notes (iv) | 8.81 | % | 2016 | 799.1 | 644.3 | |||||||||||
2,013.7 | 1,664.9 | |||||||||||||||
Videotron Ltd. and its subsidiaries (v): | ||||||||||||||||
Bank credit facility (vi) | 3.39 | % | 2012 | 207.7 | 147.7 | |||||||||||
Senior Notes (vii) | 6.59 | % | 2014 | 800.4 | 652.8 | |||||||||||
Senior Notes (viii) | 6.44 | % | 2015 | 212.4 | 172.8 | |||||||||||
Senior Notes (ix) | 9.38 | % | 2018 | 546.1 | — | |||||||||||
1,766.6 | 973.3 | |||||||||||||||
Sun Media Corporation and its subsidiaries (v): | ||||||||||||||||
Bank credit facilities (x) | 4.10 | % | 2012 | 48.5 | 39.1 | |||||||||||
Senior Notes (xi) | 7.88 | % | 2013 | 245.7 | 198.9 | |||||||||||
294.2 | 238.0 | |||||||||||||||
Osprey Media Publishing Inc. (v): | ||||||||||||||||
Bank credit facilities (xii) | 3.75 | % | 2011 | 132.3 | 145.3 | |||||||||||
TVA Group Inc. and its subsidiaries (v): | ||||||||||||||||
Revolving credit facility (xiii) | 3.43 | % | 2010 | 93.8 | 56.3 | |||||||||||
Total long-term debt | 4,300.6 | 3,077.8 | ||||||||||||||
Change in fair value related to hedged interest rate risk | 52.0 | (24.1 | ) | |||||||||||||
Adjustments related to embedded derivatives | 24.7 | 11.4 | ||||||||||||||
Financing fees, net of amortization | (41.5 | ) | (37.6 | ) | ||||||||||||
35.2 | (50.3 | ) | ||||||||||||||
4,335.8 | 3,027.5 | |||||||||||||||
Less current portion: | 37.1 | 24.7 | ||||||||||||||
$ | 4,298.7 | $ | 3,002.8 | |||||||||||||
F-34
Table of Contents
Notes to consolidated financial statements (continued)
(tabular amounts in millions of Canadian dollars, except for option data)
16. | LONG-TERM DEBT (continued): |
(i) | The bank credit facilities of Quebecor Media Inc. are 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 U.S. 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 $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. These 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 of December 31, 2008, the credit facilities of the Company were secured by assets with a carrying value of $3,758.7 million ($4,203.8 million in 2007). The Company shall repay the term loan “A” in quarterly repayments equal to 2.5% of the principal amount during the first three years of the term, 5.0% in the fourth year and 12.5% in the fifth year of the 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. As of December 31, 2008, $4.0 million (none in 2007) was drawn on the revolving credit facility, while $89.8 million ($102.0 million in 2007) and $411.6 million ($337.1 million in 2007) were drawn under the term “A” and “B” credit facilities respectively. | ||
(ii) | The long-term credit facility with Société Générale (Canada) for the Canadian dollar equivalent of€59.4 million, bears interest at Bankers’ acceptance rate, plus a premium, and matures 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 Senior Notes of US$525.0 million in aggregate principal amount for net proceeds of $609.0 million, before issuance fees of $9.0 million. The notes bear interest at 7.75%, payable every six months on June 15 and December 15, and mature in March 2016. These notes contain certain restrictions on the Company, including limitations on its ability to incur additional indebtedness, 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. | ||
(iv) | In October 2007, the Company issued Senior Notes of US$700.0 million in aggregate principal amount at a discount price of 93.75% for net proceeds of $672.2 million, including accrued interest of $16.6 million and before financing fees of $9.8 million. The senior notes bear interest at 7.75% for an effective interest rate of 8.81%, payable every six months on June 15 and December 15, and mature in March 2016. These notes contain certain restrictions on the Company, including limitations on its ability to incur additional indebtedness, 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. | ||
(v) | The debts of these subsidiaries are non-recourse to the parent company, Quebecor Media Inc. | ||
(vi) | On April 7, 2008, Videotron Ltd. entered into amendments to its Senior Secured Credit Facility under which commitments under the Senior Secured Credit Facility were increased from $450.0 million to $575.0 million and the maturity was extended to April 2012. Pursuant to these amendments, Videotron Ltd. may, subject to certain conditions, increase the commitments under the Senior Secured Credit Facility by an additional $75.0 million (for aggregate commitments of $650.0 million). This credit facility 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 of December 31, 2008, the credit facility of Videotron Ltd. was secured by assets with a carrying value of $5,105.9 million ($4,132.2 million in 2007). 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-35
Table of Contents
Notes to consolidated financial statements (continued)
(tabular amounts in millions of Canadian dollars, except for option data)
16. | LONG-TERM DEBT (continued): |
(vii) | In October 2003, a first series of US$335.0 million in aggregate principal amount of Senior Notes was issued at a discount price of 99.08% for net proceeds of $445.6 million, before issuance fees of $7.6 million. In November 2004, a second series of US$315.0 million in aggregate principal amount of Senior Notes was issued at a premium price of 105.0% for net proceeds of $405.1 million, including accrued interest of $8.9 million and before issuance fees of $7.4 million. These notes bear interest at a rate of 6.875% for an effective interest rate of 6.59%, 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. The notes are redeemable at the option of the Company, in whole or in part, at any time on or after January 15, 2009, at a decreasing premium. | ||
(viii) | On September 16, 2005, US$175.0 million in aggregate principal amount of Senior Notes was issued at a discount price of 99.5% for net proceeds of $205.2 million, before issuance fees of $3.8 million. These notes bear interest at a rate of 6.375% for an effective interest rate of 6.44%, payable every six months on December 15 and June 15, and mature on December 15, 2015. 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. The notes are redeemable at the option of the Company, in whole or in part, at any time on or after December 15, 2010, at a decreasing premium. | ||
(ix) | On April 15, 2008, Videotron Ltd. issued US$455.0 million in aggregate principal amount of Senior Notes at a discount price of 98.43% for net proceeds of $457.3 million, before financing fees of $9.5 million. The new Senior Notes bear interest at 9.125% for an effective interest rate of 9.375%, payable every six months on June 15 and December 15, and mature on April 15, 2018. These notes are unsecured and contain certain restrictions on Videotron Ltd., including limitations on its ability to incur additional indebtedness, pay dividends or make other distributions. The notes are guaranteed by specific subsidiaries of Videotron Ltd. and are redeemable at the option of Videotron Ltd. at a decreasing premium, commencing April 15, 2013. | ||
(x) | The bank credit facilities of Sun Media Corporation are comprised of (i) a revolving credit facility amounting to $70.0 million, maturing in October 2012, and (ii) a term loan “C” credit facility amounting to $40.0 million, also maturing in October 2012. 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 or other distributions. As of December 31, 2008, the bank credit facilities were secured by assets with a carrying value of $1,307.6 million ($1,729.9 million in 2007). 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 “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. As of December 31, 2008, $10.0 million (none in 2007) was drawn on the revolving credit facility, while $38.5 million ($39.1 million in 2007) was drawn down on the term loan “C” credit facilities. | ||
(xi) | In February 2003, Sun Media Corporation issued US$205.0 million in aggregate principal amount of Senior Notes at a discount price of 98.29% for net proceeds of $306.8 million, before issuance fees of $8.4 million. These notes bear interest at a rate of 7.625% for an effective interest rate of 7.88%, payable every six months on February 15 and August 15, and mature in February 2013. The notes contain certain restrictions on Sun Media Corporation, including limitations on its ability to incur additional indebtedness or make other distributions, and are unsecured. The notes became redeemable at the option of the Company, in whole or in part, at any time after February 15, 2008, at a decreasing premium. |
F-36
Table of Contents
Notes to consolidated financial statements (continued)
(tabular amounts in millions of Canadian dollars, except for option data)
16. | LONG-TERM DEBT (continued): |
(xii) | The credit facilities of Osprey Media Publishing Inc. are comprised of a revolving credit facility in the amount of $65.0 million and a term credit facility in the amount of $133.3 million, maturing in January 2011. The credit facilities bear interest at Canadian prime rate or Bankers’ acceptance rate, plus an applicable margin determined by financial ratios, and they contain covenants including, among others, certain financial ratios and restrictions on the declaration and payment of any distributions. The credit facilities are secured by liens on all assets of Osprey Media Publishing Inc. and its subsidiary. As of December 31, 2008, no amount ($13.4 million in 2007) was drawn on the revolving credit facility and $132.3 million ($131.9 million in 2007) was drawn on the term facility. | ||
(xiii) | TVA Group Inc.’s revolving credit facility, up to a maximum of $160.0 million, bears interest at a Canadian chartered bank’s prime rate or Bankers’ acceptance rate, plus a variable margin determined by certain financial ratios. The credit facility matures on June 15, 2010, and contains some restrictions, including the obligation to maintain certain financial ratios. | ||
On December 31, 2008, the Company and its subsidiaries were in compliance with all debt covenants. | |||
Principal repayments of long-term debt over the coming years are as follows: | |||
2009 | $ | 37.1 | ||
2010 | 162.1 | |||
2011 | 166.2 | |||
2012 | 269.6 | |||
2013 | 651.7 | |||
2014 and thereafter | 3,013.9 | |||
17. | OTHER LIABILITIES: |
2008 | 2007 | |||||||
Stock-based compensation1 | $ | 0.8 | $ | 12.7 | ||||
Accrued pension and postretirement benefits liability (note 26) | 54.9 | 48.3 | ||||||
Deferred revenue | 35.5 | 36.7 | ||||||
Other | 6.5 | 5.8 | ||||||
$ | 97.7 | $ | 103.5 | |||||
1 | The current portion of stock-based compensation in the amount of $4.7 million is included in accounts payable and accrued charges ($98.6 million at December 31, 2007). |
18. | NON-CONTROLLING INTEREST: | |
Non-controlling interest represents the interest of non-controlling shareholders in the participating shares of the Company’s subsidiaries. As of December 31, 2008, the most significant non-controlling interest is in TVA Group Inc., Broadcasting segment, and it represents an interest in 0.07% (0.08% in 2007) in votes and 49.10% (54.76% in 2007) in equity. |
F-37
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
19. | CAPITAL STOCK: |
(a) | Authorized capital stock: | ||
An unlimited number of Common Shares, without par value; | |||
An unlimited number of non-voting Cumulative First Preferred Shares, without par value; the number of preferred shares in each series and the related characteristics, rights and privileges are determined by the Board of Directors prior to each issue: |
• | An unlimited number of Cumulative First Preferred Shares, Series A (“Preferred A Shares”), carrying a 12.5% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series B (“Preferred B Shares”), carrying a fixed cumulative preferential dividend generally equivalent to the Company’s credit facility interest rate, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series C (“Preferred C Shares”), carrying an 11.25% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series D (“Preferred D Shares”), carrying an 11.00% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series F (“Preferred F Shares”), carrying a 10.85% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; | ||
• | An unlimited number of Cumulative First Preferred Shares, Series G (“Preferred G Shares”), carrying a 10.85% annual fixed cumulative preferential dividend, redeemable at the option of the holder and retractable at the option of the Company; |
An unlimited number of non-voting Preferred Shares, Series E (“Preferred E Shares”), carrying a non-cumulative dividend subsequent to the holders of Cumulative First Preferred Shares, redeemable at the option of the holder and retractable at the option of the Company. |
(b) | Issued capital stock: |
Common Shares | ||||||||
Number | Amount | |||||||
Balance as of December 31, 2008 and 2007 | 123,602,807 | $ | 1,752.4 | |||||
F-38
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
19. | CAPITAL STOCK (continued): |
(c) | Cumulative First Preferred Shares: | ||
All Cumulative First Preferred Shares are owned by subsidiaries of the Company and are eliminated on consolidation. The following Cumulative First Preferred Shares are issued and outstanding: |
Preferred Shares | ||||||||
Number | Amount | |||||||
Preferred A Shares | ||||||||
Balance as of December 31, 2006 | 235,000 | $ | 235.0 | |||||
Redemption | (235,000 | ) | (235.0 | ) | ||||
Balance as of December 31, 2007 and 2008 | — | $ | — | |||||
Preferred C Shares | ||||||||
Balance as of December 31, 2006 | 275,000 | $ | 275.0 | |||||
Redemption | (165,000 | ) | (165.0 | ) | ||||
Balance as of December 31, 2007 | 110,000 | 110.0 | ||||||
Redemption | (110,000 | ) | (110.0 | ) | ||||
Balance as of December 31, 2008 | — | $ | — | |||||
Preferred F Shares | ||||||||
Balance as of December 31, 2006 | 320,000 | $ | 320.0 | |||||
Issuance | 1,000,000 | 1,000.0 | ||||||
Conversion into Preferred G Shares | (1,320,000 | ) | (1,320.0 | ) | ||||
Balance as of December 31, 2007 and 2008 | — | $ | — | |||||
Preferred G Shares | ||||||||
Balance as of December 31, 2006 | — | $ | — | |||||
Issuance | 1,235,000 | 1,235.0 | ||||||
Conversion of Preferred F Shares into Preferred G Shares | 1,320,000 | 1,320.0 | ||||||
Balance as of December 31, 2007 | 2,555,000 | 2,555.0 | ||||||
Issuance | 1,100,000 | 1,100.0 | ||||||
Redemption | (1,600,000 | ) | (1,600.0 | ) | ||||
Balance as of December 31, 2008 | 2,055,000 | $ | 2,055.0 | |||||
F-39
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
20. | STOCK-BASED COMPENSATION PLANS: |
(a) | Quebecor Media Inc. stock option plan: | ||
Under a stock option plan established by the Company, 6,180,140 Common Shares of the Company have been 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 market price ending on the day preceding the date of grant of the Common Shares of the Company on the stock exchange(s) where such shares are listed at the time of grant. As long as the Common Shares of Quebecor Media Inc. are not listed on a recognized stock exchange, optionees may exercise their vested options during one of the following periods: 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. Holders of options under the plan have the choice at the time of exercising their options to receive an amount in cash (equal to the difference between either the five-day weighted average market price ending on the day preceding the date of exercise of the Common Shares of the Company on the stock exchange(s) where such shares are listed at the time of exercise, or 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, exercise their options to purchase Common Shares of Quebecor Media Inc. at the exercise price. 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% vesting on the second anniversary of the date of grant; and (iii) equally over three years with the first 33 1/3% vesting on the third anniversary of the date of grant. The acquisition of the “right to profit” on certain options may also be subject to performance criteria. | |||
The following table gives summary information on outstanding options granted as of December 31, 2008 and 2007: |
2008 | 2007 | |||||||||||||||
Weighted average | Weighted average | |||||||||||||||
Options | exercise price | Options | exercise price | |||||||||||||
Balance at beginning of year | 7,029,857 | $ | 32.25 | 3,781,767 | $ | 21.38 | ||||||||||
Granted | 110,000 | 46.84 | 3,359,563 | 44.38 | ||||||||||||
Exercised | (2,824,012 | ) | 19.00 | — | — | |||||||||||
Cancelled | (472,548 | ) | 43.21 | (111,473 | ) | 29.49 | ||||||||||
Balance at end of year | 3,843,297 | $ | 41.05 | 7,029,857 | $ | 32.25 | ||||||||||
Vested options at end of year | 232,903 | $ | 32.14 | 2,517,181 | $ | 18.42 | ||||||||||
During the year ended December 31, 2008, 2,824,012 stock options were exercised and resulted in a cash payment of $94.1 million by the Company. |
F-40
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
20. | STOCK-BASED COMPENSATION PLANS (continued): |
(a) | Quebecor Media Inc. stock option plan (continued): | ||
The following table gives summary information on outstanding options as of December 31, 2008: |
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 21.75 | 185,631 | 5.10 | $ | 21.56 | 72,273 | $ | 21.30 | |||||||||||||
22.98 to 33.41 | 658,103 | 7.28 | 30.98 | 91,511 | 31.52 | |||||||||||||||
37.82 to 50.51 | 2,999,563 | 8.64 | 44.46 | 69,119 | 44.28 | |||||||||||||||
$15.19 to 50.51 | 3,843,297 | 8.23 | $ | 41.05 | 232,903 | $ | 32.14 | |||||||||||||
(b) | TVA Group Inc. plans: |
(i) | Stock option plan for senior executives and directors | ||
Under this stock option plan, 2,200,000 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 prior to January 2006 usually vest equally over a four-year period, with the first 25% vesting on the second anniversary date of the date of grant. Beginning January 2006, 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% vesting on the second anniversary of the date of grant; and (iii) equally over three years with the first 33 1/3% vesting on the third 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 receive an amount in cash (equal to the number of shares corresponding to the options exercised, multiplied by the difference between the fair market value and the exercise price of the option) from TVA Group Inc. or, subject to certain conditions, exercise their options to purchase TVA Group Inc. Class B shares at the exercise price. The fair market value is defined by the average closing market price for a Class B share in the last five trading days immediately preceding the date on which the option was exercised. | |||
The following table gives details on changes to outstanding options for the years ended December 31, 2008 and 2007: |
2008 | 2007 | |||||||||||||||
Weighted average | Weighted average | |||||||||||||||
Options | exercise price | Options | exercise price | |||||||||||||
Balance at beginning of year | 983,693 | $ | 16.16 | 489,695 | $ | 17.59 | ||||||||||
Granted | — | — | 561,875 | 14.82 | ||||||||||||
Cancelled | (8,538 | ) | 15.81 | (67,877 | ) | 15.52 | ||||||||||
Balance at end of year | 975,155 | $ | 16.16 | 983,693 | $ | 16.16 | ||||||||||
Vested options at end of year | 185,144 | $ | 19.20 | 84,082 | $ | 20.61 | ||||||||||
F-41
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
20. | 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 summary information on outstanding options as of December 31, 2008: |
Outstanding options | Vested options | |||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||
Weighted | average | average | ||||||||||||||||||
Range of | average years | exercise | exercise | |||||||||||||||||
exercise price | Number | to maturity | price | Number | price | |||||||||||||||
$14.50 to 16.40 | 781,024 | 8.41 | $ | 14.98 | 56,451 | $ | 15.41 | |||||||||||||
16.41 to 21.38 | 194,131 | 5.86 | 20.90 | 128,693 | 20.86 | |||||||||||||||
$14.50 to 21.38 | 975,155 | 7.90 | $ | 16.16 | 185,144 | $ | 19.20 | |||||||||||||
Had the vested options been exercised as of December 31, 2008, Quebecor Media Inc.’s interest in TVA Group Inc. would have decreased from 50.90% to 50.51% (45.24% to 45.10% as of December 31, 2007). | |||
(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. Under the plans, 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 for a TVA Group Inc. Class B share on the Toronto Stock Exchange in the five trading days immediately preceding the first day of the annual subscription period under the plans. The plans also provide financing terms free of interest. No Class B shares have been issued under the plans in the last three years. As of December 31, 2008 and 2007, the remaining balance of TVA Group Inc. Class B Shares that may be issued is 332,643 under the share purchase plan for executives and 229,753 under the share purchase plan for employees. |
(c) | All stock-based option plans: | ||
For the year ended December 31, 2008, a net reversal of the consolidated stock-based compensation charge was recorded, in an amount of $8.3 million (a net charge of $50.8 million in 2007 and $24.8 million in 2006). |
F-42
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
21. | ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME: |
Translation of net | ||||||||||||
investments in | Cash flow | |||||||||||
foreign operations | hedges | Total | ||||||||||
Balance as of December 31, 2005 | $ (2.3 | ) | $ | — | $ | (2.3 | ) | |||||
Other comprehensive income, net of income taxes | 1.2 | — | 1.2 | |||||||||
Balance as of December 31, 2006 | (1.1 | ) | — | (1.1 | ) | |||||||
Cumulative effect of changes in accounting policies | — | (35.5 | ) | (35.5 | ) | |||||||
Other comprehensive (loss) income, net of income taxes | (2.0 | ) | 48.0 | 46.0 | ||||||||
Balance as of December 31, 2007 | (3.1 | ) | 12.5 | 9.4 | ||||||||
Other comprehensive income (loss), net of income taxes | 5.0 | (64.6 | ) | (59.6 | ) | |||||||
Balance as of December 31, 2008 | $ 1.9 | $ | (52.1 | ) | $ | (50.2 | ) | |||||
No significant amount is expected to be reclassified in income over the next 12 months in connection with derivatives designated as cash flow hedges. The balance is expected to reverse over a 91/2 -year period. |
22. | 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 $398.2 million. The minimum payments for the coming years are as follows: |
Other | ||||||||
Leases | commitments | |||||||
2009 | $ | 54.1 | $ 80.8 | |||||
2010 | 37.8 | 24.6 | ||||||
2011 | 29.3 | 14.0 | ||||||
2012 | 24.4 | 4.4 | ||||||
2013 | 18.8 | 2.8 | ||||||
2014 and thereafter | 95.2 | 12.0 | ||||||
Operating lease expenses amounted to $46.9 million, $46.1 million and $44.8 million for the years ended December 31, 2008, 2007, and 2006, respectively. |
F-43
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
22. | COMMITMENTS AND CONTINGENCIES (continued): |
(b) | Contingencies: |
(i) | Legal proceedings against certain of the Company’s subsidiaries were initiated by another company in relation to printing contracts, including the resiliation of printing contracts. As with any litigation subject to a judicial process, the outcome of such proceedings is impossible to determine with certainty. However, management believes that the suits are without merit and intends to vigorously defend its position. | ||
A number of other legal proceedings against the Company and its subsidiaries are pending. 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 on its financial position. |
23. | 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 premises leases, with expiry dates through 2017. Should the lessee default under the agreement, the Company must, under certain conditions, compensate the lessor. As of December 31, 2008, the maximum exposure with respect to these guarantees was $17.8 million and no liability has been recorded in the consolidated balance sheet. In prior years, the Company has not made any payments relating 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. In prior years, the Company has not made any payments relating to these guarantees. | ||
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 balance sheet with respect to these indemnifications. In prior years, the Company has not made any payments relating to these guarantees. |
F-44
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT: | |
The Company’s financial risk management policies have been established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies are reviewed regularly to reflect changes in market conditions and in the Company’s activities. | ||
From its use of financial instruments, the Company and its subsidiaries are exposed to credit risk, liquidity risk and market risks relating to foreign exchange fluctuations, interest rate fluctuations and equity prices. In order to manage its foreign exchange and interest rate risks, the Company and its subsidiaries use derivative financial instruments (i) to achieve a targeted balance of fixed and variable rate debts and (ii) to set in Canadian dollars all future payments on debts denominated in U.S. dollars (interest and principal) and certain purchases of inventories and other capital expenditures denominated in a foreign currency. The Company and it subsidiaries do not intend to settle their financial derivative instruments prior to their maturity, as none of these instruments is held or issued for speculative purposes. The Company and its subsidiaries designate their derivative financial instruments either as fair value hedges or cash flow hedges when they qualify for hedge accounting. |
(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 | 1.6796 | $ | 21.6 | ||||||||
$/CHF | Less than 1 year | 1.1304 | 2.6 | |||||||||
Sun Media Corporation | ||||||||||||
$/US$ | February 15, 2013 | 1.5227 | 312.2 | |||||||||
Videotron Ltd. and its subsidiaries | ||||||||||||
$/US$ | Less than 1 year | 1.0865 | 75.5 | |||||||||
F-45
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(a) | Description of derivative financial instruments (continued): |
(ii) | Cross-currency interest rate swaps: |
CDN dollar | ||||||||||||||||||||
Annual | Annual | exchange rate | ||||||||||||||||||
effective | nominal | on interest | ||||||||||||||||||
interest rate | interest | and capital | ||||||||||||||||||
Period | Notional | using | rate | payments per | ||||||||||||||||
covered | amount | hedged rate | of debt | one U.S. dollar | ||||||||||||||||
Quebecor Media Inc. | ||||||||||||||||||||
Senior Notes | 2007 to 2016 | US$ | 700.0 | 7.69% | 7.75% | 0.9990 | ||||||||||||||
Senior Notes | 2006 to 2016 | US$ | 525.0 | 7.39% | 7.75% | 1.1600 | ||||||||||||||
Term loan “B” credit facilities | 2006 to 2009 | US$ | 194.5 | 6.27% | LIBOR +2.00% | 1.1625 | ||||||||||||||
Term loan “B” credit facilities | 2009 to 2013 | US$ | 194.5 | Bankers’ acceptances 3 months +2.22% | LIBOR +2.00% | 1.1625 | ||||||||||||||
Term loan “B” credit facilities | 2006 to 2013 | US$ | 145.9 | 6.44% | LIBOR +2.00% | 1.1625 | ||||||||||||||
Videotron Ltd. | ||||||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 190.0 | Bankers’ acceptances 3 months +2.80% | 6.875% | 1.2000 | ||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 125.0 | 7.45% | 6.875% | 1.1950 | ||||||||||||||
Senior Notes | 2003 to 2014 | US$ | 200.0 | Bankers’ acceptances 3 months +2.73% | 6.875% | 1.3425 | ||||||||||||||
Senior Notes | 2003 to 2014 | US$ | 135.0 | 7.66% | 6.875% | 1.3425 | ||||||||||||||
Senior Notes | 2005 to 2015 | US$ | 175.0 | 5.98% | 6.375% | 1.1781 | ||||||||||||||
Senior Notes | 2008 to 2018 | US$ | 455.0 | 9.65% | 9.125% | 1.0210 | ||||||||||||||
F-46
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(a) | Description of derivative financial instruments (continued): |
(ii) | Cross-currency interest rate swaps (continued): |
CDN dollar | ||||||||||||||||||||
Annual | Annual | exchange rate | ||||||||||||||||||
effective | nominal | on interest | ||||||||||||||||||
interest rate | interest | and capital | ||||||||||||||||||
Period | Notional | using | rate | payments per | ||||||||||||||||
covered | amount | hedged rate | of debt | one U.S. dollar | ||||||||||||||||
Sun Media Corporation | ||||||||||||||||||||
Senior Notes | 2008 to 2013 | US$ | 155.0 | Bankers’ acceptances 3 months +3.70% | 7.625% | 1.5227 | ||||||||||||||
Senior Notes | 2003 to 2013 | US$ | 50.0 | Bankers’ acceptances 3 months +3.70% | 7.625% | 1.5227 | ||||||||||||||
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 settlement amount. |
F-47
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(a) | Description of derivative financial instruments (continued): |
(iii) | Interest rate swaps: |
Notional | Pay/ | Fixed | Floating | |||||||||||||
Maturity | amount | receive | rate | rate | ||||||||||||
Osprey Media Publishing Inc. | ||||||||||||||||
December 2010 | $ | 50.0 | Pay fixed/ Receive floating | 3.53 | % | Bankers’ acceptances 3 months | ||||||||||
December 2010 | $ | 43.3 | Pay fixed/ Receive floating | 2.13 | % | Bankers’ acceptances 1 month | ||||||||||
December 2010 | $ | 40.0 | Pay fixed/ Receive floating | 2.73 | % | Bankers’ acceptances 3 months | ||||||||||
Sun Media Corporation | ||||||||||||||||
October 2012 | $ | 38.9 | Pay fixed/ Receive floating | 3.75 | % | Bankers’ acceptances 3 months | ||||||||||
TVA Group Inc. | ||||||||||||||||
March 2010 | $ | 45.0 | Pay fixed/ Receive floating | 1.88 | % | Bankers’ acceptances 1 month | ||||||||||
F-48
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(b) | Fair value of financial instruments: | ||
The carrying amount of accounts receivable from external or related parties (classified as loans and receivables), accounts payable and accrued charges to external or related parties (classified as other liabilities), approximates their fair value since these items will be realized or paid within one year or are due on demand. | |||
The carrying value and fair values of long-term debt and derivative financial instruments as of December 31, 2008 and 2007 are as follows: |
2008 | 2007 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
value | Fair value | value | Fair value | |||||||||||||
Quebecor Media Inc. | ||||||||||||||||
Long-term debt1 | $ | (2,013.7 | ) | $ | (1,491.3 | ) | $ | (1,664.9 | ) | $ | (1,646.6 | ) | ||||
Cross-currency interest rate swaps | 182.5 | 182.5 | (159.8 | ) | (159.8 | ) | ||||||||||
Foreign exchange forward contracts | 0.1 | 0.1 | (0.3 | ) | (0.3 | ) | ||||||||||
Videotron Ltd. | ||||||||||||||||
Long-term debt1 | (1,766.6 | ) | (1,577.0 | ) | (973.3 | ) | (938.2 | ) | ||||||||
Cross-currency interest rate swaps | 69.5 | 69.5 | (241.3 | ) | (241.3 | ) | ||||||||||
Foreign exchange forward contracts | 9.0 | 9.0 | (4.2 | ) | (4.2 | ) | ||||||||||
Sun Media Corporation | ||||||||||||||||
Long-term debt1 | (294.2 | ) | (242.4 | ) | (238.0 | ) | (234.1 | ) | ||||||||
Cross-currency interest rate swaps and foreign exchange forward contract | (53.0 | ) | (53.0 | ) | (133.1 | ) | (133.1 | ) | ||||||||
Interest rate swaps | (3.0 | ) | (3.0 | ) | — | — | ||||||||||
Osprey Media Publishing Inc. | ||||||||||||||||
Long-term debt1 | (132.3 | ) | (128.1 | ) | (145.3 | ) | (145.3 | ) | ||||||||
Interest rate swaps | (4.1 | ) | (4.1 | ) | 0.2 | 0.2 | ||||||||||
TVA Group Inc. | ||||||||||||||||
Long-term debt1 | (93.8 | ) | (91.4 | ) | (56.3 | ) | (56.3 | ) | ||||||||
Interest rate swaps | (0.4 | ) | (0.4 | ) | — | — | ||||||||||
1 | The carrying value of long-term debt excludes adjustments to record changes in the fair value of long-term debt related to hedged interest risk, embedded derivatives, or financing fees. |
F-49
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(b) | Fair value of financial instruments (continued): | ||
The fair value of long-term debt is estimated based on discounted cash flows using year-end market yields or the market value of similar instruments with the same maturity, or quoted market prices when available. The majority of derivative financial instruments (e.g. cross-currency interest rate swaps) are traded over the counter and, as such, there are no quoted prices. The fair value of derivative financial instruments is therefore estimated using valuation models that project future cash flows and discount the future amounts to a present value using the contractual terms of the derivative instrument and factors observable in external markets, such as period-end swap rates and foreign exchange rates. An adjustment is also included to reflect non-performance risk, impacted by the financial and economic environment prevailing at the date of the valuation, in the recognized measure of the fair value of the derivative instruments by applying a credit default premium to the net exposure of the counterparty or the Company. The fair value of early settlement options recognized as embedded derivatives is determined by option pricing models using market inputs and assumptions, including volatility and discount factors. | |||
Due to the judgment used in applying a wide range of acceptable techniques and estimates in calculating fair value amounts, fair values are not necessarily comparable among financial institutions or other market participants and may not be realized in an actual sale or the immediate settlement of the instrument. | |||
(c) | Credit risk management: | ||
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial asset fails to meet its contractual 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 of December 31, 2008, 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. The allowance for doubtful accounts amounted to $47.6 million as of December 31, 2008 ($34.0 million as of December 31, 2007). As of December 31, 2008, 11.3% of trade receivables were 90 days past their billing date (10.9% as of December 31, 2007). | |||
The Company believes that its product lines and the diversity of its customer base are 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. | |||
From their use of derivative financial instruments, the Company and its subsidiaries are exposed to the risk of non-performance by a third party. When the Company and its subsidiaries enter into derivative contracts, the counterparties (either foreign or Canadian) must have credit ratings at least in accordance with the Company’s credit risk management policy and are subject to concentration limits. | |||
(d) | Liquidity risk management: | ||
Liquidity risk is the risk that the Company and its subsidiaries will not be able to meet their financial obligations as they fall due or the risk that those financial obligations have to be met at excessive cost. The Company and its subsidiaries manage this exposure through staggered debt maturities. The weighted average term of Quebecor Media’s consolidated debt was approximately 5.7 years as of December 31, 2008. | |||
Company management believes that cash flows from continuing operations and available sources of financing should be sufficient to cover committed cash requirements for capital investments, working capital, interest payments, debt repayments, pension plan contributions, and dividends (or distributions) in the future. The Company has access to cash flows generated by its subsidiaries through dividends (or distributions) and cash advances paid by its wholly owned subsidiaries and through dividends paid by its publicly traded subsidiary, TVA Group Inc. |
F-50
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(d) | Liquidity risk management (continued): | ||
As of December 31, 2008, material contractual obligations related to financial instruments included capital repayment and interest on long-term debt and obligations related to derivative instruments, less estimated future receipts on derivative instruments. These obligations and their maturities are as follows: |
Less than | 5 years | |||||||||||||||||||
Total | 1 year | 1-3 years | 3-5 years | or more | ||||||||||||||||
Bank indebtedness | $ | 11.5 | $ | 11.5 | $ | — | $ | — | $ | — | ||||||||||
Accounts payable and accrued charges | 793.7 | 793.7 | — | — | — | |||||||||||||||
Long-term debt | 4,300.6 | 37.1 | 328.3 | 921.3 | 3,013.9 | |||||||||||||||
Interest payments1 | 1,746.0 | 241.4 | 549.0 | 491.4 | 464.2 | |||||||||||||||
Derivative instruments2 | (176.4 | ) | (0.2 | ) | (0.3 | ) | 48.3 | (224.2 | ) | |||||||||||
Total | $ | 6,675.4 | $ | 1,083.5 | $ | 877.0 | $ | 1,461.0 | $ | 3,253.9 | ||||||||||
1 | Estimate of interest to be paid on long-term debt is based on hedged and unhedged interest rates and hedged foreign exchange rates as of December 31, 2008. | |
2 | Estimated future receipts, net of future disbursements, on derivative financial instruments related to foreign exchange hedging. |
(e) | Market risk: | ||
Market risk is the risk that changes in market prices due to foreign exchange rates, interest rates and/or equity prices will affect the value of the Company’s financial instruments. The objective of market risk management is to mitigate and control exposures within acceptable parameters while optimizing the return on risk. | |||
Foreign currency risk | |||
Most of the Company’s consolidated revenues and expenses, other than interest expense on U.S. dollar-denominated debt, purchases of set-top boxes and cable modems and certain capital expenditures, are received or denominated in Canadian dollars. A large portion of the interest, principal and premium, if any, payable on its debt is payable in U.S. dollars. The Company and its subsidiaries have entered into transactions to hedge the foreign currency risk exposure on 100% of their U.S. dollar-denominated debt obligations outstanding as of December 31, 2008 and to hedge their exposure on certain purchases of set-top boxes, cable modems and capital expenditures. Accordingly, the Company’s sensitivity to variations in foreign exchange rates is economically limited. |
F-51
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(e) | Market risk (continued): | ||
Foreign currency risk (continued) | |||
The following table summarizes the estimated sensitivity on income and other comprehensive income, before income tax and non-controlling interest, of a variance of $0.10 in the year-end exchange rate of a Canadian dollar per one U.S. dollar: |
Other | ||||||||
comprehensive | ||||||||
Income | income | |||||||
Increase of $0.10 | ||||||||
U.S. dollar-denominated accounts payable | $ | (0.7 | ) | $ — | ||||
Gain (loss) on valuation and translation of financial instruments and derivative financial instruments | (1.2 | ) | 78.2 | |||||
Decrease of $0.10 | ||||||||
U.S. dollar-denominated accounts payable | 0.7 | — | ||||||
Gain (loss) on valuation and translation of financial instruments and derivative financial instruments | 1.2 | (78.2 | ) |
Interest rate risk and non-performance risk | |||
The Company’s and its subsidiaries’ revolving and bank credit facilities bear interest at floating rates based on the following reference rates: (i) Bankers’ acceptance rate (BA), (ii) London Interbank Offered Rate (LIBOR) and (iii) bank prime rate (prime). The Senior Notes issued by the Company and its subsidiaries bear interest at fixed rates. The Company and its subsidiaries have entered into various interest rate and cross-currency interest rate swap agreements in order to manage cash flow and fair value risk exposure due to changes in interest rates. As of December 31, 2008, after taking into account the hedging instruments, long-term debt was comprised of 64.5% fixed rate debt and 35.5% floating rate debt. | |||
The estimated sensitivity on financial expense for floating rate debt, before income tax and non-controlling interest, of a 100 basis-point variance in the year-end Canadian Bankers’ acceptance rate is $15.0 million. |
F-52
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
24. | FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued): |
(e) | Market risk (continued): | ||
Interest rate risk and non-performance risk (continued) | |||
The estimated sensitivities on income and other comprehensive income, before income tax and non-controlling interest, of a 100 basis point variance in the discount rate used to calculate the fair value of financial instruments, as per the Company’s valuation model, are as follows: |
Income | Other comprehensive income | |||||||
Increase of 100 basis point | $ | 10.3 | $ (1.6 | ) | ||||
Decrease of 100 basis point | (10.3 | ) | 1.6 |
(f) | Capital management: |
The Company’s primary objective in managing capital is to maintain an optimal capital base in order to support the capital requirements of its various businesses, including growth opportunities. | |||
In managing its capital structure, the Company takes into account the asset characteristics of its subsidiaries and planned requirements for funds, leveraging their individual borrowing capacities in the most efficient manner to achieve the lowest cost of financing. Management of the capital structure involves the issuance of new debt, the repayment of existing debt using cash generated by operations, and the level of distributions to shareholders. The Company has not significantly changed its strategy regarding the management of its capital structure since the last financial year. | |||
The Company’s capital structure is composed of shareholders’ equity, bank indebtedness, long-term debt, assets and liabilities related to derivative financial instruments, and non-controlling interest, less cash and cash equivalents. The capital structure is as follows: |
2008 | 2007 | |||||||
Bank indebtedness | $ | 11.5 | $ | 16.3 | ||||
Long-term debt | 4,335.8 | 3,027.5 | ||||||
Net (assets) liabilities related to derivative financial instruments | (200.6 | ) | 538.5 | |||||
Non-controlling interest | 106.0 | 154.2 | ||||||
Cash and cash equivalents | (22.5 | ) | (26.1 | ) | ||||
Net liabilities | 4,230.2 | 3,710.4 | ||||||
Shareholders’ equity | $ | 1,943.0 | $ | 2,450.3 | ||||
The Company is not subject to any externally imposed capital requirements other than certain restrictions under the terms of its borrowing agreements, which relate to permitted investments, inter-company transactions, the declaration and payment of dividends or other distributions. |
F-53
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
25. | RELATED PARTY TRANSACTIONS: | |
Operating transactions | ||
During the year ended December 31, 2008, the Company and its subsidiaries made purchases and incurred rent charges from the parent company, companies under common control and affiliated companies in the amount of $11.8 million ($9.0 million in 2007 and $14.8 million in 2006), which are included in cost of sales and selling and administrative expenses. The Company and its subsidiaries made sales to companies under common control and to an affiliated company in the amount of $0.4 million ($0.4 million in 2007 and $0.2 million in 2006). These transactions were concluded and accounted for at the exchange amount. | ||
During the year ended December 31, 2008, the Company, received interest of $1.0 million ($0.9 million in 2007 and 2006) from Quebecor Inc. As of December 31, 2008, cash and cash equivalents totalling $11.8 million ($19.3 million as of December 31, 2007) 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%. | ||
Management arrangements | ||
The parent company has entered into management arrangements with the Company. Under these management arrangements, the parent company and the Company provide management services to each other 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. In 2008, the Company received an amount of $3.0 million, which is included as a reduction in selling and administrative expenses ($3.0 million in 2007 and 2006), and incurred management fees of $1.1 million ($1.1 million in 2007 and 2006) with the shareholders. | ||
Tax transactions | ||
In 2008, 2007 and 2006, the parent company transferred $104.9 million, $66.5 million and $74.2 million, respectively, of non-capital losses to certain Company subsidiaries in exchange for cash considerations of $18.4 million, $14.9 million and $16.1 million. These transactions were recorded at the exchange amounts. As a result, the Company recorded reductions of $6.4 million and $7.7 million, respectively, of its income tax expense in 2008 and 2007, and expects to reduce its income tax expense by $14.0 million in the future. |
F-54
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
25. | RELATED PARTY TRANSACTIONS (continued): | |
Quebecor World Inc. | ||
On January 21, 2008, Quebecor World Inc. and its U.S. subsidiaries were granted creditor protection under the Companies’ Creditors Arrangement Act in Canada. On the same date, its U.S. subsidiaries also filed a petition under Chapter 11 of the United States Bankruptcy Code. Since January 21, 2008, Quebecor World Inc. is no longer a related company under Canadian GAAP. Prior to this date, the following transactions were made with Quebecor World Inc.: |
• | From January 1, 2008 to January 21, 2008, the Company made purchases from Quebecor World Inc. of $3.0 million ($55.3 million in 2007 and $74.8 million in 2006) and made sales to Quebecor World Inc. of $1.3 million ($17.9 million in 2007 and 2006). | ||
• | On January 10, 2008, the Company settled a balance of $4.3 million payable to Quebecor World Inc. by set-off. As the balance was due in 2013 and recorded at present value, the difference of $2.7 million between the settled amount of $7.0 million and the carrying value of $4.3 million was recorded as a reduction in contributed surplus. | ||
• | In October 2007, the Company increased its investment in Nurun Inc. by acquiring. 500,000 Common Shares of Nurun Inc. from Quebecor World Inc. at the exchange amount, for a cash consideration of $1.7 million. | ||
• | On October 11, 2007, the Company acquired a property from Quebecor World Inc. for a total net consideration of $62.5 million. Simultaneously, Quebecor World Inc. entered into a long-term operating lease with the Company to rent a portion of the property for a 17-year term. The consideration for the two transactions was settled by the payment of a net amount of $43.9 million to Quebecor World Inc. as of the date of the transactions, and the assumption by the Company of a $7.0 million balance of sale, including interest, payable in 2013. The transactions were concluded and accounted for at the exchange amount. | ||
• | During the year ended December 31, 2006, some of the Company’s subsidiaries acquired tax benefits amounting to $6.5 million from Quebecor World Inc. that were recorded as income taxes receivable. These transactions allowed the Company to realize a gain of $0.4 million (net of non-controlling interest), which was recorded as contributed surplus. |
F-55
Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of canadian dollars, except for option data)
26. | PENSION PLANS AND POSTRETIREMENT BENEFITS: | |
The Company maintains various flat-benefit plans, final-pay plans with indexation features from zero 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 at least once in the last three years and the next required valuations will be performed within the next three years. | ||
The Company provides postretirement benefits to eligible retired employees. The costs of these benefits, principally health care, are accounted for during the employee’s active service period. | ||
The following tables show a reconciliation of the changes in the plans’ benefit obligations and the fair value of plan assets for the years ended December 31, 2008 and 2007, along with a statement of the funded status as of those dates: |
Pension benefits | Postretirement benefits | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Change in benefit obligations: | ||||||||||||||||
Benefit obligations at beginning of year | $ | 635.6 | $ | 595.8 | $ | 43.5 | $ | 40.7 | ||||||||
Service costs | 20.7 | 24.9 | 1.6 | 1.4 | ||||||||||||
Interest costs | 36.0 | 31.9 | 2.5 | 2.0 | ||||||||||||
Plan participants’ contributions | 12.9 | 11.1 | — | — | ||||||||||||
Actuarial gain | (157.5 | ) | (34.8 | ) | (12.5 | ) | (1.0 | ) | ||||||||
Benefits and settlements paid | (33.5 | ) | (30.2 | ) | (0.8 | ) | (0.6 | ) | ||||||||
Plan amendments | 10.9 | 5.0 | — | — | ||||||||||||
Curtailment gain | (0.9 | ) | (0.5 | ) | (0.7 | ) | — | |||||||||
Special termination benefits | 1.2 | — | — | — | ||||||||||||
Business acquisition | — | 32.4 | — | 1.0 | ||||||||||||
Other | 1.1 | — | 1.9 | — | ||||||||||||
Benefit obligations at end of year | $ | 526.5 | $ | 635.6 | $ | 35.5 | $ | 43.5 | ||||||||
Pension benefits | Postretirement benefits | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Change in plan assets: | ||||||||||||||||
Fair value of plan assets at beginning of year | $ | 604.0 | $ | 560.4 | $ | — | $ | — | ||||||||
Actual return on plan assets | (77.7 | ) | 5.4 | — | — | |||||||||||
Employer contributions | 23.1 | 25.0 | 0.8 | 0.6 | ||||||||||||
Plan participants’ contributions | 12.9 | 11.1 | — | — | ||||||||||||
Benefits and settlements paid | (33.5 | ) | (30.2 | ) | (0.8 | ) | (0.6 | ) | ||||||||
Transfer from other plans | 0.8 | — | — | — | ||||||||||||
Business acquisition | — | 32.3 | — | — | ||||||||||||
Fair value of plan assets at end of year | $ | 529.6 | $ | 604.0 | $ | — | $ | — | ||||||||
F-56
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
26. | PENSION PLANS AND POSTRETIREMENT BENEFITS (continued): | |
The plan assets are comprised of: |
2008 | 2007 | |||||||
Equity securities | 50.7 | % | 56.8 | % | ||||
Debt securities | 44.9 | 38.2 | ||||||
Other | 4.4 | 5.0 | ||||||
100.0 | % | 100.0 | % | |||||
As of December 31, 2008, plan assets included shares of related parties representing an amount of $1.2 million ($2.2 million as of December 31, 2007). |
Pension benefits | Postretirement benefits | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Reconciliation of funded status: | ||||||||||||||||
Plan surplus (deficit) | $ | 3.1 | $ | (31.6 | ) | $ | (35.5 | ) | $ | (43.5 | ) | |||||
Unrecognized actuarial loss (gain) | 6.6 | 47.7 | (2.0 | ) | 11.5 | |||||||||||
Unrecognized net transition (asset) obligation | (4.2 | ) | (4.6 | ) | 0.3 | 0.4 | ||||||||||
Unrecognized prior service cost (benefit) | 28.4 | 19.9 | (3.4 | ) | (4.6 | ) | ||||||||||
Valuation allowance | (25.3 | ) | (22.8 | ) | — | — | ||||||||||
Net amount recognized | $ | 8.6 | $ | 8.6 | $ | (40.6 | ) | $ | (36.2 | ) | ||||||
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 | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Benefit obligations | $ | (297.0 | ) | $ | (457.8 | ) | $ | (35.5 | ) | $ | (43.5 | ) | ||||
Fair value of plan assets | 287.3 | 417.2 | — | — | ||||||||||||
Funded status — plan deficit | $ | (9.7 | ) | $ | (40.6 | ) | $ | (35.5 | ) | $ | (43.5 | ) | ||||
F-57
Table of Contents
(tabular amounts in millions of Canadian dollars, except for option data)
26. | PENSION PLANS AND POSTRETIREMENT BENEFITS (continued): | |
Amounts recognized in the consolidated balance sheets are as follows: |
Pension benefits | Postretirement benefits | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Deferred pension charge | $ | 22.9 | $ | 20.7 | $ | — | $ | — | ||||||||
Accrued benefit liability | (14.3 | ) | (12.1 | ) | (40.6 | ) | (36.2 | ) | ||||||||
Net amount recognized | $ | 8.6 | $ | 8.6 | $ | (40.6 | ) | $ | (36.2 | ) | ||||||
Pension benefits | Postretirement benefits | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Service costs | $ | 20.7 | $ | 24.9 | $ | 22.1 | $ | 1.6 | $ | 1.4 | $ | 1.3 | ||||||||||||
Interest costs | 36.0 | 31.9 | 29.0 | 2.5 | 2.0 | 1.9 | ||||||||||||||||||
Actual return on plan assets | 77.7 | (5.4 | ) | (68.5 | ) | — | — | — | ||||||||||||||||
Current actuarial (gain) loss | (157.5 | ) | (34.8 | ) | 1.8 | (12.5 | ) | (1.0 | ) | 1.3 | ||||||||||||||
Current prior service costs (benefits) | 10.9 | 4.9 | 0.7 | — | — | (3.1 | ) | |||||||||||||||||
Special termination benefits, curtailment gain and other | 0.5 | (0.5 | ) | — | (0.7 | ) | — | — | ||||||||||||||||
Elements of net benefit costs before adjustments to recognize the long-term nature and valuation allowance | (11.7 | ) | 21.0 | (14.9 | ) | (9.1 | ) | 2.4 | 1.4 | |||||||||||||||
Difference between actual and expected return on plan assets | (121.3 | ) | (36.5 | ) | 33.0 | — | — | — | ||||||||||||||||
Deferral of amounts arising during the period: | ||||||||||||||||||||||||
Actuarial gain (loss) | 157.5 | 34.8 | (1.8 | ) | 12.5 | 1.0 | (1.3 | ) | ||||||||||||||||
Prior service (costs) benefits | (10.9 | ) | (4.9 | ) | (0.7 | ) | — | — | 3.1 | |||||||||||||||
Amortization of previously deferred amounts: | ||||||||||||||||||||||||
Actuarial gain | 3.4 | 1.9 | 2.0 | 0.5 | 0.6 | 0.6 | ||||||||||||||||||
Prior service benefits (costs) | 2.4 | 2.0 | 1.8 | (0.4 | ) | (0.5 | ) | (0.7 | ) | |||||||||||||||
Transitional obligations | (0.5 | ) | (0.5 | ) | (0.5 | ) | — | — | — | |||||||||||||||
Other | 1.2 | — | — | — | — | — | ||||||||||||||||||
Total adjustments to recognize the long-term nature of benefit costs | 31.8 | (3.2 | ) | 33.8 | 12.6 | 1.1 | 1.7 | |||||||||||||||||
Valuation allowance | 2.5 | 3.3 | 2.1 | — | — | — | ||||||||||||||||||
Net benefit costs | $ | 22.6 | $ | 21.1 | $ | 21.0 | $ | 3.5 | $ | 3.5 | $ | 3.1 | ||||||||||||
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(tabular amounts in millions of Canadian dollars, except for option data)
26. | PENSION PLANS AND POSTRETIREMENT BENEFITS (continued): | |
The expense related to defined contribution pension plans amounted to $11.3 million in 2008 ($11.1 million in 2007 and $10.9 million in 2006). | ||
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 $35.2 million for the year ended December 31, 2008 ($36.7 million in 2007 and $37.6 million in 2006). | ||
The weighted average rates used in measuring the Company’s benefit obligations as of December 31, 2008, 2007, and 2006 and current periodic costs are as follows: |
Pension benefits | Postretirement benefits | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
Benefit obligations | ||||||||||||||||||||||||
Rates as of year-end: | ||||||||||||||||||||||||
Discount rate | 7.50 | % | 5.50 | % | 5.00 | % | 7.50 | % | 5.50 | % | 5.00 | % | ||||||||||||
Rate of compensation increase | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | ||||||||||||||||||
Current periodic costs | ||||||||||||||||||||||||
Rates as of preceding year-end: | ||||||||||||||||||||||||
Discount rate | 5.50 | % | 5.00 | % | 5.00 | % | 5.50 | % | 5.00 | % | 5.00 | % | ||||||||||||
Expected return on plan assets1 | 7.25 | 7.25 | 7.25 | — | — | — | ||||||||||||||||||
Rate of compensation increase | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 | 3.50 |
1 | After management and professional fees. |
Postretirement benefits | ||||||||
1% | 1% | |||||||
Sensitivity analysis | increase | decrease | ||||||
Effect on benefit cost | $ | 0.9 | $ | (0.7 | ) | |||
Effect on benefit obligations | 5.5 | (4.2 | ) |
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(tabular amounts in millions of Canadian dollars, except for option data)
27. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES: | |
The Company’s consolidated financial statements are prepared in accordance with Canadian GAAP, which differ in some respects from those applicable in the United States (“U.S. GAAP”). The following tables set forth the impact of material differences between Canadian and U.S. GAAP on the Company’s consolidated financial statements of income, comprehensive income (loss) and balance sheets: |
(a) | Consolidated statements of income: |
2008 | 2007 | 2006 | ||||||||||
Net (loss) income as per Canadian GAAP | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | ||||
Adjustments: | ||||||||||||
Development, pre-operating and start-up costs (i) | 1.9 | 1.9 | (0.7 | ) | ||||||||
Pension and postretirement benefits (ii) | 1.4 | 0.8 | 0.9 | |||||||||
Change in fair value and ineffective portion of derivative financial instruments (iii) | 3.8 | 11.0 | 71.6 | |||||||||
Stock-based compensation (iv) | 4.2 | (6.9 | ) | (4.8 | ) | |||||||
Impairment of goodwill (v) | 3.8 | — | — | |||||||||
Income taxes (vi), (viii) | (11.8 | ) | (21.0 | ) | (40.1 | ) | ||||||
3.3 | (14.2 | ) | 26.9 | |||||||||
Net (loss) income as adjusted per U.S. GAAP | $ | (376.7 | ) | $ | 312.9 | $ | (142.8 | ) | ||||
(b) | Consolidated statements of comprehensive (loss) income: |
2008 | 2007 | 2006 | ||||||||||
Comprehensive (loss) income as per Canadian GAAP | $ | (439.6 | ) | $ | 373.1 | $ | (168.5 | ) | ||||
Adjustments to net (loss) income as per (a) above | 3.3 | (14.2 | ) | 26.9 | ||||||||
Adjustments to other comprehensive income: | ||||||||||||
Pension and postretirement benefits (ii) | 45.7 | (5.9 | ) | 17.6 | ||||||||
Derivative financial instruments (iii) | 2.0 | 3.0 | 132.0 | |||||||||
Income taxes (vi) | (12.6 | ) | 0.9 | (64.4 | ) | |||||||
35.1 | (2.0 | ) | 85.2 | |||||||||
Comprehensive (loss) income as per U.S. GAAP | $ | (401.2 | ) | $ | 356.9 | $ | (56.4 | ) | ||||
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Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued): |
(c) | Consolidated balance sheets: |
2008 | 2007 | |||||||||||||||
Canada | United States | Canada | United States | |||||||||||||
Other assets | $ | 111.8 | $ | 79.8 | $ | 87.4 | $ | 53.7 | ||||||||
Long-term future income tax assets | 12.3 | 15.7 | 57.4 | 57.4 | ||||||||||||
Goodwill | 3,516.7 | 3,516.7 | 4,081.3 | 4,077.5 | ||||||||||||
Current liabilities | (1,076.1 | ) | (1,074.0 | ) | (1,018.9 | ) | (1,053.2 | ) | ||||||||
Long-term debt | (4,298.7 | ) | (4,281.5 | ) | (3,002.8 | ) | (2,991.4 | ) | ||||||||
Other liabilities | (97.7 | ) | (94.8 | ) | (103.5 | ) | (129.3 | ) | ||||||||
Long-term future income tax liabilities | (357.4 | ) | (343.7 | ) | (292.5 | ) | (252.9 | ) | ||||||||
Non-controlling interest | (106.0 | ) | (103.2 | ) | (154.2 | ) | (150.0 | ) | ||||||||
Contributed surplus (vii), (viii) | (3,214.5 | ) | (3,412.3 | ) | (3,217.2 | ) | (3,400.9 | ) | ||||||||
Deficit | 2,973.7 | 3,159.1 | 2,528.7 | 2,717.4 | ||||||||||||
Accumulated other comprehensive loss (income) | 50.2 | 52.5 | (9.4 | ) | 28.0 | |||||||||||
The accumulated other comprehensive (loss) income as of December 31, 2008, 2007, and 2006 is as follows: |
2008 | 2007 | 2006 | ||||||||||
Accumulated other comprehensive (loss) income as per Canadian GAAP | $ | (50.2 | ) | $ | 9.4 | $ | (1.1 | ) | ||||
Adjustments: | ||||||||||||
Pension and postretirement benefits (ii) | (12.5 | ) | (58.2 | ) | (52.3 | ) | ||||||
Derivative instruments (iii) | 5.0 | 3.0 | (44.4 | ) | ||||||||
Income taxes (vi) | 5.2 | 17.8 | 25.8 | |||||||||
(2.3 | ) | (37.4 | ) | (70.9 | ) | |||||||
Accumulated other comprehensive loss as per U.S. GAAP | $ | (52.5 | ) | $ | (28.0 | ) | $ | (72.0 | ) | |||
(i) | Under Canadian GAAP, certain development and pre-operating costs that satisfy specified criteria for recoverability are deferred and amortized. Also, under Canadian GAAP, 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 U.S. GAAP, these costs must be included in income as incurred. |
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Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued): |
(c) | Consolidated balance sheets (continued): |
(ii) | Under U.S. GAAP, Statement of Financial Accounting Standards (SFAS) No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans requires the recognition of over- or under-funded positions of defined benefit pension and other postretirement plans on the balance sheet, along with a corresponding non-cash adjustment to be recorded in accumulated other comprehensive income (loss). | ||
Under Canadian GAAP, a company is not required to recognize 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 plan assets. U.S. GAAP does not provide for a valuation allowance against pension assets. | |||
(iii) | Since January 1, 2007, standards for hedge accounting under Canadian GAAP are similar to those under U.S. GAAP, as established by SFAS 133,Accounting for Derivative Instruments and Hedging Activities. | ||
However, under Canadian GAAP, certain embedded derivatives, such as early settlement options included in some of the Company’s borrowing agreements, do not meet the criteria to be considered closely related to their host contracts and therefore must be recorded at their fair value with changes in income. Under U.S. GAAP, those embedded derivatives are considered closely related to their host contract and do not have to be recorded separately at their fair values. Accordingly, the measurement of ineffective hedging relationships recorded in income under U.S. GAAP differs from the measurement under Canadian GAAP. | |||
(iv) | Under U.S. GAAP, in accordance with SFAS 123R,Share-Based Payment, the liability related to stock-based awards that call for settlement in cash or other assets must be measured at its fair value based on the fair value of stock option awards and is to be re-measured at the end of each reporting period. Under Canadian GAAP, the liability is measured and re-measured based on the intrinsic values of the stock option awards instead of their fair values. | ||
(v) | In respect of the 1999 acquisition of Sun Media Corporation, certain of the restructuring costs related to the acquired newspapers were recorded in the purchase equation as goodwill under Canadian GAAP, but were excluded from the purchase equation and expensed under U.S. GAAP. The difference between the carrying value of goodwill under Canada GAAP and U.S. GAAP resulted in an adjustment of the 2008 goodwill impairment charge. | ||
(vi) | Under U.S. GAAP, the FASB issued interpretation No. 48,Accounting for Uncertainty in Income Taxes(FIN 48), an interpretation of SFAS. 109,Accounting for Income Taxes.FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance as to derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. | ||
Under Canadian GAAP, there is no such interpretation and therefore the reserve related to income tax contingencies is not based on the same level of likelihood as prescribed by FIN 48. | |||
Further, under Canadian GAAP, income taxes are measured using substantively enacted tax rates, while under U.S. GAAP, measurement is based on enacted tax rates. | |||
Other adjustments represent the tax impact of U.S. GAAP adjustments. |
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Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
27. | SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued): |
(c) | Consolidated balance sheets (continued): |
(vii) | Under Canadian GAAP, a gain on repurchase of redeemable preferred shares of a subsidiary was included in income in 2003. Under U.S. GAAP, any such gain is included in contributed surplus. | ||
(viii) | The Company and its subsidiaries have entered into tax consolidation transactions with the Company’s parent company, through which tax losses have been transferred between the parties. Under Canadian GAAP, this resulted in the recognition of deferred credits. Under U.S. GAAP, since those transactions related to asset transfers between related parties, the difference between the carrying value of the tax benefits transferred and the cash consideration received or paid would have been recognized in contributed surplus. | ||
(ix) | On January 1, 2008, the Company adopted the provisions of SFAS 157,Fair Value Measurements, which enhance guidance for using fair value to measure assets and liabilities. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-1,Application of SFAS 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, which removes certain leasing transactions from the scope of SFAS 157, and FSP FAS 157-2,Effective Date of SFAS 157, which defers the effective date of SFAS 157 for one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is still in the process of evaluating this standard with respect to its effect on non-financial assets and liabilities and has not yet determined the impact it will have on its financial statements on full adoption in 2009. | ||
(x) | In December 2007, the FASB issued SFAS 141 (Revised 2007),Business Combinations(SFAS 141R), and SFAS 160,Non-controlling Interests in Consolidated Financial Statements(SFAS 160), to improve and internationally converge the accounting for business combinations, the reporting of non-controlling interests in consolidated financial statements, the accounting and reporting standards for a non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS 141R apply prospectively to business combinations for which the acquisition date is on or after December 31, 2008, and SFAS 160 will be effective as of the beginning of 2009. The Company is currently evaluating the impact of adopting SFAS 160 on its consolidated financial statements. |
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Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
28. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY: | |
The Company has access to the cash flows generated by its subsidiaries by way of dividends declared by its public subsidiaries and dividends and advances from its private subsidiaries. However, some of the Company’s subsidiaries have restrictions, based on contractual debt obligations and corporate solvency tests, regarding the amounts of dividends and advances that can be paid to the Company. | ||
The U.S Securities and Exchange Commission requires that the non-consolidated financial statements of the parent company be presented when its subsidiaries have restrictions that may limit the amount of cash that can be paid to the parent company. These non-consolidated and condensed financial statements, as prepared under Canadian GAAP, are shown below. | ||
Non-consolidated and condensed statements of income and comprehensive (loss) income |
2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Management fees | $ | 46.4 | $ | 65.4 | $ | 41.8 | ||||||
Interest on loan to subsidiaries | — | 3.4 | 0.7 | |||||||||
Other | — | — | 7.3 | |||||||||
46.4 | 68.8 | 49.8 | ||||||||||
Expenses | ||||||||||||
General and administrative | 43.1 | 66.5 | 49.1 | |||||||||
Depreciation and amortization | 0.5 | 0.6 | 0.8 | |||||||||
Financial | 145.8 | 138.8 | 106.4 | |||||||||
Loss before undernoted items | (143.0 | ) | (137.1 | ) | (106.5 | ) | ||||||
Gain on disposal of investments and other assets | 0.4 | 1.0 | 0.1 | |||||||||
Loss on debt refinancing | — | — | (342.1 | ) | ||||||||
Loss before income taxes | (142.6 | ) | (136.1 | ) | (448.5 | ) | ||||||
Income taxes | 81.7 | 41.8 | (93.6 | ) | ||||||||
(224.3 | ) | (177.9 | ) | (354.9 | ) | |||||||
Equity (loss) income from subsidiaries | (155.7 | ) | 505.0 | 185.2 | ||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | ||||
2008 | 2007 | 2006 | ||||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | ||||
Other comprehensive (loss) income, net of income taxes | (40.8 | ) | 34.5 | — | ||||||||
Share of other comprehensive (loss) income from subsidiaries | (18.8 | ) | 11.5 | 1.2 | ||||||||
(59.6 | ) | 46.0 | 1.2 | |||||||||
Comprehensive (loss) income | $ | (439.6 | ) | $ | 373.1 | $ | (168.5 | ) | ||||
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Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
28. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued): |
2008 | 2007 | 2006 | ||||||||||
Cash flows related to operations | ||||||||||||
Net (loss) income | $ | (380.0 | ) | $ | 327.1 | $ | (169.7 | ) | ||||
Amortization of plant, property and equipment | 0.5 | 0.6 | 0.8 | |||||||||
Loss on valuation and translation of financial instruments | 8.8 | 10.5 | 13.8 | |||||||||
Gain on disposal of investments and other assets | (0.4 | ) | (1.0 | ) | (0.1 | ) | ||||||
Loss on debt refinancing | — | — | 342.1 | |||||||||
Repayment of accrued interest on Senior Discount Notes | — | — | (197.3 | ) | ||||||||
Amortization of financing costs and of long term debt discount | 6.1 | 1.5 | 4.8 | |||||||||
Future income taxes | 81.7 | 41.8 | (93.3 | ) | ||||||||
Excess of equity loss (income) on dividends from subsidiaries | 446.4 | (420.3 | ) | (86.3 | ) | |||||||
Net change in non-cash balances related to operations | (24.5 | ) | 56.5 | 21.2 | ||||||||
Cash flows provided by (used in) operations | 138.6 | 16.7 | (164.0 | ) | ||||||||
Cash flows related to investing activities | ||||||||||||
Net acquisitions of investments in subsidiaries | (126.3 | ) | (484.9 | ) | (100.3 | ) | ||||||
Dividends received in excess of accumulated equity income from subsidiaries | — | — | 10.0 | |||||||||
Reduction to paid-up capital of subsidiaries | 120.0 | 299.6 | 164.6 | |||||||||
Disposal of a business to a subsidiary | 0.4 | 3.5 | 7.7 | |||||||||
Other | (1.5 | ) | 1.2 | 8.3 | ||||||||
Cash flows (used in) provided by investing activities | (7.4 | ) | (180.6 | ) | 90.3 | |||||||
Sub-total, balance carried forward | $ | 131.2 | $ | (163.9 | ) | $ | (73.7 | ) |
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Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
28. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued): | |
Non-consolidated and condensed statements of cash flows (continued) |
2008 | 2007 | 2006 | ||||||||||
Sub-total, balance brought forward | $ | 131.2 | $ | (163.9 | ) | $ | (73.7 | ) | ||||
Cash flows related to financing activities | ||||||||||||
Proceeds from issuance of redeemable preferred shares | 1,100.0 | 2,235.0 | 279.0 | |||||||||
Repurchases of redeemable preferred shares | (1,710.0 | ) | (400.0 | ) | (842.0 | ) | ||||||
Net increase (decrease) in bank indebtedness | 0.7 | (0.1 | ) | 1.9 | ||||||||
Borrowings under revolving facility | 4.0 | — | — | |||||||||
Repayments of long-term debt and unwinding of hedging contracts | (25.2 | ) | (20.7 | ) | (1,174.2 | ) | ||||||
Issuance of long-term debt, net of financing fees | 16.3 | 657.5 | 1,186.5 | |||||||||
Repayment of the Additional Amount payable | — | (127.2 | ) | — | ||||||||
Net decrease in prepayments under cross-currency swap agreements | — | — | 21.6 | |||||||||
Dividends and reduction of Common Shares paid-up capital | (65.0 | ) | (110.0 | ) | (105.0 | ) | ||||||
Net decrease (increase) in convertible obligations, subordinated loans and notes receivable — subsidiaries | 516.6 | (2,072.5 | ) | 563.0 | ||||||||
Net decrease in advances to or from subsidiaries | 31.2 | 2.1 | 124.9 | |||||||||
Cash flows (used in) provided by financing activities | (131.4 | ) | 164.1 | 55.7 | ||||||||
Net (decrease) increase in cash and cash equivalents | (0.2 | ) | 0.2 | (18.0 | ) | |||||||
Cash and cash equivalents at beginning of year | 0.2 | — | 18.0 | |||||||||
Cash and cash equivalents at end of year | $ | — | $ | 0.2 | $ | — | ||||||
Non-consolidated and condensed balance sheets |
2008 | 2007 | |||||||
Assets | ||||||||
Current assets | $ | 2.7 | $ | 119.3 | ||||
Advances to subsidiaries | — | 38.7 | ||||||
Investments in subsidiaries | 3,551.8 | 4,005.6 | ||||||
Convertible obligations, subordinated loans and notes receivable — subsidiaries | 2,385.9 | 2,902.5 | ||||||
Other assets | 204.2 | 40.2 | ||||||
$ | 6,144.6 | $ | 7,106.3 | |||||
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Table of Contents
Notes to consolidated financial statements(continued)
(tabular amounts in millions of Canadian dollars, except for option data)
28. | NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued): | |
Non-consolidated and condensed balance sheets (continued) |
2008 | 2007 | |||||||
Liabilities and Shareholders’ equity | ||||||||
Current liabilities | $ | 101.1 | $ | 119.9 | ||||
Long-term debt | 1,972.9 | 1,626.3 | ||||||
Advances from subsidiaries | 62.2 | 69.7 | ||||||
Other liabilities | 10.4 | 175.1 | ||||||
Redeemable preferred shares issued to subsidiaries | 2,055.0 | 2,665.0 | ||||||
Shareholders’ equity | 1,943.0 | 2,450.3 | ||||||
$ | 6,144.6 | $ | 7,106.3 | |||||
29. | EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDANT REGISTERED PUBLIC ACCOUNTING FIRM | |
On March 5, 2009, Videotron Ltd. issued US$260.0 million in aggregate principal amount of Senior Notes at a discount price of 98.625% for net proceeds of $332.4 million, including accrued interest of $6.9 million and net of estimated financing fees of $6.9 million. The Senior Notes bear interest at 9.125% for an effective interest rate of 9.35%, payable every six months on June 15 and December 15, and will mature on April 15, 2018. These notes are unsecured and contain certain restrictions on Videotron Ltd., including limitations on its ability to incur additional indebtedness, pay dividends or make other distributions. The notes are guaranteed by specific subsidiaries of Videotron Ltd. and are redeemable at the option of Videotron Ltd. at a decreasing premium, commencing April 15, 2013. Videotron Ltd. 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. |
F-67