Table of Contents
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 Québec, Canada
(Jurisdiction of incorporation or organization)
300 Viger Avenue East
Montréal, Québec, Canada H2X 3W4
(Address of principal executive offices)
Title of each class | Name of each exchange on which registered | |
None | None |
(Title of Class)
63/8% Senior Notes due December 15, 2015
(Title of Class)
170,000 Preferred Shares, Series G
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ |
Page | ||||||||
i | ||||||||
ii | ||||||||
i | ||||||||
iii | ||||||||
PART I | ||||||||
1 | ||||||||
1 | ||||||||
1 | ||||||||
17 | ||||||||
43 | ||||||||
43 | ||||||||
59 | ||||||||
66 | ||||||||
69 | ||||||||
70 | ||||||||
71 | ||||||||
87 | ||||||||
89 | ||||||||
PART II | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
90 | ||||||||
91 | ||||||||
91 | ||||||||
PART III | ||||||||
91 | ||||||||
91 | ||||||||
92 | ||||||||
95 | ||||||||
F-1 | ||||||||
Articles of Amalgamation of Videotron Ltd. | ||||||||
By-Laws of Videotron Ltd. | ||||||||
Articles of Amalgamation of CF Cable TV Inc. | ||||||||
By-Laws of CF Cable TV Inc. | ||||||||
Statement Regarding Calculation of Ratio of Earnings to Fixed Charges | ||||||||
Subsidaries of Videotron Ltd. | ||||||||
Certification of Robert Depatie (s.302-SOX) | ||||||||
Certification of Yvan Gingras (s.302-SOX) | ||||||||
Certification of Robert Depatie (s.906-SOX) | ||||||||
Certification of Yvan Gingras (s.906-SOX) |
Table of Contents
Table of Contents
• | general economic, financial or market conditions; | ||
• | the intensity of competitive activity in the industries in which we operate; | ||
• | unanticipated higher capital spending required to address continued development of competitive alternative technologies or the inability to obtain additional capital to continue the development of our business; | ||
• | our ability to implement successfully our business and operating strategies and manage our growth and expansion; | ||
• | our ability to continue to distribute a wide range of television programming and to attract large audiences; | ||
• | labor disputes or strikes; | ||
• | exchange rate fluctuations that affect our ability to repay our U.S. dollar-denominated debt; and | ||
• | interest rate fluctuations that affect a portion of our interest payment requirements on long-term debt. |
Table of Contents
Year Ended: | Average(1) | High | Low | Period End | ||||||||||||
December 31, 2005 | 0.8282 | 0.8690 | 0.7872 | 0.8579 | ||||||||||||
December 31, 2004 | 0.7719 | 0.8493 | 0.7158 | 0.8310 | ||||||||||||
December 31, 2003 | 0.7205 | 0.7738 | 0.6349 | 0.7738 | ||||||||||||
December 31, 2002 | 0.6370 | 0.6619 | 0.6200 | 0.6329 | ||||||||||||
December 31, 2001 | 0.6446 | 0.6697 | 0.6241 | 0.6279 |
Month Ended: | Average(2) | High | Low | Period End | ||||||||||||
March 2006 (through March 15, 2006) | 0.8704 | 0.8834 | 0.8609 | 0.8656 | ||||||||||||
February 28, 2006 | 0.8704 | 0.8788 | 0.8638 | 0.8788 | ||||||||||||
January 31, 2006 | 0.8642 | 0.8744 | 0.8528 | 0.8744 | ||||||||||||
December 31, 2005 | 0.8610 | 0.8690 | 0.8521 | 0.8579 | ||||||||||||
November 30, 2005 | 0.8463 | 0.8579 | 0.8361 | 0.8569 | ||||||||||||
October 31, 2005 | 0.8493 | 0.8579 | 0.8413 | 0.8477 | ||||||||||||
September 30, 2005 | 0.8491 | 0.8615 | 0.8418 | 0.8615 |
(1) | The average of the exchange rates on the last day of each month during the applicable year. | |
(2) | The average of the exchange rates for all days during the applicable month. |
Table of Contents
Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated)(1) | (restated)(1) | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
AMOUNTS UNDER CANADIAN GAAP | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||
Cable television | $ | 607,942 | $ | 579,200 | $ | 558,887 | $ | 576,825 | $ | 618,346 | ||||||||||
Internet access | 99,629 | 135,514 | 183,268 | 222,458 | 270,791 | |||||||||||||||
Telephony | — | — | — | — | 21,088 | |||||||||||||||
Video stores | 35,155 | 35,344 | 38,450 | 48,058 | 55,146 | |||||||||||||||
Other(1) | 22,728 | 30,982 | 24,396 | 24,277 | 36,623 | |||||||||||||||
Total operating revenues | 765,454 | 781,040 | 805,001 | 871,618 | 1,001,994 | |||||||||||||||
Direct cost(1) | 227,322 | 259,686 | 245,967 | 250,442 | 287,455 | |||||||||||||||
Operating, general and administrative expenses(1) | 274,202 | 285,816 | 283,784 | 279,999 | 332,187 | |||||||||||||||
Depreciation and amortization(1) | 116,692 | 120,016 | 122,958 | 130,215 | 131,841 | |||||||||||||||
Financial expenses(2) | 101,307 | 76,188 | 64,602 | 177,985 | 65,206 | |||||||||||||||
Dividend income from parent company(2) | — | — | — | (111,055 | ) | — | ||||||||||||||
Other items(3) | 95,570 | 25,000 | (2,500 | ) | — | — | ||||||||||||||
Income taxes (recovery) expense (1) | (10,076 | ) | 2,663 | 26,830 | (3,440 | ) | 71,328 | |||||||||||||
Non-controlling interest in a subsidiary | 145 | 188 | 49 | 100 | 102 | |||||||||||||||
Amortization of goodwill(4) | 13,331 | — | — | — | — | |||||||||||||||
Net (loss) income(1)(4) | $ | (53,039 | ) | $ | 11,483 | $ | 63,311 | $ | 147,372 | $ | 113,875 | |||||||||
- 1 -
Table of Contents
Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated)(1) | (restated)(1) | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Balance Sheet Data (at period end): | ||||||||||||||||||||
Cash and cash equivalents | $ | 80,935 | $ | 16,041 | $ | 28,329 | $ | 36,230 | $ | 32,223 | ||||||||||
Total assets(1)(6) | 1,728,715 | 1,570,463 | 1,525,605 | 1,630,861 | 1,719,265 | |||||||||||||||
Long-term debt, excluding QMI subordinated loans(5)(6)(7) | 1,310,179 | 1,119,625 | 886,677 | 888,908 | 971,697 | |||||||||||||||
QMI subordinated loans(6) | — | — | 150,000 | 150,000 | 150,000 | |||||||||||||||
Common shares(5) | 1 | 1 | 173,326 | 173,236 | 173,236 | |||||||||||||||
Shareholder’s equity(5) | $ | (328,673 | ) | $ | (345,189 | ) | $ | 70,817 | $ | 38,030 | $ | (58,072 | ) |
Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated)(1) | (restated)(1) | |||||||||||||||||||
(dollars in thousands, except ARPU and ratio) | ||||||||||||||||||||
Other Financial Data | ||||||||||||||||||||
Operating income(1)(8) | $ | 263,930 | $ | 235,538 | $ | 275,250 | $ | 341,177 | $ | 382,352 | ||||||||||
Operating income margin(1)(8) | 34.5 | % | 30.2 | % | 34.2 | % | 39.1 | % | 38.2 | % | ||||||||||
Cash flows from operating activities | 208,005 | 195,934 | 194,078 | 310,675 | 354,368 | |||||||||||||||
Cash flows used in investing activities | (135,305 | ) | (91,878 | ) | (110,802 | ) | (128,867 | ) | (246,882 | ) | ||||||||||
Cash flows from (used in) financing activities | 5,327 | (159,372 | ) | (72,094 | ) | (174,759 | ) | (113,180 | ) | |||||||||||
Capital expenditures(9) | $ | 133,319 | $ | 93,041 | $ | 90,284 | $ | 123,030 | $ | 191,827 | ||||||||||
Operating Data (unaudited): | ||||||||||||||||||||
Homes passed(10) | 2,330,648 | 2,329,023 | 2,351,344 | 2,383,443 | 2,419,335 | |||||||||||||||
Basic cable customers(11)(12) | 1,510,408 | 1,431,060 | 1,424,144 | 1,452,554 | 1,506,113 | |||||||||||||||
Basic cable penetration(12)(13) | 64.8 | % | 61.4 | % | 60.6 | % | 60.9 | % | 62.3 | % | ||||||||||
Digital customers | 114,634 | 171,625 | 240,863 | 333,664 | 474,629 | |||||||||||||||
Digital penetration(14) | 7.6 | % | 12.0 | % | 16.9 | % | 23.0 | % | 31.5 | % | ||||||||||
Cable Internet customers | 228,759 | 305,054 | 406,277 | 502,630 | 637,971 | |||||||||||||||
Cable Internet penetration(13) | 9.8 | % | 13.1 | % | 17.3 | % | 21.1 | % | 26.4 | % | ||||||||||
ARPU(12)(15) | $ | 38.53 | $ | 40.70 | $ | 43.68 | $ | 46.50 | $ | 51.86 | ||||||||||
Ratio of earnings to fixed charges(16) | 0.3 | x | 1.2 | x | 2.0 | x | 3.2 | x | 4.0 | x |
Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated)(1) | (restated)(1) | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
AMOUNTS UNDER U.S. GAAP | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||
Cable television | $ | 607,942 | $ | 579,200 | $ | 558,887 | $ | 584,187 | $ | 621,493 | ||||||||||
Internet access | 99,629 | 135,514 | 183,268 | 224,450 | 272,926 | |||||||||||||||
Telephony | — | — | — | — | 21,983 | |||||||||||||||
Video stores | 35,155 | 35,344 | 38,450 | 48,058 | 55,146 | |||||||||||||||
Other(1) | 22,728 | 30,982 | 24,396 | 24,277 | 36,623 | |||||||||||||||
Total operating revenues | 765,454 | 781,040 | 805,001 | 880,972 | 1,008,171 | |||||||||||||||
Direct cost(1) | 227,800 | 259,044 | 245,967 | 250,442 | 287,455 | |||||||||||||||
Operating, general and administrative expenses(1) | 281,833 | 285,952 | 280,804 | 290,932 | 340,192 | |||||||||||||||
Depreciation and amortization(1) | 260,352 | 137,687 | 133,003 | 142,585 | 143,205 | |||||||||||||||
Financial expenses(2) | 128,504 | 72,850 | 62,424 | 165,452 | 57,026 | |||||||||||||||
Dividend income from parent company(2) | — | — | — | (111,055 | ) | — | ||||||||||||||
Other items(3) | 3,807 | 606 | — | — | — | |||||||||||||||
Income taxes(1) | (2,827 | ) | 5,166 | 24,079 | 1,821 | 64,672 | ||||||||||||||
Non-controlling interest in a subsidiary | 145 | 188 | 49 | 100 | 102 | |||||||||||||||
Impairment of goodwill(4) | — | 2,004,000 | — | — | — | |||||||||||||||
Net income (loss)(1)(4) | $ | (134,160 | ) | $ | (1,984,453 | ) | $ | 58,675 | $ | 140,695 | $ | 115,519 | ||||||||
- 2 -
Table of Contents
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated)(1) | (restated)(1) | |||||||||||||||||||
Balance Sheet Data (at period end): | ||||||||||||||||||||
Cash and cash equivalents | $ | 80,935 | $ | 16,041 | $ | 28,329 | $ | 36,230 | $ | 32,223 | ||||||||||
Total assets(1)(6) | 6,137,269 | 3,956,549 | 3,899,915 | 3,897,848 | 3,967,521 | |||||||||||||||
Long-term debt, excluding QMI subordinated loans(5)(6)(7) | 1,310,179 | 1,119,625 | 888,017 | 884,182 | 943,835 | |||||||||||||||
QMI subordinated loans(6) | — | — | 150,000 | 150,000 | 150,000 | |||||||||||||||
Common shares(5) | 1 | 1 | 173,236 | 173,236 | 173,236 | |||||||||||||||
Shareholder’s equity(5) | 3,975,890 | 1,963,438 | 2,373,352 | 2,252,863 | 2,150,955 |
Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated)(1) | (restated)(1) | |||||||||||||||||||
(dollars in thousands, except ratio) | ||||||||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Operating income(1)(8) | $ | 255,821 | $ | 236,044 | $ | 278,230 | $ | 339,598 | $ | 380,524 | ||||||||||
Operating income margin(1)(8) | 33.4 | % | 30.2 | % | 34.6 | % | 38.5 | % | 37.7 | % | ||||||||||
Cash flows from operating activities | $ | 203,056 | $ | 189,617 | $ | 193,878 | 309,096 | 352,540 | ||||||||||||
Cash flows used in investing activities | (130,356 | ) | (85,561 | ) | (110,602 | ) | (127,288 | ) | (254,054 | ) | ||||||||||
Cash flows from (used) in financing activities | 5,327 | (159,372 | ) | (72,094 | ) | (174,759 | ) | (113,180 | ) | |||||||||||
Capital expenditures(9) | 115,577 | 92,414 | 90,284 | 123,030 | 191,827 | |||||||||||||||
Ratio of earnings to fixed charges(16) | — | — | 2.0 | x | 3.7 | x | 4.4 | x |
(1) | During the fourth quarter ended December 31, 2003, we revised our accounting policies in accordance with Canadian Institute of Chartered Accountants Handbook Section 1100,Generally Accepted Accounting Principles. This new accounting policy requires, among other things, that we expense, as they are incurred, the costs related to equipment subsidies granted to our customers, as well as customer reconnection costs. This change in our accounting policies has been applied retroactively, and the amounts presented for the prior periods have been restated for this change. Because this new accounting policy with respect to equipment subsidies and customer reconnection costs is consistent with the applicable existing accounting policy under U.S. GAAP, the retroactive application of this change has not affected the amounts presented for prior periods under U.S. GAAP. | |
(2) | In the first quarter of 2004, our wholly-owned subsidiary, Vidéotron (1998) ltée, entered into a back-to-back transaction with Quebecor Media. With respect to this back-to-back transaction, we made cash interest payments of $108.5 million to Quebecor Media in the year ended December 31, 2004, but we received $111.1 million in dividends from Quebecor Media in that same year. See “Item 5 — Operating and Financial Review and Prospects — Purchase of Shares of Quebecor Media and Service of Subsidiary Subordinated Loan.” | |
(3) | Following the acquisition of us by Quebecor Media in 2000, our former employees exercised in-the-money options and we introduced a restructuring program in 2001. Other items for the year ended December 31, 2000 consisted primarily of payments made to our employees under our employee stock option plan and a restructuring provision. In 2001, our residential Internet protocol telephony project was suspended, and other items for the year ended December 31, 2001 consisted primarily of the write-off of fixed assets and deferred charges related to that project. In 2002, in connection with the renegotiation of two of our collective bargaining agreements, we put in place a second restructuring initiative resulting in a reduction of 300 employees, and other items consisted primarily of severance costs relating to this restructuring. Because the final severance costs relating to this restructuring were lower than estimated, the difference between the final severance costs and the estimated severance costs was reversed in 2003 and increased our net income in 2003 by approximately $2.5 million. | |
(4) | Effective January 1, 2002, we implemented Canadian Institute of Chartered Accountants Handbook Section 3062,Goodwill and Other Intangible Assetsand its US equivalent,FAS 142. The new standards require that goodwill and intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. At January 1, 2002, we had unamortized goodwill in the amount of $432.3 million under Canadian GAAP and $4,666.9 million under U.S. GAAP, which is no longer being amortized. This change in accounting policy is not applied retroactively and the amounts presented for the prior period have not been restated for this change. If this change in accounting policy were applied to the reported combined statements of operations for the prior period, the impact of the change, in respect of goodwill and intangible assets with indefinite useful lives not being amortized, would be as follows: |
- 3 -
Table of Contents
Year Ended | ||||
December 31, 2001 | ||||
(restated; in thousands) | ||||
Net loss | $ | (53,039 | ) | |
Goodwill amortization | 13,331 | |||
Net (loss) before goodwill amortization | $ | (39,708 | ) | |
AMOUNTS UNDER U.S. GAAP | ||||
Net loss | $ | (134,160 | ) | |
Goodwill amortization | 119,142 | |||
Net (loss) before goodwill amortization | $ | (15,018 | ) | |
(5) | Long-term debt, excluding QMI subordinated loans, means long-term debt and a promissory note payable to a company under common control less the QMI subordinated loans, and it does not include the retractable preferred shares held by Quebecor Media. The retraction price of the retractable preferred shares was $300.0 million as of December 31, 2001 and $332.5 million as of December 31, 2002. During the year ended December 31, 2003, $332.5 million of the retractable preferred shares were converted into our common shares. The excess of the retraction price of the preferred shares over the stated capital converted into common shares was credited to our contributed surplus account in an amount of $301.2 million. The outstanding $2.0 million of retractable preferred shares as of December 31, 2003 was redeemed for an amount of $3.7 million. The excess of the consideration paid over the preferred shares was charged to deficit in an amount of $1.7 million. No retractable preferred share was outstanding as at December 31, 2005. | |
(6) | The term “QMI subordinated loans” refers to the $150.0 million subordinated loan due 2015 we entered into in favor of Quebecor Media and the $1.1 billion subordinated loan due 2019 our subsidiary Vidéotron (1998) ltée, which was a guarantor of our notes, entered into on January 16, 2004 in favor of Quebecor Media. Interest on the $150.0 million subordinated loan throughout its term is payable in cash at our option. The QMI subordinated loans have been excluded from long-term debt because under the terms of our notes, all payments on the $150.0 million subordinated loan are restricted payments treated in the same manner as dividends on our common shares, and the proceeds of our $1.1 billion subordinated loan has been invested in retractable preferred shares of Quebecor Media as part of a back-to-back transaction to reduce our income tax obligations. On December 16, 2004, Quebecor Media redeemed its $1.1 billion of retractable preferred shares, and we used the proceeds to repay our $1.1 billion subordinated loan. On January 17, 2006, we reimbursed the $150.0 million subordinated loan due 2015 and all interest owed at that date for a total consideration of $168.0 million. The QMI subordinated loans are reflected as long-term debt on our consolidated balance sheet. See Item 5 — Operating and Financial Review and Prospects — Operating Results — Liquidity and Capital Resources — Purchase of Shares of Quebecor Media and Service of Subsidiary Subordinated Loan.” | |
(7) | We believe that long-term debt, excluding QMI subordinated loans, is a meaningful measure of the amount of our indebtedness we have from the perspective of a holder of the notes because the QMI subordinated loans are subordinated in right of payment to the prior payment in full of senior indebtedness, including the notes; all payments on the $150.0 million subordinated loan are restricted payments, under the terms of the notes, treated in the same manner as dividends on our common shares; and the proceeds of our $1.1 billion subordinated loan were invested in retractable preferred shares of Quebecor Media as part of a back-to-back transaction to reduce our income tax obligations. This back-to-back transaction was unwound on December 16, 2004. Consequently, we use long-term debt, excluding QMI subordinated loans, in this annual report. Long-term debt, excluding QMI subordinated loans, is not intended to be a measure that should be regarded as an alternative to other financial reporting measures, and it should not be considered in isolation as a substitute for measures of liabilities prepared in accordance with U.S. GAAP or Canadian GAAP. Long-term debt, excluding QMI subordinated loans, is calculated from and reconciled to long-term debt as follows: |
- 4 -
Table of Contents
Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated) | ||||||||||||||||||||
(unaudited; dollars in millions) | ||||||||||||||||||||
AMOUNTS UNDER CANADIAN GAAP | ||||||||||||||||||||
Long-term debt | $ | 1,287.7 | $ | 1,119.6 | $ | 1,036.7 | $ | 1,038.9 | $ | 1,121.7 | ||||||||||
Promissory note to a company under common control | 22.5 | — | — | — | — | |||||||||||||||
QMI subordinated loans | — | — | (150.0 | ) | (150.0 | ) | (150.0 | ) | ||||||||||||
Long-term debt, excluding QMI subordinated loans, as defined | $ | 1,310.2 | $ | 1,119.6 | $ | 886.7 | $ | 888.9 | $ | 971.7 | ||||||||||
AMOUNTS UNDER U.S. GAAP | ||||||||||||||||||||
Long-term debt | $ | 1,287.7 | $ | 1,119.6 | $ | 1,038.0 | $ | 1,034.2 | $ | 1,093.8 | ||||||||||
Promissory note to a company under common control | 22.5 | — | — | — | — | |||||||||||||||
QMI subordinated loans | — | — | (150.0 | ) | (150.0 | ) | (150.0 | ) | ||||||||||||
Long-term debt, excluding QMI subordinated loans, as defined | $ | 1,310.2 | $ | 1,119.6 | $ | 888.0 | $ | 884.2 | $ | 943.8 | ||||||||||
(8) | We define operating income, as reconciled to net income, as net income (loss) before depreciation and amortization, financial expenses, dividend income from parent company, other items (consisting primarily of restructuring charges), income taxes, non-controlling interest in a subsidiary and goodwill amortization. Operating income is not a measure of results that is consistent with Canadian GAAP or U.S. GAAP. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. It is not intended to represent funds available for debt service, dividends, reinvestment or other discretionary uses, and should not be considered in isolation as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. We use operating income because management believes that it is a meaningful measure of performance commonly used in the cable industry and by the investment community to analyze and compare companies. It also facilitates year-over-year comparison of results since operating income excludes, among other things, unusual items that are not readily comparable from year to year. Our definition of operating income may not be identical to similarly titled measures reported by other companies. Operating income margin is operating income as a percentage of operating income. Our operating income is calculated from and reconciled to net income (loss) as follows: |
Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
(restated) | (restated) | (restated) | ||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
AMOUNTS UNDER CANADIAN GAAP | ||||||||||||||||||||
Net (loss) income(1)(4) | $ | (53.0 | ) | $ | 11.5 | $ | 63.3 | $ | 147.4 | $ | 113.9 | |||||||||
Depreciation and amortization(1) | 116.7 | 120.0 | 123.0 | 130.2 | 131.9 | |||||||||||||||
Financial expenses(2) | 101.3 | 76.2 | 64.6 | 178.0 | 65.2 | |||||||||||||||
Dividend income from parent company(2) | — | — | — | (111.1 | ) | — | ||||||||||||||
Other items(3) | 95.6 | 25.0 | (2.5 | ) | — | — | ||||||||||||||
Income taxes (recovery) expense (1) | (10.1 | ) | 2.6 | 26.8 | (3.4 | ) | 71.3 | |||||||||||||
Non-controlling interest in a subsidiary | 0.1 | 0.2 | 0.1 | 0.1 | 0.1 | |||||||||||||||
Goodwill amortization(4) | 13.3 | — | — | — | — | |||||||||||||||
Operating income as defined | $ | 263.9 | $ | 235.5 | $ | 275.3 | $ | 341.2 | $ | 382.4 | ||||||||||
AMOUNTS UNDER U.S. GAAP | ||||||||||||||||||||
Net income (loss)(1)(4) | $ | (134.2 | ) | $ | (1,984.5 | ) | $ | 58.7 | $ | 140.7 | $ | 115.5 | ||||||||
Depreciation and amortization(1) | 260.4 | 137.6 | 133.0 | 142.6 | 143.2 | |||||||||||||||
Financial expenses(2) | 128.5 | 72.9 | 62.4 | 165.5 | 57.0 | |||||||||||||||
Dividend income from parent company(2) | — | — | — | (111.1 | ) | — | ||||||||||||||
Other items(3) | 3.8 | 0.6 | — | — | — | |||||||||||||||
Income taxes(1) | (2.8 | ) | 5.2 | 24.1 | 1.8 | 64.7 | ||||||||||||||
Non-controlling interest in a subsidiary | 0.1 | 0.2 | — | 0.1 | 0.1 | |||||||||||||||
Goodwill amortization(4) | — | 2,004.0 | — | — | — | |||||||||||||||
Operating income as defined | $ | 255.8 | $ | 236.0 | $ | 278.2 | $ | 339.6 | $ | 380.5 | ||||||||||
(9) | Capital expenditures is comprised of acquisition of fixed assets. |
- 5 -
Table of Contents
(10) | “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. | |
(11) | “Basic cable customers” are customers who receive basic cable television service, including analog and digital customers. | |
(12) | The numbers of basic customers for the years 2000-2003, inclusive, were restated in order to permit such numbers to be compared to the 2004 number of basic customers. | |
(13) | Represents customers as a percentage of total homes passed. | |
(14) | Represents customers as a percentage of basic customers. | |
(15) | Average monthly revenue per user, or ARPU, is an industry term that we use to measure our average cable and Internet revenue per month per basic cable customer. ARPU is not a measurement under Canadian GAAP or U.S. GAAP, and our definition and calculation of ARPU may not be the same as identically titled measures reported by other companies. We calculate ARPU by dividing our combined cable television and Internet-access revenues for the applicable year by the average number of our basic cable customers during such year, and then dividing the resulting amount by the number of months in the year. | |
(16) | For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings consist of net (loss) income plus non-controlling interest in a subsidiary, income taxes, fixed charges, amortized capitalized interest, less interest capitalized, and (ii) fixed charges consist of interest expensed and capitalized, excluding interest on QMI subordinated loans, plus amortized premiums, discounts and capitalized expenses relating to indebtedness and an estimate of the interest within rental expense. For the year ended December 31, 2001, earnings, as calculated under Canadian GAAP, were inadequate to cover our fixed charges, and the coverage deficiency was $63.0 million. For the years ended December 31, 2001 and 2002, earnings, as calculated under U.S. GAAP, were inadequate to cover our fixed charges, and the coverage deficiency was $136.8 million and $1,980.0 million, respectively. |
- 6 -
Table of Contents
- 7 -
Table of Contents
- 8 -
Table of Contents
• | 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, 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 business and the industry in which we operate; | ||
• | place us at a competitive disadvantage compared to our competitors that have less debt or greater financial resources; and | ||
• | limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds on commercially reasonable terms, if at all. |
- 9 -
Table of Contents
• | incur additional debt, including guarantees by our restricted subsidiaries; | ||
• | pay dividends and make restricted payments; |
- 10 -
Table of Contents
• | create liens; | ||
• | use the proceeds from sales of assets and subsidiary stock; | ||
• | create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to us; | ||
• | enter into transactions with affiliates; | ||
• | enter into sale and leaseback transactions; and | ||
• | consolidate or merge or sell all or substantially all of our assets. |
- 11 -
Table of Contents
- 12 -
Table of Contents
- 13 -
Table of Contents
• | a guarantor delivered its guarantee with the intent to defeat, hinder, delay or defraud its existing or future creditors; |
- 14 -
Table of Contents
• | the guarantor did not receive fair consideration for the delivery of the guarantee; or | ||
• | the guarantor was insolvent at the time it delivered the guarantee. |
- 15 -
Table of Contents
- 16 -
Table of Contents
- 17 -
Table of Contents
- 18 -
Table of Contents
• | a higher quality and more reliable network; | ||
• | reduced capital required to launch and deploy new products and services; | ||
• | a lower cost structure through reduced maintenance and technical support costs; and | ||
• | more rapid and effective introduction of new products and services, enhancing our ability to increase both customers and revenues. |
- 19 -
Table of Contents
Twelve Months Ended August 31, | ||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | CAGR(1) | |||||||||||||||||||
(Homes passed and basic cable customers in millions; dollars in billions) | ||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||
Industry Revenue | $ | 3.2 | $ | 3.4 | $ | 3.7 | $ | 4.2 | $ | 4.5 | 9.6 | % | ||||||||||||
Homes Passed(2) | 9.4 | 9.5 | 9.7 | 10.0 | 10.2 | 2.0 | % | |||||||||||||||||
Basic Cable Customers | 7.0 | 6.9 | 6.7 | 6.6 | 6.6 | -1.2 | % | |||||||||||||||||
Basic Penetration | 73.8 | % | 72.0 | % | 69.3 | % | 65.5 | % | 65.0 | % |
Twelve Months Ended August 31, | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | CAGR(3) | |||||||||||||||||||
(Homes passed and basic cable customers in millions; US$ in billions) | ||||||||||||||||||||||||
United States | ||||||||||||||||||||||||
Industry Revenue | US$ | 43.5 | US$ | 49.4 | US$ | 51.3 | US$ | 57.6 | US$ | 69.5 | 9.8 | % | ||||||||||||
Homes Passed(2) | 100.6 | 102.7 | 102.9 | 108.2 | 110.8 | 2.0 | % | |||||||||||||||||
Basic Cable Customers | 73.0 | 73.5 | 73.4 | 73.6 | 73.1 | 0.0 | % | |||||||||||||||||
Basic Penetration | 72.6 | % | 71.6 | % | 71.3 | % | 68.0 | % | 66.0 | % |
Source of Canadian data: CRTC. Source of U.S. data: NCTA, A.C. Nielsen Media Research and Kagan Research LLC. | ||
(1) | Compounded annual growth rate from 2000 through 2004. | |
(2) | “Homes passed” means the number of residential premises, such as single dwelling units or multiple dwelling units, and commercial premises passed by the cable television distribution network in a given cable system service area in which the programming services are offered. | |
(3) | Compounded annual growth rate from 2001 through 2005. |
- 20 -
Table of Contents
- 21 -
Table of Contents
Year Ended December 31, | ||||||||
2004 | 2005 | |||||||
(dollars in millions) | ||||||||
Net (loss) income | $ | (9.5 | ) | $ | (0.2 | ) | ||
Depreciation and amortization | 33.7 | 34.5 | ||||||
Financial expenses | 0.1 | — | ||||||
Other items | 1.5 | — | ||||||
Income taxes | (3.5 | ) | (2.9 | ) | ||||
Operating income as defined | $ | 22.3 | $ | 31.4 | ||||
• | 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 29 channels on basic cable. | ||
• | Extended Basic Service.This expanded programming level of services, which is generally comprised of approximately 24 channels, includes a package of French- 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 up to 290 times the speed of a conventional telephone modem. As of December 31, 2005, we had 637,971 high-speed Internet access customers, representing 42.4% of our basic customers and 26.4% of our total homes passed. In addition, as of December 31, 2005, we had 18,034 dial-up Internet access customers. Based on internal estimates, we are the largest provider of high-speed Internet access services in the areas we serve with an estimated market share of 51% as of December 31, 2005. |
- 22 -
Table of Contents
• | Digital Television.As part of our network modernization program, we have installed headend equipment capable of delivering digitally encoded transmissions to a two-way digital-capable set-top box in the customer’s home. This digital connection provides significant advantages. In particular, it increases channel capacity, which allows us to increase both programming and service offerings while providing increased flexibility in packaging our services. We launched our digital television service in March 1999 with the introduction of digital video compression terminals in the greater Montréal area. Since introducing our digital television service in the greater Montréal area, we have also introduced the service in other major markets. In September 2001, we launched a new digital service offering under the illico™ brand. In addition to providing high quality sound and image quality,illico™ offers our customers significant programming flexibility. Our basic digital package includes 24 television channels, 45 audio services providing CD quality music, 18 AM/FM radio channels, an interactive programming guide as well as television-based e-mail capability. Our extended digital basic television service, branded as Self-Service, offers customers the ability to select more than 200 additional channels of their choice, including U.S. super-stations and other special entertainment program, allowing them to customize their choices. This service also offers customers significant programming flexibility including the option of French-language only, English-language only or a combination of French- and English-language programming. 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. Our customers currently have the option to purchase or lease the digital set-top boxes required for digital service. As of December 31, 2005, we had 474,629 customers for our digital television service, representing 31.5% of our basic customers and 19.6% 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, 2005, approximately 92% of our digital television customers have purchased and 8% lease our digital set-top boxes. | ||
• | Voice over IP.In January 2005, we launched our new telephony service using Voice over IP technology in selected areas of the Province of Québec (South Shore and North Shore of Montréal, Montréal, Laval and Québec City), and we have continued to launch this service progressively among our other residential and commercial customers in the Province of Québec. Our new telephony service includes both local and long-distance calling, and permits all of our telephony customers, both residential and commercial, to access all service features mandated by CRTC Decision 97-8 and other regulatory decisions and orders, including: enhanced 911 Emergency service; number portability from and to any local exchange carrier; a message relay service allowing subscribers to communicate with the hearing impaired; and a variety of personal privacy features including universal call tracing. We also offer free basic listings in local telephone directories, as well as full operator assistance, including: operator-assisted calls; collect and third-party calls; local, national and international directory assistance; person-to-person calls; and busy-line verification. Finally, we offer as part of our new telephony service a host of convenient, optional features, including: name and number caller ID; call waiting with long-distance distinctive ring and audible indicator tone; name and number caller ID on call waiting; visual indicator of a full voice mail box and audible message waiting indicators; automatic call forwarding; three-way conference calling; automatic recalling; and last incoming call identification and recall. In the future, Voice over IP will allow us to deliver new cutting-edge features, such as voice-mail to e-mail functionality launched in December 2005, which allows customers access their voice-mail via e-mail in the form of audio-file attachments. In keeping with our competitive strength of providing differentiated, bundled service offerings, we offer free installation of our new telephony service to existing cable television and/or Internet customers and to new bundled customers. We also offer discounts to our bundled customers, when compared to the sum of the prices of the individual services provided to these customers. In addition, we offer discounts for a second telephone line subscription. As of December 31, 2005, we had 162,979 customers of our Voice over IP telephony service. | ||
• | Interactive Services. In September 2001, we also launched digital interactive services under the illico™ Interactive brand. These services, which combine our digital television and Internet access services, |
- 23 -
Table of Contents
enable customers equipped with wireless keyboards to access the Internet and send and receive e-mail. In the near future, we intend to provide additional functionality including e-commerce. We believe interactive services will be increasingly desired by customers, and we intend to continue to develop and deploy advanced products and services to add greater functionality to our interactive services offering. | |||
• | Video-On-Demand.Video-on-demand service enables digital cable customers to rent from a library of movies, documentaries and other programming through their digital set-top box. Our digital cable customers are able to rent their video-on-demand selections for a period of 24 hours, which they are then able to watch at their convenience with full stop, rewind, fast forward, pause and replay functionality during that period. Our video-on-demand service is available to 98% of the homes passed by us. We also offer pay television channels on a subscription basis that permit our customers to access and watch any of their video-on-demand selections at any time at their convenience. | ||
• | Other New Business.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. On September 20, 2005, we announced that we had signed a strategic relationship agreement with Rogers Wireless, the operator of Canada’s largest integrated wireless voice and data network, that will enable us to offer Québec consumers a quadruple play of television, broadband Internet, cable telephony and Videotron branded mobile wireless services. We will operate as a Mobile Virtual Network Operator, or MVNO, utilizing wireless voice and data services provided by Rogers Wireless across its GSM/GPRS network. We currently intend to launch our mobile wireless offering during the second half of 2006, with services to include international roaming and popular options. We will be responsible for acquiring and billing customers, as well as for providing customer support under our own brand. |
As of December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
Basic analog cable | ||||||||||||||||||||
Homes passed(1) | 2,330,648 | 2,329,023 | 2,351,344 | 2,383,443 | 2,419,335 | |||||||||||||||
Basic customers(2) | 1,510,408 | 1,431,060 | 1,424,144 | 1,452,554 | 1,506,113 | |||||||||||||||
Penetration(3) | 64.8 | % | 61.4 | % | 60.6 | % | 60.9 | % | 62.3 | % | ||||||||||
Digital cable | ||||||||||||||||||||
Digital customers | 114,634 | 171,625 | 240,863 | 333,664 | 474,629 | |||||||||||||||
Penetration(4) | 7.6 | % | 12.0 | % | 16.9 | % | 23.0 | % | 31.5 | % | ||||||||||
Number of digital terminals | 121,210 | 182,010 | 257,350 | 362,053 | 537,364 | |||||||||||||||
Dial-up Internet access | ||||||||||||||||||||
Dial-up customers | 55,427 | 43,627 | 28,821 | 23,973 | 18,034 | |||||||||||||||
Cable Internet access | ||||||||||||||||||||
Cable modem customers | 228,759 | 305,054 | 406,277 | 502,630 | 637,971 | |||||||||||||||
Penetration(3) | 9.8 | % | 13.1 | % | 17.3 | % | 21.1 | % | 26.4 | % | ||||||||||
Telephony Services | ||||||||||||||||||||
VoIP customers | — | — | — | 2,135 | 162,979 | |||||||||||||||
Penetration(3) | 0.1 | % | 6.7 | % |
(1) | “Homes passed” means the number of residential premises, such as single dwelling units or multiple dwelling units, and commercial premises passed by the cable television distribution network in a given cable system service area in which the programming services are offered. | |
(2) | Basic customers are customers who receive basic cable service in either the analog or digital mode. The numbers of basic customers for the years 2000-2003, inclusive, were restated in order to permit such numbers to be compared to the 2004 number of basic customers. | |
(3) | Represents customers as a percentage of total homes passed. | |
(4) | Represents customers for the digital service as a percentage of basic customers. |
- 24 -
Table of Contents
Service | Price Range (1) | |||
Basic analog cable | $ | 15.07 — $28.19 | ||
Extended basic analog cable | $ | 26.81 — $40.50 | ||
Basic digital cable | $ | 12.98 — $14.98 | ||
Extended basic digital cable | $ | 25.98 — $73.98 | ||
Pay-television | $ | 6.00 — $19.95 | ||
Pay-per-view (per movie or event) | $ | 3.99 — $79.95 | ||
Video-on-demand (per movie or event) | $ | 0.99 — $24.95 | ||
Dial-up Internet access | $ | 9.95 — $19.95 | ||
Cable Internet access | $ | 26.95 — $74.90 | ||
VoIP Telephony | $ | 15.95 — $22.95 |
(1) | These rates reflect price increases, effective March 1, 2006, of $0.60 on basic analog cable and extended basic analog cable, $1.00 on basic digital cable, between $1.00 and $3.00 on extended digital cable and $1.00 on cable internet access and VoIP telephone. |
- 25 -
Table of Contents
450 MHz | 480 to | 750 to | Two-Way | |||||
and Under | 625 MHz | 860 MHz | Capability | |||||
December 31, 2001 | 3% | 25% | 72% | 97% | ||||
December 31, 2002 | 3% | 23% | 74% | 97% | ||||
December 31, 2003 | 3% | 23% | 74% | 97% | ||||
December 31, 2004 | 3% | 23% | 74% | 97% | ||||
December 31, 2005 | 2% | 23% | 75% | 98% |
- 26 -
Table of Contents
• | continue to rapidly deploy advanced products and services such as cable Internet access, digital television and Voice over IP telephony; | ||
• | design product offerings that provide greater opportunity for customer entertainment and information choices; | ||
• | target marketing opportunities based on demographic data and past purchasing behavior; | ||
• | develop targeted marketing programs to attract former customers, households that have never subscribed to our services and customers of alternative or competitive services; | ||
• | enhance the relationship between customer service representatives and our customers by training and motivating customer service representatives to promote advanced products and services; | ||
• | leverage the retail presence of SuperClub Vidéotron, Archambault Group Inc. and third-party commercial retailers; | ||
• | cross-promote the wide variety of content and services offered within the Quebecor Media group (including, for example, the content of TVA Group productions and the1-900 service for audience voting during television programs such asStar Académie,Occupation Doubleand other reality shows popular in Québec) in order to distribute our cable, data transmission and 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. |
- 27 -
Table of Contents
• | 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 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 |
- 28 -
Table of Contents
antenna. Like digital cable distribution, DBS systems use video compression technology to increase channel capacity and digital technology to improve the quality of the signals transmitted to their customers. | |||
• | DSL.The deployment of digital subscriber line technology, known as DSL, provides customers with Internet access at data transmission speeds greater than that which is available over conventional telephone lines. DSL service is comparable to cable-modem Internet access over cable systems. We also face competition from other providers of DSL service. | ||
• | VDSL.The CRTC and Industry Canada have authorized video digital subscriber line, or VDSL, services. VDSL technology increases the capacity of DSL lines available, which permits the distribution of digital video. We expect that we will soon face competition from incumbent local exchange carriers, which have been granted licenses to launch video distribution services using this technology. ILECs are currently installing this new technology, which operates over the copper lines in phone lines, in our markets. This technology can achieve speeds as high as 52 Mbps upstream, but VDSL can only operate over a short distance of about 4,000 feet (1,200 metres). As a result, telephone companies are replacing many of their main feeds with fibre-optic cable. By placing a VDSL transceiver, a VDSL gateway, in larger multiple dwelling units, the distance limitation is overcome. Further, as a result of such improvements in broadband speeds over DSL and the evolution of compression technology, incumbent telephone carriers in our service areas may be in a position to enable delivery of digital television over their cable Internet connections (IPTV) in the coming years. Advanced trials are underway in Canada and in other countries. Tests in our service markets are expected to be performed in the first half of 2006. If successful, IPTV may provide telecommunications carriers with a way to offer services similar to those offered by cable operators in the consumer market. | ||
• | Private Cable.Additional competition is posed by satellite master antenna television systems known as “SMATV systems” serving multi-dwelling units, such as condominiums, apartment complexes, and private residential communities. | ||
• | Other Cable Distribution.There is currently, a cable operator offering television distribution and providing cable-modem Internet access service is serving the greater Montréal area. This cable operator, which has approximately 15,000 customers, is owned by the regional ILEC. | ||
• | Wireless Distribution.Cable television systems also compete with wireless program distribution services such as multi-channel multipoint distribution systems, or MDS. This technology uses microwave links to transmit signals from multiple transmission sites to line-of-sight antennas located within the customer’s premises. | ||
• | Grey and Black Market DBS Providers.Cable and other distributors of television signals continue to face competition from the use of access codes and equipment that enable the unauthorized decoding of encrypted satellite signals, from unauthorized access to our analog and digital cable signals (black market) and from the reception of foreign signals through subscriptions to foreign satellite television providers that are not lawful distributors in Canada (grey market). | ||
• | Telephony Service.Our new VoIP telephony service competes against other telephone companies, including both the incumbent telephone service provider in Québec, which controls a significant portion of the telephony market in Québec, as well as other Voice over IP telephony service providers and cellular telephone service providers. | ||
• | Other Internet Service Providers.In the Internet access business, cable operators compete against other Internet service providers offering residential and commercial Internet access services. The CRTC requires the large Canadian incumbent cable operators to offer access to their high speed Internet system to competitive Internet service providers at mandated rates. |
- 29 -
Table of Contents
- 30 -
Table of Contents
- 31 -
Table of Contents
- 32 -
Table of Contents
• | Competition, Carriage Rules and Signal Substitution.The 1998 Regulations provide equitable opportunities for all distributors of broadcasting services. Similar to the signal carriage and substitution requirements that are imposed on existing cable television systems, under the 1998 Regulations, new broadcasting distribution undertakings are also subject to carriage and substitution requirements. The 1998 Regulations prohibit a distributor from giving an undue preference to any person, including itself, or subjecting any person to an undue disadvantage. This gives the CRTC the ability to address complaints of anti-competitive behavior on the part of certain distributors. | ||
• | A significant aspect of television broadcasting in Canada is simultaneous program substitution, or simulcasting, a regulatory requirement under which Canadian distribution undertakings, such as cable television systems with over 6,000 customers, are required to substitute the foreign programming service, with local Canadian signal, including Canadian commercials, for broadcasts of identical programs by a U.S. station when both programs are exhibited at the same time. These requirements are designed to protect the program rights that Canadian broadcasters acquire for their respective local markets. The CRTC, however, has suspended the application of these requirements to DTH satellite operators for a period of time, so long as they undertake certain alternative measures, including monetary compensation to a fund designed to help finance regional television productions. | ||
• | Canadian Programming and Community Expression Financing Rules. All distributors, except systems with less than 2,000 customers, are required to contribute at least 5% of their gross annual broadcast revenues to the creation and presentation of Canadian programming including community programming. However, the allocation of these contributions between broadcast and community programming can vary depending on the type and size of the distribution system involved. | ||
• | Inside Wiring Rules.The CRTC determined that the inside wiring portion of cable networks creates a bottleneck facility that could affect competition if open access is not provided to other distributors. Incumbent cable companies may retain the ownership of the inside wiring but must allow usage by competitive undertakings to which the cable company may charge a just and reasonable fee for the use of the inside wire. On September 3, 2002, the CRTC established a fee of $0.52 per customer per month for the use of cable inside wire in MDUs. On October 9, 2002, the CRTC, had ordered Câblage QMI and Videotron to comply with the inside wiring access rules. In Broadcasting Decision CRTC 2005-223 of May 31, 2005, the CRTC rescinded the Mandatory Order issued against Videotron and its subsidiaries. In Broadcasting Public Notice CRTC 2005-83 of August 15, 2005, the CRTC called for comments on possible regulatory amendments that would expand competitive access to inside wire owned by a cable licensee and installed in properties, such as hotels, hospitals, nursing homes and other commercial or institutional premises that are used to house transient residents as well as in office buildings, retail stores or other types of non-residential properties. Videotron has opposed this expansion of the regulations because such access would make what we have considered “commercial accounts” more vulnerable to competition. |
- 33 -
Table of Contents
(1) | 30% or more of the households in the licensed service area have access to the services of another broadcasting distribution undertaking. The CRTC has advised that as of August 31, 1997, the 30% availability criterion was satisfied for all licensed cable areas; and | ||
(2) | the number of customers for basic cable service has decreased by at least 5% since the date on which a competitor started offering its basic cable service in the particular area. |
- 34 -
Table of Contents
- 35 -
Table of Contents
- 36 -
Table of Contents
- 37 -
Table of Contents
- 38 -
Table of Contents
- 39 -
Table of Contents
- 40 -
Table of Contents
![(FLOW CHART)](https://capedge.com/proxy/20-F/0001206212-06-000040/m30428orm3042804.gif)
- 41 -
Table of Contents
- 42 -
Table of Contents
- 43 -
Table of Contents
Year ended December 31, | ||||||||||||
(in thousands of Canadian dollars) | 2003 | 2004 | 2005 | |||||||||
Revenues | $ | 805,001 | $ | 871,618 | $ | 1,001,994 | ||||||
Operating income(1) | 275,250 | 341,177 | 382,352 | |||||||||
Depreciation and amortization | 122,958 | 130,215 | 131,841 | |||||||||
Net income | 63,311 | 147,372 | 113,875 | |||||||||
Cash flows from operating activities | 194,078 | 310,675 | 354,368 | |||||||||
Acquisition of fixed assets | 90,284 | 123,030 | 191,827 |
As of December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Homes passed (2) | 2,351,344 | 2,383,443 | 2,419,335 | |||||||||
Cable | ||||||||||||
Basic Cable Customers (3) | 1,424,144 | 1,452,554 | 1,506,113 | |||||||||
% Penetration (4) | 60.6 | % | 60.9 | % | 62.3 | % | ||||||
Basic Cable, net (losses) additions | (6,916 | ) | 28,410 | 53,559 | ||||||||
Digital Cable Customers | 240,863 | 333,664 | 474,629 | |||||||||
% Penetration (5) | 16.9 | % | 23.0 | % | 31.5 | % | ||||||
Digital Cable, net additions | 69,238 | 92,801 | 140,965 | |||||||||
Internet Access | ||||||||||||
Cable Modem | 406,277 | 502,630 | 637,971 | |||||||||
% Penetration (4) | 17.3 | % | 21.1 | % | 26.4 | % | ||||||
Cable Modem, net additions | 101,223 | 96,353 | 135,341 | |||||||||
Dial up | 28,821 | 23,973 | 18,034 | |||||||||
Dial up, net (losses) | (14,803 | ) | (4,848 | ) | (5,939 | ) | ||||||
Telephony | ||||||||||||
VoIP Customers | 2,135 | 162,979 | ||||||||||
% Penetration (4) | 0.1 | % | 6.7 | % | ||||||||
VoIP Customers, net additions | 2,135 | 160,844 |
(1) | We define operating income as net income before depreciation and amortization, financial expenses, dividend income from parent company, other items, income taxes, non-controlling interest in a subsidiary and goodwill amortization. We provide a reconciliation of operating income to net income in note 8 under “Item 3. Key Information — Selected Financial Data” above. | |
(2) | Homes passed means the number of residential premises, such as single dwelling units or multiple dwelling units, and commercial premises passed by cable television distribution network in a given cable system service area in which the programming services are offered. | |
(3) | Basic customers are customers who received basic cable service, including analog and digital customers. | |
(4) | Represents customers as a percentage of homes passed. | |
(5) | Represents digital customers as a percentage of basic customers. |
- 44 -
Table of Contents
- 45 -
Table of Contents
- 46 -
Table of Contents
- 47 -
Table of Contents
- 48 -
Table of Contents
- 49 -
Table of Contents
• | capital expenditures to maintain and upgrade our network in order to support the growth of our customer base and the launch and expansion of new or additional services; | ||
• | the service and repayment of our debt, and satisfaction of other contractual obligations; and | ||
• | distributions to our shareholder. |
- 50 -
Table of Contents
- 51 -
Table of Contents
Payments Due by Period | ||||||||||||||||||||
(as of December 31, 2005) | ||||||||||||||||||||
Total | < 1 year | 2-3 years | 4-5 years | > 5 years | ||||||||||||||||
(in millions of dollars) | ||||||||||||||||||||
Contractual obligations: | ||||||||||||||||||||
67/8% Senior Notes due January 15, 2014 | $ | 769.2 | $ | $ | — | $ | — | $ | 769.2 | |||||||||||
63/8% Senior Notes due December 15, 2015 | 202.5 | — | — | — | 202.5 | |||||||||||||||
Cash Interest Expense(1) | 601.6 | 68.3 | 136.6 | 136.6 | 260.1 | |||||||||||||||
QMI subordinated loan(2) | 150.0 | — | — | — | 150.0 | |||||||||||||||
Operating leases and other debt | 37.5 | 12.5 | 12.8 | 6.9 | 5.3 | |||||||||||||||
Total contractual cash obligations | $ | 1,760.8 | $ | 80.8 | $ | 149.4 | $ | 143.5 | $ | 1,387.1 | ||||||||||
(1) | Estimate of interest to be paid on long-term debt, excluding the QMI subordinated loans, based on the interest rates and foreign exchange rate as at December 31, 2005. | |
(2) | On January 17, 2006, we reimbursed the principal amount of the subordinated loan and all interests owed at that date to Quebecor Media for a total consideration of $168.0 million. |
• | funds from operations; | ||
• | financing from related party transactions; | ||
• | capital markets debt financing; and | ||
• | our credit facilities. |
- 52 -
Table of Contents
- 53 -
Table of Contents
- 54 -
Table of Contents
- 55 -
Table of Contents
- 56 -
Table of Contents
As of October 23, 2000 | ||||
(in thousands of dollars) | ||||
Fixed assets | $ | 114,608 | ||
Deferred charges | (22,585 | ) | ||
Goodwill | 4,360,512 | |||
Change in assets | 4,452,535 | |||
Accrued charges | 40,445 | |||
Future income taxes | 24,930 | |||
Change in liabilities | 65,375 | |||
Change in contributed surplus | $ | 4,387,160 | ||
- 57 -
Table of Contents
- 58 -
Table of Contents
Name and Municipality of Residence | Age | Position | ||||
Serge Gouin | 62 | Director and Chairman of the Board | ||||
Montréal, Québec | ||||||
Jean La Couture, FCA(1) | 59 | Director and Chairman of the Audit Committee | ||||
Montréal, Québec | ||||||
André Delisle(1) | 59 | Director | ||||
Montréal, Québec | ||||||
A.Michel Lavigne, FCA(1) | 55 | Director | ||||
Brossard, Québec | ||||||
Pierre Karl Péladeau | 43 | Director | ||||
Montréal, Québec | ||||||
Robert Dépatie | 47 | President and Chief Executive Officer | ||||
Rosemère, Québec | ||||||
Yvan Gingras | 48 | Executive Vice President, Finance and Operations, | ||||
Montréal, Québec | and Chief Financial Officer | |||||
Jean Novak | 42 | President, Videotron Business Service | ||||
Beaconsfield, Québec | ||||||
Mark D’Souza | 45 | Vice President | ||||
Beaconsfield, Québec | ||||||
Daniel Proulx | 47 | Senior Vice President, Engineering | ||||
Montréal, Québec | ||||||
Manon Brouillette | 37 | Vice President, Marketing and New Product Development, | ||||
Outremont, Québec | Consumers Division | |||||
André Gascon | 44 | Vice President, Information Technologies | ||||
Longueuil, Québec | ||||||
J. Serge Sasseville | 47 | Vice President, Legal Affairs and Secretary | ||||
Westmount, Québec | ||||||
Édouard G. Trépanier | 54 | Vice President, Regulatory Affairs | ||||
Boucherville, Québec | ||||||
Normand Vachon | 56 | Vice President, Human Resources | ||||
Repentigny, Québec | ||||||
Jean-François Pruneau | 35 | Treasurer | ||||
Repentigny, Québec | ||||||
Stéphanie Lachance | 33 | Assistant Secretary | ||||
Mount-Royal, Québec | ||||||
Claudine Tremblay | 52 | Assistant Secretary | ||||
Nuns’ Island, Québec |
(1) | Member of our Audit Committee. |
- 59 -
Table of Contents
- 60 -
Table of Contents
- 61 -
Table of Contents
- 62 -
Table of Contents
- 63 -
Table of Contents
- 64 -
Table of Contents
Years of Membership | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$105,550 or more | $ | 21,110 | $ | 31,665 | $ | 42,220 | $ | 52,775 | $ | 63,330 |
Years of Credited Service | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$200,000 | $ | 18,890 | $ | 28,335 | $ | 37,780 | $ | 47,225 | $ | 56,670 | ||||||||||
300,000 | 38,890 | 58,335 | 77,780 | 97,225 | 116,670 | |||||||||||||||
400,000 | 58,890 | 88,335 | 117,780 | 147,225 | 176,670 | |||||||||||||||
500,000 | 78,890 | 118,335 | 157,780 | 197,225 | 236,670 | |||||||||||||||
600,000 | 98,890 | 148,335 | 197,780 | 247,225 | 296,670 |
- 65 -
Table of Contents
Years of Credited Service | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
800,000 | 138,890 | 208,335 | 277,780 | 347,225 | 416,670 | |||||||||||||||
1,000,000 | 178,890 | 268,335 | 357,780 | 447,225 | 536,670 |
- 66 -
Table of Contents
- 67 -
Table of Contents
Year Ended | ||||||||
December 31, | ||||||||
2004 | 2005 | |||||||
(dollars in millions) | ||||||||
Revenues | $ | 1.9 | $ | 2.4 | ||||
Purchases | 55.8 | 88.7 | ||||||
Accounts payable | 51.7 | 53.4 |
• | the initial purchase by Videotron of the information technology infrastructure equipment of Quebecor World; |
- 68 -
Table of Contents
• | the provision of consulting services by certain Quebecor World Inc. personnel to Videotron for corporate information technology services; and | ||
• | the provision of information technology managed services by Videotron to Quebecor World Inc. in North America. |
- 69 -
Table of Contents
- 70 -
Table of Contents
1. | On January 1, 2006, Vidéotron Ltée and Videotron Telecom Ltd. amalgamated, under Part IA of theCompanies Act(Québec), into a single company using the name “Videotron Ltd.” (or “Vidéotron Ltée” in French) with the Designating Number 1163429724. The Articles provide no restrictions on the purposes or activities that may be undertaken by Videotron. | |||
2. | (a) | Our by-laws provide that we may transact business with one or more of our directors or with any company 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 must disclose his or her interest to us and to the other directors before expressing a view of this transaction and shall refrain from deliberating or voting on the transaction, except if his or her vote is necessary to commit 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, our directors may authorize us, by simple resolution, to borrow money and obtain advances upon the credit of our company when they consider it appropriate. Our directors also may, by simple resolution, when they consider it appropriate, (i) issue bonds or other securities of our company and give them in guarantee or sell them for prices and amounts deemed appropriate; (ii) mortgage, pledge or give as surety our present or future movable and immovable property to ensure the payment of these bonds or other securities or give a part only of these guarantees for the same purposes; and (iii) mortgage or pledge our real estate or give as security or otherwise encumber with any charge our movables or give these various kinds of securities to assure the |
- 71 -
Table of Contents
payment of loans made other than by the issuance of bonds as well as the payment or the execution of other debts, contracts and commitments of our company. | ||||
Neither the Articles nor our by-laws contain any provision with respect to (d) the retirement or non-retirement of our directors under an age limit requirement or (e) the number of shares, if any, required for the qualification of our directors. |
3. | The rights, preferences and restrictions attaching to our common shares and our preferred shares (consisting of our Class A Common Shares and our authorized classes of preferred shares, comprised or our Class B Preferred Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred Shares, Class F Preferred Shares and Class G Preferred Shares) are set forth below: |
(a) | Dividend rights: Subject to the rights of the holders of our preferred shares (including their redemption rights) and subject to applicable law, each Class A common share is entitled to receive such dividends as our Board of Directors shall determine. | ||
(b) | Voting rights: The holders of Class A Common Shares are entitled to vote at each shareholders’ meeting with the exception of meetings at which only the holders of another class of shares are entitled to vote. Each Class A Common Share entitles the holder to one vote. The holders of the Class A Common Shares shall elect the directors of Videotron at an annual or special meting of shareholders called for that purpose, except that any vacancy occurring in the Board of Directors may be filled, for the remainder of the term, by our Directors. At any meeting of shareholders called for such purpose, directors are elected by a majority of the votes cast in respect of such election. | ||
(c) | Rights to share in our profits: Other than as described in paragraph (a) above (whereby the holders of our Class A Common Shares are entitled to receive dividends as determined by our Board of Directors subject to certain restrictions) and paragraph (d) below (whereby the holders of our Class A Common Shares are entitled to participation in the remaining property and assets of our company available for distribution in the event of liquidation or dissolution), None. | ||
(d) | Rights upon liquidation: In the event of our liquidation or dissolution 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 Class A Common Shares shall be entitled, subject to the rights of the holders of our preferred shares, to participate equally, share for share, in our residual 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 further capital calls by us: None, provided that our directors may 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 common shares: None. |
- 72 -
Table of Contents
(a) | Dividend rights: When our Board of Directors declares a dividend, the holders of our Class B Preferred Shares have the right to receive, in priority over the holders of our Class A Common Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and Class F Preferred Shares, but subordinated to the holders of our Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed rate of 1% per month, calculated on the basis of the applicable redemption value of our Class B Preferred Shares. A dividend may be declared and payable in cash, in kind or through the issuance of fully paid shares of any class of our company. | ||
(b) | Voting rights: Subject to applicable law and except as expressly otherwise provided, the holders of our Class B Preferred Shares do not have the right to receive notice of meetings of shareholders or to attend any such meeting or vote at any such meeting. | ||
(c) | Rights to share in our profits: Other than as described in paragraph (a) above (whereby the holders of our Class B Preferred Shares are entitled to receive certain dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby the holders of our Class B Preferred Shares are entitled to participate in the distribution of the residual property and assets of Videotron available for distribution in the event of our liquidation or winding-up) and paragraph (e) below (whereby the holders of our Class B Preferred Shares have certain redemption rights), None. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of the Class B Preferred Shares shall be entitled to repayment of the amount paid for the Class B Preferred shares in the subdivision of the issued and paid-up share capital account relating to the Class B Preferred shares. | ||
In addition, in the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the rights of holders of Class B Preferred Shares as regards to payment of dividends and the right to participate in the distribution of residual assets, shall rank in priority to the rights of the holders of our Class A Common Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and Class F Preferred Shares, but subordinated to the rights of holders of our Class G Preferred Shares. | |||
(e) | Redemption provisions: Subject to the provisions of theCompanies Act(Québec), the holders of our Class B Preferred Shares have, at any time, the right to require Videotron to redeem (referred to as a “retraction right”) any or all of their Class B Preferred Shares at a redemption price equal to the amount paid for such shares in the subdivision of the issued and paid-up share capital account relating to such shares, plus a specified premium, if applicable, plus the amount of any declared and unpaid dividends. | ||
In addition, Videotron may, at its option, redeem any or all of the Class B Preferred Shares outstanding at any time at an aggregate redemption price equal to the consideration received by Videotron for these Class B Preferred Shares. Videotron may also, when it deems it appropriate and without giving notice or taking into account the other classes of shares, buy, pursuant to a private agreement, all or some of the Class B Preferred Shares outstanding at a purchase price for any such Class B Preferred Shares not exceeding the retraction right purchase price described above or the book value of Videotron’s net assets. | |||
(f) | Sinking fund provisions: None. |
- 73 -
Table of Contents
(g) | Liability to further capital calls by us: None, provided that our directors may make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of our Class B Preferred Shares as a result of such holder owning a substantial number of our Class B Preferred Shares: None. |
(a) | Dividend rights: When our Board of Directors declares a dividend, the holders of our Class C Preferred Shares have the right to receive, in priority over the holders of our Class A Common Shares, Class D Preferred Shares, Class E Preferred Shares and Class F Preferred Shares, but subordinated to the holders of our Class B Preferred Shares and Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed rate of 1% per month, calculated on the basis of the applicable redemption value of our Class C Preferred Shares. A dividend may be declared and payable in cash, in kind or through the issuance of fully paid shares of any class of our company. | ||
(b) | Voting rights: Subject to applicable law and except as expressly otherwise provided, the holders of our Class C Preferred Shares do not have the right to receive notice of meetings of shareholders or to attend any such meeting or vote at any such meeting. | ||
(c) | Rights to share in our profits: Other than as described in paragraph (a) above (whereby the holders of our Class C Preferred Shares are entitled to receive certain dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby the holders of our Class C Preferred Shares are entitled to participate in the distribution of the residual property and assets of Videotron available for distribution in the event of our liquidation or winding-up) and paragraph (e) below (whereby the holders of our Class C Preferred Shares have certain redemption rights), None. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of the Class C Preferred Shares shall be shall be entitled to repayment of the amount paid for the Class C Preferred shares in the subdivision of the issued and paid-up share capital account relating to the Class C Preferred shares. | ||
In addition, in the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the rights of holders of Class C Preferred Shares as regards to payment of dividends and the right to participate in the distribution of residual assets, shall rank in priority to the rights of the holders of our Class A Common Shares, Class D Preferred Shares, Class E Preferred Shares and Class F Preferred Shares, but subordinated to the rights of holders of our Class B Preferred Shares and Class G Preferred Shares. | |||
(e) | Redemption provisions: Subject to the provisions of theCompanies Act(Québec), the holders of our Class C Preferred Shares have, at any time, the right to require Videotron to redeem (referred to as a “retraction right”) any or all of their Class C Preferred Shares at a redemption price equal to the amount paid for such shares in the subdivision of the issued and paid-up share capital account relating to such shares, plus a specified premium, if applicable, plus the amount of any declared and unpaid dividends. | ||
In addition, Videotron may, at its option, redeem any or all of the Class C Preferred Shares outstanding at any time at an aggregate redemption price equal to the consideration received by Videotron for these Class C Preferred Shares. Videotron may also, when it deems it appropriate and without giving notice or taking into account the other classes of shares, buy, pursuant to a private agreement, all or some of the Class C Preferred Shares outstanding at a purchase price for any such Class C Preferred Shares not exceeding the retraction right purchase price described above or the book value of Videotron’s net assets. | |||
(f) | Sinking fund provisions: None. |
- 74 -
Table of Contents
(g) | Liability to further capital calls by us: None, provided that our directors may make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of our Class C Preferred Shares as a result of such holder owning a substantial number of our Class C Preferred Shares: None. |
(a) | Dividend rights: When our Board of Directors declares a dividend, the holders of our Class D Preferred Shares have the right to receive, in priority over the holders of our Class A Common Shares, Class E Preferred Shares and Class F Preferred Shares, but subordinated to the holders of our Class B Preferred Shares, Class C Preferred Shares and Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed rate of 1% per month, calculated on the basis of the applicable redemption value of our Class D Preferred Shares. A dividend may be declared and payable in cash, in kind or through the issuance of fully paid shares of any class of our company. | ||
(b) | Voting rights: Subject to applicable law and except as expressly otherwise provided, the holders of our Class D Preferred Shares do not have the right to receive notice of meetings of shareholders or to attend any such meeting or vote at any such meeting. | ||
(c) | Rights to share in our profits: Other than as described in paragraph (a) above (whereby the holders of our Class D Preferred Shares are entitled to receive certain dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby the holders of our Class D Preferred Shares are entitled to participate in the distribution of the residual property and assets of Videotron available for distribution in the event of our liquidation or winding-up) and paragraph (e) below (whereby the holders of our Class D Preferred Shares have certain redemption rights), None. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of the Class D Preferred Shares shall be shall be entitled to repayment of the amount paid for the Class D Preferred shares in the subdivision of the issued and paid-up share capital account relating to the Class D Preferred shares. | ||
In addition, in the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the rights of holders of Class D Preferred Shares as regards to payment of dividends and the right to participate in the distribution of residual assets, shall rank in priority to the rights of the holders of our Class A Common Shares, Class E Preferred Shares and Class F Preferred Shares, but subordinated to the rights of holders of our Class B Preferred Shares, Class C Preferred Shares and Class G Preferred Shares. | |||
(e) | Redemption provisions: Subject to the provisions of theCompanies Act(Québec), the holders of our Class D Preferred Shares have, at any time, the right to require Videotron to redeem (referred to as a “retraction right”) any or all of their Class D Preferred Shares at a redemption price equal to the amount paid for such shares in the subdivision of the issued and paid-up share capital account relating to such shares, plus a specified premium, if applicable, plus the amount of any declared and unpaid dividends. | ||
In addition, Videotron may, at its option, redeem any or all of the Class D Preferred Shares outstanding at any time at an aggregate redemption price equal to the consideration received by Videotron for these Class D Preferred Shares. Videotron may also, when it deems it appropriate and without giving notice or taking into account the other classes of shares, buy, pursuant to a private agreement, all or some of the Class D Preferred Shares outstanding at a purchase price for any such Class D Preferred Shares not exceeding the retraction right purchase price described above or the book value of Videotron’s net assets. |
- 75 -
Table of Contents
(f) | Sinking fund provisions: None. | ||
(g) | Liability to further capital calls by us: None, provided that our directors may make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of our Class D Preferred Shares as a result of such holder owning a substantial number of our Class D Preferred Shares: None. |
(a) | Dividend rights: When our Board of Directors declares a dividend, the holders of our Class E Preferred Shares have the right to receive, in priority over the holders of our Class A Common Shares and Class F Preferred Shares, but subordinated to the holders of our Class G Preferred Shares, Class C Preferred Share and Class E Preferred Shares, a preferential and non-cumulative dividend at the fixed rate of 1% per month, calculated on the basis of the applicable redemption value of our Class E Preferred Shares. A dividend may be declared and payable in cash, in kind or through the issuance of fully paid shares of any class of our company. | ||
(b) | Voting rights: Subject to applicable law and except as expressly otherwise provided, the holders of our Class E Preferred Shares do not have the right to receive notice of meetings of shareholders or to attend any such meeting or vote at any such meeting. | ||
(c) | Rights to share in our profits: Other than as described in paragraph (a) above (whereby the holders of our Class E Preferred Shares are entitled to receive certain dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby the holders of our Class E Preferred Shares are entitled to participate in the distribution of the residual property and assets of Videotron available for distribution in the event of our liquidation or winding-up) and paragraph (e) below (whereby the holders of our Class E Preferred Shares have certain redemption rights), None. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of the Class E Preferred Shares shall be shall be entitled to repayment of the amount paid for the Class E Preferred shares in the subdivision of the issued and paid-up share capital account relating to the Class E Preferred shares. | ||
In addition, in the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the rights of holders of Class E Preferred Shares as regards to payment of dividends and the right to participate in the distribution of residual assets, shall rank in priority to the rights of the holders of our Class A Common Shares and Class F Preferred Shares, but subordinated to the rights of holders of our Class B Preferred Shares, Class C Preferred Shares, Class D Preferred Shares and Class G Preferred Shares. | |||
(e) | Redemption provisions: Subject to the provisions of theCompanies Act(Québec), the holders of our Class E Preferred Shares have, at any time, the right to require Videotron to redeem (referred to as a “retraction right”) any or all of their Class E Preferred Shares at a redemption price equal to the amount paid for such shares in the subdivision of the issued and paid-up share capital account relating to such shares, plus a specified premium, if applicable, plus the amount of any declared and unpaid dividends. | ||
In addition, Videotron may, at its option, redeem any or all of the Class E Preferred Shares outstanding at any time at an aggregate redemption price equal to the consideration received by Videotron for these Class E Preferred Shares. Videotron may also, when it deems it appropriate and without giving notice or taking into account the other classes of shares, buy, pursuant to a private agreement, all or some of the Class E Preferred Shares outstanding at a purchase price for any such Class E Preferred Shares not exceeding the retraction right purchase price described above or the book value of Videotron’s net assets. |
- 76 -
Table of Contents
(f) | Sinking fund provisions: None. | ||
(g) | Liability to further capital calls by us: None, provided that our directors may make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of our Class E Preferred Shares as a result of such holder owning a substantial number of our Class E Preferred Shares: None. |
(a) | Dividend rights: When our Board of Directors declares a dividend, the holders of our Class F Preferred Shares have the right to receive, in priority over the holders of our Class A Common Shares, but subordinated to the holders of our Class B Preferred Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed rate of 1% per month, calculated on the basis of the applicable redemption value of our Class F Preferred Shares. A dividend may be declared and payable in cash, in kind or through the issuance of fully paid shares of any class of our company. | ||
(b) | Voting rights: Subject to applicable law and except as expressly otherwise provided, the holders of our Class F Preferred Shares do not have the right to receive notice of meetings of shareholders or to attend any such meeting or vote at any such meeting. | ||
(c) | Rights to share in our profits: Other than as described in paragraph (a) above (whereby the holders of our Class F Preferred Shares are entitled to receive certain dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby the holders of our Class F Preferred Shares are entitled to participate in the distribution of the residual property and assets of Videotron available for distribution in the event of our liquidation or winding-up) and paragraph (e) below (whereby the holders of our Class F Preferred Shares have certain redemption rights), None. | ||
(d) | Rights upon liquidation: In the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of the Class F Preferred Shares shall be shall be entitled to repayment of the amount paid for the Class F Preferred shares in the subdivision of the issued and paid-up share capital account relating to the Class F Preferred shares. | ||
In addition, in the event of our liquidation, dissolution or other distribution of our assets among our shareholders for the purpose of winding-up our affairs, whether voluntarily or involuntarily, the rights of holders of Class F Preferred Shares as regards to payment of dividends and the right to participate in the distribution of residual assets, shall rank in priority to the rights of the holders of our Class A Common Shares, but subordinated to the rights of holders of our Class B Preferred Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and Class G Preferred Shares. | |||
(e) | Redemption provisions: Subject to the provisions of theCompanies Act(Québec), the holders of our Class F Preferred Shares have, at any time, the right to require Videotron to redeem (referred to as a “retraction right”) any or all of their Class F Preferred Shares at a redemption price equal to the amount paid for such shares in the subdivision of the issued and paid-up share capital account relating to such shares, plus a specified premium, if applicable, plus the amount of any declared and unpaid dividends. | ||
In addition, Videotron may, at its option, redeem any or all of the Class F Preferred Shares outstanding at any time at an aggregate redemption price equal to the consideration received by Videotron for these Class F Preferred Shares. Videotron may also, when it deems it appropriate and without giving notice or taking into account the other classes of shares, buy, pursuant to a private agreement, all or some of the |
- 77 -
Table of Contents
Class F Preferred Shares outstanding at a purchase price for any such Class F Preferred Shares not exceeding the retraction right purchase price described above or the book value of Videotron’s net assets. | |||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to further capital calls by us: None, provided that our directors may make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of our Class F Preferred Shares as a result of such holder owning a substantial number of our Class F Preferred Shares: None. |
(a) | Dividend rights: When our Board of Directors declares a dividend, the holders of our Class G Preferred Shares have the right to receive, in priority over the holders of our common shares and Preferred Shares of other series, a preferential and cumulative dividend, payable semi-annually, at the fixed rate of 11.25% per year, calculated daily on the basis of the applicable redemption value of our Class G Preferred Shares. No dividends may be paid on any common shares or Preferred Shares of other series unless all dividends which shall have become payable on the Class G Preferred Shares have been paid or set aside for payment. | ||
(b) | Voting rights: Subject to applicable law and except as expressly otherwise provided, the holders of our Class G Preferred Shares do not have the right to receive notice of meetings of shareholders or to attend any such meeting or vote at any such meeting. | ||
However, in the event that we shall have failed to pay eight (8) half-yearly dividends, whether or not consecutive, on the Class G Preferred Shares, and only for so long as the dividend remains in arrears, the holders of Class G Preferred Shares shall have the right to receive notice of meetings of shareholders and to attend and vote at any such meetings, except meetings at which only holders of another specified series or class of shares are entitled to vote. At each such meeting, each Class G Preferred Share shall entitle the holder thereof to one vote. | |||
(c) | Rights to share in our profits: Except as described in paragraph (a) above (whereby the holders of our Class G Preferred Shares are entitled to receive a 11.25% cumulative preferred dividend in preference to the holders of our Common Shares and other series of our Preferred Shares), paragraph (d) below (whereby the holders of our Class G Preferred Shares are entitled to receive, in preference to the holders of our Common Shares and other series of our Preferred Shares, an amount equal to $1,000 per Class G Preferred Share and any accumulated and unpaid dividends with respect thereto in the event of our liquidation, winding-up or reorganization) and paragraph (e) below (whereby the holders of our Class G Preferred Shares may require us to redeem the Class G Preferred Shares at a redemption price of $1,000 per share plus any accrued and unpaid dividends with respect thereto), 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 Class G Preferred Shares shall be entitled to receive in preference to the holders of our common shares and our Preferred Shares of other series an amount equal to $1,000 per Class G Preferred Share and any accrued and unpaid dividends with respect thereto. | ||
Our Class G Preferred Shares have priority over our common shares and our Preferred Shares of other series as to the order of priority of the distribution of assets in case of the liquidation or dissolution of our company, voluntary or involuntary, or of any other distribution of our assets to our shareholders for the purpose of winding up our affairs. |
- 78 -
Table of Contents
(e) | Redemption provisions: Subject to the provisions of theCompanies Act(Québec), the holders our Class G Preferred Shares have, at any time, the right to require Videotron to redeem any and all of their shares at a redemption price equal to $1,000 per share plus any accrued and unpaid dividends with respect thereto. In addition, we may, at our option, redeem any and all Class G Preferred Shares at any time at a redemption price equal to $1,000 per share plus any accrued and unpaid dividends with respect thereto. | ||
(f) | Sinking fund provisions: None. | ||
(g) | Liability to further capital calls by us: None, provided that our directors may make calls upon the shareholders in respect of any moneys unpaid upon their shares. | ||
(h) | Provisions discriminating against existing or prospective holders of our Class G Preferred Shares as a result of such holder owning a substantial number of our Class G Preferred Shares: None. |
4. | Under theCompanies Act(Québec), (i) the Articles may only be amended by the affirmative vote of the holders of two-thirds (2/3) of the votes cast by the shareholders at a special meeting called for that purpose and (ii) our by-laws may be amended by our directors and ratified by a majority of the votes cast by the shareholders at a meeting called for such purpose In addition, pursuant to theCompanies Act(Quebec), we may not make any amendments to the Articles that affect the rights, conditions, privileges or restrictions attaching to issued shares of any series outstanding, other than an increase in the share capital or the number of our authorized shares, without obtaining the consent of all the shareholders concerned by the amendment, whether or not they are eligible to vote. The consent of the shareholders of any classes outstanding with respect to the matters described in the foregoing requires either (i) the formal authorization given by all the holders of the shares of such class outstanding, or (ii) a resolution adopted by at least three-quarters (3/4) of the votes cast holders of the shares of such class voting on this resolution at a special general meeting held by order and under the supervision of a judge of the Superior Court of Québec. |
5. | Our by-laws provide that the annual meeting of our shareholders shall be held at such place, on such date and at such time as our Board of Directors may determine from time to time. Annual meetings of our shareholders may be called at any time by order of our Board of Directors, our Chairman of the Board or, provided they are members of our Board of Directors, the president or any vice-president of our company. Special general meetings of our shareholders shall be held at such place, on such date and at such time as our Board of Directors may determine from time to time or at any place where all our shareholders entitled to vote are present in person or represented by proxy or at such other place as all our shareholders shall approve in writing. Special general meetings of our shareholders may be called at any time by order of our Board of Directors, our Chairman of the Board or, provided they are members of our Board of Directors, the president or any vice-president of our company. | |
Our by-laws provide that notice specifying the place, date, time and purpose of any meeting of our shareholders shall be given to all the shareholders entitled to this notice at least 21 days but not more than 50 days prior to the date fixed for the meeting. The notice may be mailed, postage prepaid, to the shareholders at their respective addresses as they appear on our books or delivered by hand or transmitted by any means of telecommunication. | ||
Our chairman of the board or, in his absence, our president, if he is a director or, in his absence, one of our vice-presidents who is a director shall preside at all meetings of our 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 30% of the outstanding shares of our share capital carrying the right to vote at a shareholders’ meeting, present in person or represented by proxy, shall constitute a quorum for any meeting of our shareholders. |
- 79 -
Table of Contents
6. | There is no limitation imposed by Canadian law or by the Articles or our other constituent documents on the right of nonresidents or foreign owners to hold or vote shares, other than as provided in theInvestment Canada Act(Canada). TheInvestment Canada Act(Canada) requires “non-Canadian” (as defined in theInvestment Canada Act(Canada)) individuals, governments, corporations and other entities who wish to acquire control of a “Canadian business” (as defined in theInvestment Canada Act(Canada)) to file either an application for review (when certain asset value thresholds are met) or a post closing notification with the Director of Investments appointed under theInvestment Canada Act(Canada), unless a specific exemption applies. TheInvestment Canada Act(Canada) requires that, when an acquisition of control of a Canadian business by a “non-Canadian” is subject to review, it must be approved by the Minister responsible for theInvestment Canada Act(Canada) on the basis that the Minister is satisfied that the acquisition is “likely to be of net benefit to Canada,” having regard to criteria set forth in theInvestment Canada Act(Canada). |
7. | The Articles provide that our directors shall refuse to issue (including on the occasion or because of a conversion of shares or in shares), and to allow a transfer of, any share of our capital stock if this issuance or transfer would, in the opinion of our directors, affect our eligibility or of any other company or partnership in which we have or may have an interest, to obtain, preserve or renew a license or authorization required for the operation or continuation of its broadcasting company (as defined in theBroadcasting Act(Canada), as amended) (or any part thereof) or of any other activity necessary for the continuation of our company. See “Item 4 — Information on the Company — Business Overview — Regulation — Ownership and Control of Canadian Broadcast Undertakings.” | |
8. | Not applicable. | |
9. | Not applicable. | |
10. | Not applicable. |
(a) | Indenture relating to US$650,000,000 of our 67/8% Senior Notes due January 15, 2014, dated as of October 8, 2003, by and among Vidéotron Ltée, the guarantors party thereto and Wells Fargo Bank Minnesota, N.A. (now Wells Fargo Bank, National Association) as trustee, as supplemented. | ||
On October 8, 2003, we issued US$335.0 million aggregate principal amount of our 67/8% Senior Notes due January 15, 2014 and, on November 19, 2004, we issued an additional US$315.0 million 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 our subsidiaries. The notes are redeemable, at our option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to us and certain of our 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. | |||
(b) | Indenture relating to US$175,000,000 of our 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, we issued US$175,000,000 aggregate principal amount of our 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 |
- 80 -
Table of Contents
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 our subsidiaries. These notes are redeemable, at our option, under certain circumstances and at the redemption prices set forth in the indenture. The indenture contains customary restrictive covenants with respect to us and certain of our 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. |
(c) | Amended and Restated Credit Agreement, dated as of November 19, 2004, by and among Vidéotron Ltée, as borrower, the financial institutions party thereto from time to time, as lenders, and Royal Bank of Canada, as administrative agent. | ||
On November 19, 2004, concurrently with the closing of the private placement of a new series of our 67/8% Senior Notes due January 15, 2014, we amended and restated our credit agreement, dated as of November 28, 2000, by executing and delivering the seventh amending agreement to our credit agreement. Pursuant to this amendment, our amended and restated credit agreement provides for a $450.0 million revolving credit facility maturing in 2009. The proceeds of our revolving credit facility are to be used for general corporate purposes, including 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 November 2009. | |||
Borrowings under this amended and restated credit facility and under eligible derivative instruments are secured by a first-ranking hypothec or security interest (subject to certain permitted encumbrances) on all of our current and future assets, as well as those of the guarantors party thereto, including most but not all of our 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 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 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. | |||
(d) | Management Services Agreement, effective as of January 1, 2002, by and between Quebecor Media Inc. and Videotron Ltée. | ||
In 2002, we began paying an annual management fee to Quebecor Media for services rendered to us pursuant to a five-year management services agreement. These services include internal audit, legal and corporate, financial planning and treasury, tax, real estate, human resources, risk management, public relations and other services. The agreement provides for an annual management fee of $11.4 million payable to Quebecor Media in respect of 2005 (2003 — $5.3 million; 2004 – $7.3 million). Management fees payable to Quebecor Media in the 2006 fiscal year are expected to be $15.9 million. In addition, Quebecor Media is entitled to the reimbursement of out-of-pocket expenses incurred in connection with the services provided under the agreement. The agreement also provides that in no event may the fees and reimbursements paid to Quebecor Media for any given year exceed 1.5% of our consolidated revenues for such year. |
- 81 -
Table of Contents
- 82 -
Table of Contents
• | dealers in stocks, securities or currencies; | ||
• | securities traders that use a mark-to-market accounting method; | ||
• | banks and financial institutions; | ||
• | insurance companies; | ||
• | tax-exempt organizations; | ||
• | persons holding notes as part of a hedging or conversion transaction or a straddle; | ||
• | persons deemed to sell notes under the constructive sale provisions of the Code; | ||
• | persons who or that are, or may become, subject to the expatriation provisions of the Code; | ||
• | persons whose functional currency is not the U.S. dollar; and | ||
• | direct, indirect or constructive owners of 10% or more of our outstanding voting shares. |
• | an individual citizen or resident alien of the United States; | ||
• | a corporation or other entity treated as such formed in or under the laws of the United States, any state thereof or the District of Columbia; | ||
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
- 83 -
Table of Contents
• | 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. |
- 84 -
Table of Contents
• | the amount of cash and the fair market value of any property received (less any portion allocable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary interest income); and | ||
• | the U.S. Holder’s tax basis in the notes. |
- 85 -
Table of Contents
• | fails to furnish a social security number or other taxpayer identification number (“TIN”) certified under penalty of perjury within a reasonable time after the request for the TIN; | ||
• | furnishes an incorrect TIN; | ||
• | is notified by the IRS that is has failed to report properly interest or dividends; or | ||
• | under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to backup withholding. |
- 86 -
Table of Contents
-87-
Table of Contents
Maturity | Notional amount | Pay/receive | Fixed rate | Floating rate | ||||||||
May 2006 | $ | 90.0 | Pay fixed/receive floating | 5.41 | % | Bankers’ acceptance 3 months | ||||||
September 2007 | $ | 5.0 | Pay fixed/receive floating | 3.75 | % | Bankers’ acceptance 3 months |
Exchange rate of | ||||||||||||||||
interest and | ||||||||||||||||
capital payments | ||||||||||||||||
Notional | Annual effective | Annual nominal | per CDN dollar | |||||||||||||
Period covered | amount | interest rate | interest rate | for one US dollar | ||||||||||||
Senior Notes | 2004 to 2014 | US$190.0 | Bankers’ acceptance 3 months plus 2.80% | 6.875 | % | 1.2000 | ||||||||||
Senior Notes | 2004 to 2014 | US$125.0 | 7.45 | % | 6.875 | % | 1.1950 | |||||||||
Senior Notes | 2003 to 2014 | US$200.0 | Bankers’ acceptance 3 months plus 2.73% | 6.875 | % | 1.3425 | ||||||||||
Senior Notes | 2003 to 2014 | US$135.0 | 7.66 | % | 6.875 | % | 1.3425 | |||||||||
Senior Notes | 2005 to 2015 | US$175.0 | 5.98 | % | 6.375 | % | 1.1781 |
- 88 -
Table of Contents
December 31, 2004 | December 31, 2005 | ||||||||||||||||
Carrying | Carrying | ||||||||||||||||
value | Fair value | value | Fair value | ||||||||||||||
(in millions) | |||||||||||||||||
Long-term debt | $ | (1,038.9 | ) | $ | (1,051.0 | ) | $ | (1,121.7 | ) | $ | (1,117.4 | ) | |||||
Interest rate swaps | (4.6 | ) | (4.6 | ) | (0.9 | ) | (0.9 | ) | |||||||||
Cross-currency interest rate swaps | (45.4 | ) | (72.3 | ) | (73.8 | ) | (135.0 | ) | |||||||||
Foreign exchange forward contracts | (8.5 | ) | (8.4 | ) | — | (0.2 | ) |
(in thousands of | ||||
Year ending December 31, | dollars) | |||
2006 | $ | — | ||
2007 | $ | — | ||
2008 | $ | — | ||
2009 | $ | — | ||
2010 | $ | — | ||
2011 and thereafter | $ | 1,121,697 |
- 89 -
Table of Contents
- 90 -
Table of Contents
Year Ended December 31, | ||||||||
2004 | 2005 | |||||||
(in thousands) | ||||||||
Audit Fees | $ | 453.6 | $ | 444.3 | ||||
Audit-Related Fees(1) | 391.5 | 219.0 | ||||||
Tax Fees(2) | 1.2 | — | ||||||
All Other Fees(3) | 8.0 | 5.0 | ||||||
Total | $ | 854.3 | $ | 668.3 | ||||
(1) | Audit-Related Fees include fees for the reviews of our employee pension plans and assistance with the preparation of the two private placements of our 67/8% Senior Notes due January 15, 2014, which were completed on October 8, 2003 and on November 19, 2004, respectively, and the exchange offers for such notes, one of which was completed on February 9, 2004 and the other of which was completed on March 4, 2005, and with the preparation of the private placement of our 63/8% Senior Notes due December 15, 2015, which was completed on September 16, 2005, and the exchange offer for such notes, which was completed on February 6, 2006. | |
(2) | Tax Fees include fees billed for tax compliance services, tax consultations and tax planning services. | |
(3) | All Other Fees include fees billed for regulatory services. |
- 91 -
Table of Contents
1.1 | Articles of Amalgamation of Videotron Ltd. (translation). | |
1.2 | By-laws of Videotron Ltd. | |
1.3 | Articles of Incorporation of Le SuperClub Vidéotron ltée (translation) (incorporated by reference to Exhibit 3.7 of Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
1.4 | By-laws of Le SuperClub Vidéotron ltée. (incorporated by reference to Exhibit 3.8 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
1.5 | Articles of Incorporation of Groupe de Divertissement SuperClub inc. (translation) (incorporated by reference to Exhibit 3.9 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
1.6 | Articles of Amendment dated January 16, 2004 to Articles of Incorporation of Groupe de Divertissement SuperClub inc. (translation) (incorporated by reference to Exhibit 3.14 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 14, 2005, Registration Statement No. 333-121032). | |
1.7 | By-laws of Groupe de Divertissement SuperClub inc. (incorporated by reference to Exhibit 3.10 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
1.8 | By-law No. 2004-1 of Groupe de Divertissement SuperClub inc. adopted January 16, 2004 (translation) (incorporated by reference to Exhibit 3.16 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 14, 2005, Registration Statement No. 333-121032). | |
1.9 | Articles of Incorporation of SuperClub Vidéotron Canada inc. (translation) (incorporated by reference to Exhibit 3.17 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 14, 2005, Registration Statement No. 333-121032). | |
1.10 | By-laws of SuperClub Vidéotron Canada inc. (translation) (incorporated by reference to Exhibit 3.18 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 14, 2005, Registration Statement No. 333-121032). | |
1.11 | Articles of Incorporation of Les Propriétés SuperClub inc. (translation) (incorporated by reference to Exhibit 3.19 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 14, 2005, Registration Statement No. 333-121032). | |
1.12 | By-laws of Les Propriétés SuperClub inc. (translation) (incorporated by reference to Exhibit 3.20 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 14, 2005, Registration Statement No. 333-121032). | |
1.13 | Articles of Amalgamation of CF Cable TV Inc. (translation). | |
1.14 | By-Laws of CF Cable TV Inc. | |
2.1 | Form of 67/8% Senior Notes due January 15, 2014 of Videotron Ltd. registered pursuant to the Securities Act of 1933 (included as Exhibit A to Exhibit 2.3 below). | |
2.2 | Form of Notation of Guarantee by the subsidiary guarantors of the 67/8% Senior Notes due January 15, 2014 of Videotron Ltd. (included as Exhibit E to Exhibit 2.3 below). | |
2.3 | Indenture dated as of October 8, 2003 by and among Videotron Ltd., the subsidiary guarantors signatory thereto and Wells Fargo Bank Minnesota, N.A. (now named Wells Fargo Bank, National Association), as trustee (incorporated by reference to Exhibit 4.3 to Videotron Ltd.’s Registration Statement on Form F-4 dated November 24, 2003, Registration Statement No. 333-110697). | |
2.4 | First Supplemental Indenture dated as of July 12, 2004 by and among Videotron Ltd., SuperClub Vidéotron Canada inc., Les Propriétés SuperClub inc. and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.4 to Videotron Ltd.’s Registration Statement on Form F-4 dated December 6, 2004, Registration Statement No. 333-121032). | |
2.5 | Form of 63/8% Senior Notes due December 15, 2015 of Vidéotron Ltée being registered pursuant to the Securities Act of 1933 (included as Exhibit A to Exhibit 2.7 below). |
- 92 -
Table of Contents
2.6 | Form of Notation of Guarantee by the subsidiary guarantors of the 63/8% Senior Notes due December 15, 2015 of Vidéotron Ltée (included as Exhibit E to Exhibit 2.7 below). | |
2.7 | Indenture dated as of September 16, 2005 by and among Vidéotron Ltée, the subsidiary guarantors signatory thereto and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to Videotron Ltd.’s Registration Statement on Form F-4 dated October 14, 2005, Registration Statement No. 333-128998). | |
4.1 | Sixth Amending Agreement, dated as of October 8, 2003, 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 December 12, 2001 and accepted by the Lenders as of December 21, 2001, a Fourth Amending Agreement dated as of December 23, 2002 and a Fifth Amending Agreement dated as of March 24, 2003, among Videotron Ltd., Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto and acknowledged by Le SuperClub Vidéotron ltée, Groupe de Divertissement SuperClub inc., Vidéotron (1998) ltée, CF Cable TV Inc., Videotron (Regional) Ltd, Télé-Câble Charlevoix (1997) inc., Vidéotron TVN inc. and Câblage QMI inc., as guarantors, and by Quebecor Media Inc. (incorporated by reference to Exhibit 10.1 to Videotron Ltd.’s Registration Statement on Form F-4 dated November 24, 2003, Registration Statement No. 333-110697). | |
4.2 | Seventh Amending Agreement dated as of November 19, 2004 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 and a Sixth Amending Agreement dated as of October 8, 2003 among Videotron Ltd., Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto and acknowledged by Le SuperClub-Vidéotron ltée, Groupe de Divertissement SuperClub inc., Vidéotron (1998) ltée, CF Cable TV Inc. Videotron Regional Ltd., 9139-3256 Québec inc., Vidéotron TUN inc., Les Propriétés SuperClub inc. and SuperClub Vidéotron Canada inc., as guarantors (the “Guarantors”), and by Quebecor Media Inc. (incorporated by reference to Exhibit 10.2 to Videotron Ltd.’s Registration Statement on Form F-4 dated December 6, 2004, Registration Statement No. 333-121032). | |
4.3 | 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, as Second Amending Agreement dated as of June 29, 2001, a Third Amending Agreement dated December 12, 2001 and accepted by the Lenders as of December 21, 2001, a Fourth Amending Agreement dated as of December 23, 2002, a Fifth Amending Agreement dated as of March 24, 2003, a Sixth Amending Agreement dated as of October 8, 2003, among Videotron Ltd., Royal Bank of Canada, as administrative agent, and the financial institutions signatory thereto (included as Schedule 2 to Exhibit 4.2 above). | |
4.4 | Form of Guarantee by the Guarantors of the Credit Agreement (incorporated by reference to Schedule D of Exhibit 10.5 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |
4.5 | Form of Share Pledge of the shares of Videotron Ltd. and the Guarantors of the Credit Agreement (incorporated by reference to Schedule E of Exhibit 10.5 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |
4.6 | Management Services Agreement effective as of January 1, 2002 between Quebecor Media Inc. and Videotron Ltd. (incorporated by reference to Exhibit 10.5 to Videotron Ltd.’s Registration Statement on Form F-4 dated November 24, 2003, Registration Statement No. 333-110697). | |
4.7 | Lease Agreement dated November 24, 1993 between Le Groupe Vidéotron Ltée and National Bank of Canada for the property located at 300 Viger Street East, Montréal, Province of Québec, Canada, together with a summary thereof in the English language (incorporated by reference to Exhibit 10.3 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |
4.8 | Form of Guarantee by the Guarantors of the Credit Agreement (incorporated by reference to Schedule D of Exhibit 10.5 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |
4.9 | Form of Share Pledge of the shares of Vidéotron Ltée and the Guarantors of the Credit Agreement (incorporated by reference to Schedule E of Exhibit 10.5 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). |
- 93 -
Table of Contents
4.10 | Lease Agreement dated November 24, 1993 between Le Groupe Vidéotron Ltée and National City Bank of Canada for the property located at 300 Viger Street East, Montréal, Province of Québec, Canada, together with a summary thereof in the English language (incorporated by reference to Exhibit 10.3 to Quebecor Media Inc.’s Registration Statement on Form F-4 dated September 5, 2001, Registration Statement No. 333-13792). | |
7.1 | Statement regarding calculation of ratio of earnings to fixed charges. | |
8.1 | Subsidiaries of Videotron Ltd. | |
11.1 | Code of Ethics (incorporated by reference to Exhibit 11.1 to Videotron Ltd.’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003, dated April 29, 2004). | |
12.1 | Certification of Robert Dépatie, President and Chief Executive Officer of Videotron Ltd., 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 Yvan Gingras, Executive Vice President, Finance and Operations and Chief Financial Officer of Videotron Ltd., 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 Robert Dépatie, President and Chief Executive Officer of Videotron Ltd., 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 Yvan Gingras, Executive Vice President, Finance and Operations and Chief Financial Officer of Videotron Ltd. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
-94-
Table of Contents
VIDEOTRON LTD. | ||||
By: | /s/ Yvan Gingras | |||
Name: | Yvan Gingras | |||
Title: | Executive Vice President, Finance and Operations, and Chief Financial Officer | |||
-95-
Table of Contents
Vidéotron Ltée | ||
Annual Consolidated Financial Information as at December 31, 2004 and 2005 and for the Years Ended December 31, 2003, 2004 and 2005 | ||
Report of Independent Registered Public Accounting Firm | F-2 | |
Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005 | F-3 | |
Consolidated Statements of Shareholder’s Equity (Deficiency in Assets) for the years ended December 31, 2003, 2004 and 2005 | F-4 | |
Consolidated Balance Sheets as at December 31, 2004 and 2005 | F-5 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005 | F-6 | |
Notes to Consolidated Financial Statements for the years ended December 31, 2003, 2004 and 2005 | F-8 | |
Vidéotron Telecom Ltée. | ||
Annual Financial Information as at and for the Years Ended December 31, 2004 and 2005 | ||
Report of Independent Registered Public Accounting Firm | F-58 | |
Statements of Operations and Deficit for the years ended December 31, 2004 and 2005 | F-59 | |
Balance Sheets as at December 31, 2004 and 2005 | F-60 | |
Statements of Cash Flows for the years ended December 31, 2004 and 2005 | F-61 | |
Notes to Financial Statements for the years ended December 31, 2004 and 2005 | F-62 |
F-1
Table of Contents
Chartered Accountants
F-2
Table of Contents
(in thousands of Canadian dollars)
2003 | 2004 | 2005 | ||||||||||
Operating revenues | ||||||||||||
Cable television | $ | 558,887 | $ | 576,825 | $ | 618,346 | ||||||
Internet | 183,268 | 222,458 | 270,791 | |||||||||
Telephony | – | – | 21,088 | |||||||||
Video stores | 38,450 | 48,058 | 55,146 | |||||||||
Other | 24,396 | 24,277 | 36,623 | |||||||||
805,001 | 871,618 | 1,001,994 | ||||||||||
Direct cost | 245,967 | 250,442 | 287,455 | |||||||||
Operating, general and administrative expenses | 283,784 | 279,999 | 332,187 | |||||||||
Depreciation and amortization (note 4) | 122,958 | 130,215 | 131,841 | |||||||||
Financial expenses (note 5) | 64,602 | 177,985 | 65,206 | |||||||||
Dividend income from parent company | – | (111,055 | ) | – | ||||||||
Other items (note 6) | (2,500 | ) | – | – | ||||||||
Income before income taxes and non-controlling interest | 90,190 | 144,032 | 185,305 | |||||||||
Income taxes (note 7): | ||||||||||||
Current | 14,063 | 2,086 | 2,581 | |||||||||
Future | 12,767 | (5,526 | ) | 68,747 | ||||||||
26,830 | (3,440 | ) | 71,328 | |||||||||
63,360 | 147,472 | 113,977 | ||||||||||
Non-controlling interest in a subsidiary | 49 | 100 | 102 | |||||||||
Net income | $ | 63,311 | $ | 147,372 | $ | 113,875 | ||||||
F-3
Table of Contents
(in thousands of Canadian dollars)
Total | ||||||||||||||||
Share | Contributed | shareholder’s | ||||||||||||||
capital | surplus | Deficit | equity | |||||||||||||
Balance as at December 31, 2002 | $ | 1 | $ | 84,357 | $ | (429,547 | ) | $ | (345,189 | ) | ||||||
Conversion of 2 Series E preferred shares into 820,000 common shares (note 14) | 31,310 | – | – | 31,310 | ||||||||||||
Excess of the Series E preferred share retractable value over the stated capital converted into Class A shares (note 14) | – | 301,170 | – | 301,170 | ||||||||||||
Excess of purchase price over the carrying value of assets transferred by the parent company (note 14) | – | – | (2,000 | ) | (2,000 | ) | ||||||||||
Issuance of common shares (note 14) | 141,925 | – | – | 141,925 | ||||||||||||
Excess of consideration issued to the parent company over the net book value of business acquired (note 14) | – | (26,699 | ) | (76,437 | ) | (103,136 | ) | |||||||||
Transfer of tax deductions from a company controlled by the ultimate parent company (note 7) | – | 3,382 | – | 3,382 | ||||||||||||
Net income for the year | – | – | 63,311 | 63,311 | ||||||||||||
Dividend | – | – | (19,956 | ) | (19,956 | ) | ||||||||||
Balance as at December 31, 2003 | 173,236 | 362,210 | (464,629 | ) | 70,817 | |||||||||||
Transfer of tax deductions from a company controlled by the ultimate parent company (note 7) | – | (66 | ) | – | (66 | ) | ||||||||||
Excess of the Series F preferred share retractable value over the stated capital (note 14) | – | – | (1,660 | ) | (1,660 | ) | ||||||||||
Transfer of tax deductions from the parent company (note 2) | – | 26,800 | – | 26,800 | ||||||||||||
Net income for the year | – | – | 147,372 | 147,372 | ||||||||||||
Dividend | – | – | (205,233 | ) | (205,233 | ) | ||||||||||
Balance as at December 31, 2004 | 173,236 | 388,944 | (524,150 | ) | 38,030 | |||||||||||
Transfer of tax deductions from a company controlled by the ultimate parent company (note 7) | – | 23 | – | 23 | ||||||||||||
Net income for the year | – | – | 113,875 | 113,875 | ||||||||||||
Dividend | – | – | (210,000 | ) | (210,000 | ) | ||||||||||
Balance as at December 31, 2005 | $ | 173,236 | $ | 388,967 | $ | (620,275 | ) | $ | (58,072 | ) | ||||||
F-4
Table of Contents
(in thousands of Canadian dollars)
2004 | 2005 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 36,230 | $ | 32,223 | ||||
Marketable securities | 21,250 | 40,496 | ||||||
Accounts receivable (note 8) | 90,488 | 111,329 | ||||||
Amounts receivable from affiliated companies (note 19) | 5 | 6 | ||||||
Income taxes receivable | 8,624 | 799 | ||||||
Inventories (note 9) | 30,151 | 27,128 | ||||||
Prepaid expenses | 5,399 | 5,408 | ||||||
Future income taxes (note 7) | 58,228 | 63,971 | ||||||
250,375 | 281,360 | |||||||
Fixed assets (note 10) | 884,003 | 954,090 | ||||||
Goodwill | 438,426 | 438,682 | ||||||
Other assets (note 11) | 34,498 | 42,757 | ||||||
Future income taxes (note 7) | 23,559 | 2,376 | ||||||
$ | 1,630,861 | $ | 1,719,265 | |||||
Liabilities and Shareholder’s Equity (Deficiency in Assets) | ||||||||
Current liabilities: | ||||||||
Issued and outstanding cheques | $ | 3,903 | $ | 5,590 | ||||
Accounts payable and accrued liabilities (note 12) | 189,057 | 201,719 | ||||||
Amounts payable to affiliated companies (note 19) | 51,718 | 53,393 | ||||||
Deferred revenue | 105,410 | 114,666 | ||||||
Income taxes payable | 1,643 | 882 | ||||||
351,731 | 376,250 | |||||||
Deferred revenue | 15,558 | 22,033 | ||||||
Pension plan accrued liability | 5,833 | 7,090 | ||||||
Forward exchange contract and interest rate swaps | 57,249 | 73,835 | ||||||
Future tax liabilities (note 7) | 122,846 | 175,748 | ||||||
Long-term debt (note 13) | 1,038,908 | 1,121,697 | ||||||
Non-controlling interest in subsidiaries | 706 | 684 | ||||||
1,592,831 | 1,777,337 | |||||||
Shareholder’s equity (deficiency in assets): | ||||||||
Common shares (note 14) | 173,236 | 173,236 | ||||||
Contributed surplus (note 14) | 388,944 | 388,967 | ||||||
Deficit | (524,150 | ) | (620,275 | ) | ||||
38,030 | (58,072 | ) | ||||||
$ | 1,630,861 | $ | 1,719,265 | |||||
F-5
Table of Contents
(in thousands of Canadian dollars)
2003 | 2004 | 2005 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 63,311 | $ | 147,372 | $ | 113,875 | ||||||
Adjustments for the following items: | ||||||||||||
Depreciation and amortization (notes 4 and 5) | 132,866 | 136,842 | 143,774 | |||||||||
Future income taxes | 12,767 | (5,526 | ) | 68,747 | ||||||||
(Gain) loss on disposal of fixed assets | 18,447 | 13,174 | (1,367 | ) | ||||||||
Non-controlling interest in a subsidiary | 49 | 100 | 102 | |||||||||
Amortization of debt premium and discount | (1,066 | ) | (1,106 | ) | (2,188 | ) | ||||||
Change in fair value of interest rate swaps (note 5) | – | 4,579 | (1,165 | ) | ||||||||
(Gain) loss on repayment of long-term debt | 17,094 | 187 | (312 | ) | ||||||||
(Gain) loss on foreign currency denominated long-term debt (note 5) | (23,623 | ) | 1,298 | 1,413 | ||||||||
Other | 549 | (8 | ) | (1,065 | ) | |||||||
Cash flows from operations | 220,394 | 296,912 | 321,814 | |||||||||
Net change in non-cash operating items: | ||||||||||||
Accounts receivable | 2,629 | (21,400 | ) | (20,815 | ) | |||||||
Current income taxes | 10,928 | (2,213 | ) | 7,425 | ||||||||
Amounts receivable from and payable to affiliated companies | (1,953 | ) | (1,405 | ) | 35,995 | |||||||
Inventories | (4,068 | ) | (5,900 | ) | 3,032 | |||||||
Prepaid expenses | (2,720 | ) | 1,539 | (8 | ) | |||||||
Accounts payable and accrued liabilities | (40,911 | ) | 23,343 | 6,695 | ||||||||
Pension plan accrued liability | 395 | 2,321 | 1,257 | |||||||||
Deferred revenue | 9,384 | 31,653 | 15,731 | |||||||||
Other assets | – | (14,175 | ) | (16,758 | ) | |||||||
(26,316 | ) | 13,763 | 32,554 | |||||||||
Cash flows from operating activities | 194,078 | 310,675 | 354,368 | |||||||||
Cash flows from investing activities: | ||||||||||||
Acquisition of fixed assets | (90,284 | ) | (123,030 | ) | (191,827 | ) | ||||||
Acquisition of development and pre-operating costs and other assets | (313 | ) | (1,991 | ) | (1,913 | ) | ||||||
Proceeds on disposal of fixed assets and investments | 3,825 | 1,446 | 1,251 | |||||||||
Acquisition of shares of parent company | – | (1,100,000 | ) | – | ||||||||
Proceeds from disposal of shares of parent company | – | 1,100,000 | – | |||||||||
Acquisition of marketable securities | (23,130 | ) | 1,880 | (19,246 | ) | |||||||
Acquisition of Internet subscribers (note 2 (a)) | (900 | ) | – | – | ||||||||
Net disposal (acquisition) of video stores assets (note 2 (d)) | – | (7,162 | ) | 53 | ||||||||
Acquisition of non-controlling interest | – | (10 | ) | – | ||||||||
Payment of tax deductions to parent company | – | – | (35,200 | ) | ||||||||
Cash flows used in investing activities | (110,802 | ) | (128,867 | ) | (246,882 | ) |
F-6
Table of Contents
Consolidated Statements of Cash Flows, Continued
(in thousands of Canadian dollars)
2003 | 2004 | 2005 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Repayment of long-term debt | $ | (1,033,345 | ) | $ | (355,630 | ) | $ | (92,284 | ) | |||
Settlement of interest rate swaps and forward exchange contracts | – | – | (10,955 | ) | ||||||||
Issuance of long-term debt | 1,038,732 | 396,244 | 205,130 | |||||||||
Increase in intercompany loan from parent company | – | 1,100,000 | – | |||||||||
Repayment of intercompany loan from parent company | – | (1,100,000 | ) | – | ||||||||
Redemption of shares | – | (3,660 | ) | – | ||||||||
Financing cost on long-term debt | (9,086 | ) | (6,401 | ) | (4,945 | ) | ||||||
Recouponing fees and termination of swaps | (48,375 | ) | – | – | ||||||||
Dividend to parent company | (19,956 | ) | (205,233 | ) | (210,000 | ) | ||||||
Other | (64 | ) | (79 | ) | (126 | ) | ||||||
Cash flows used in financing activities | (72,094 | ) | (174,759 | ) | (113,180 | ) | ||||||
Net change in cash and cash equivalents | 11,182 | 7,049 | (5,694 | ) | ||||||||
Cash and cash equivalents at beginning of year | 14,096 | 25,278 | 32,327 | |||||||||
Cash and cash equivalents at end of year | $ | 25,278 | $ | 32,327 | $ | 26,633 | ||||||
Cash and cash equivalents are comprised of: | ||||||||||||
Cash and cash equivalents | $ | 28,329 | $ | 36,230 | $ | 32,223 | ||||||
Issued and outstanding cheques | (3,051 | ) | (3,903 | ) | (5,590 | ) | ||||||
$ | 25,278 | $ | 32,327 | $ | 26,633 | |||||||
F-7
Table of Contents
1. | Significant accounting policies: |
(a) | Consolidated financial statements: | ||
The Company is a cable services provider in the Province of Québec for pay-television services, Internet access and telephony services. It also operates the largest chain of video stores in Québec and a chain of video stores in Ontario and in the Atlantic provinces. | |||
These consolidated financial statements, expressed in Canadian dollars, have been prepared in accordance with Canadian generally accepted accounting principles and include the consolidated financial statements of Vidéotron Ltée and its subsidiaries, CF Cable TV Inc., Le SuperClub Vidéotron Ltée and Société d’édition et de transcodage T.E. ltée. | |||
(b) | Changes in accounting principles: |
(i) | Long-lived assets: | ||
Effective January 1, 2004, the Company adopted the CICA Handbook Section 3063, “Impairment of Long-Lived Assets”. Long-lived assets, including fixed assets and intangible assets with finite useful lives, are amortized over their useful lives. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a group of assets may not be recoverable. If the sum of undiscounted net cash flows expected to result from the use and eventual disposition of a group of assets is less than its carrying amount, it is considered to be impaired. An impairment loss is measured as the amount by which the carrying amount of the group of assets exceeds its fair value. At December 31, 2004 and 2005, no such impairment had occurred. | |||
(ii) | Asset retirement obligation: | ||
Effective January 1, 2004, the Company retroactively adopted CICA Handbook Section 3110 “Asset Retirement Obligation”. The standard provides guidance for the recognition, measurement and disclosure of liabilities for asset retirement obligations and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of a tangible long-lived asset that result from acquisition, construction, development or normal operations. |
F-8
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Significant accounting policies (continued): |
(b) | Changes in accounting principles (continued): |
(ii) | Asset retirement obligation (continued): | ||
Certain of our franchise agreements and leases contain provisions requiring us to restore or remove equipment in the event that the franchise or lease agreement is not renewed. We expect to continually renew our franchise agreements and have concluded that the related franchise right is an indefinite-lived intangible asset. Accordingly, the possibility is remote that we would be required to incur significant restoration or removal costs in the foreseeable future. Section 3110 “Asset Retirement Obligation” requires that a liability be recognized for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. We would record an estimated liability in the unlikely event a franchise agreement containing such a provision is no longer expected to be renewed. We also expect to renew many of our lease agreements related to the continued operations of our cable business in the franchise areas. For our lease agreements, the liabilities related to the removal provisions, if any, are either not estimable or are not material. | |||
The adoption of this standard had no impact on the Company’s financial position, results of operations or cash flows. | |||
(iii) | Equipment subsidies and reconnection costs: | ||
During the year ended December 31, 2003, the Company revised its accounting for the sale of equipment to subscribers and the accounting of the reconnecting costs. Before this change, the costs of subsidies granted to the subscribers on the equipment sold were capitalized and amortized over a three-year period on a straight-line basis, and the costs of reconnecting subscribers, which included material, direct labor, and certain overhead charges were capitalized to fixed assets and depreciated over a three-year or a four-year period on a straight-line basis. | |||
(iv) | Revenue recognition and revenue arrangements with multiple deliverables: | ||
In 2004, the Company revised and adopted an accounting policy for the timing of revenue and expense recognition regarding connection fees based on CICA Emerging Issues Committee Abstracts 141 and 142. The Company chose to adopt the new policy prospectively without restatement of prior periods. |
F-9
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Significant accounting policies (continued): |
(b) | Changes in accounting principles (continued): |
(iv) | Revenue recognition and revenue arrangements with multiple deliverables (continued): | ||
Effective January 1, 2004, the connection fee revenues are now deferred and recognized as revenues over 30 months, the estimated average period that subscribers are expected to remain connected to the network. The incremental and direct costs related to connection and reconnection fees, in an amount not exceeding the revenue, are now deferred and recognized as an operating expense over the same 30-month period. Previously, the connection fees and the incremental and direct costs were recognized immediately in operating revenues and expenses, and the reconnecting costs were capitalized and amortized over a three-year or a four-year period. | |||
(v) | Generally accepted accounting principles: | ||
In June 2003, the CICA released Handbook Section 1100, “Generally Accepted Accounting Principles”. This section establishes standards for financial reporting in accordance with Canadian GAAP, and describes what constitutes Canadian GAAP and its sources. This section also provides guidance on sources to consult when selecting accounting policies and determining appropriate disclosures, when a matter is not dealt with explicitly in the primary source of GAAP. The adoption of this standard had no impact on the Company’s financial position, results of operations or cash flows. |
(c) | Marketable securities: | ||
Marketable securities consist primarily of commercial paper maturing in the short-term, and are recorded at the lower of cost and market value. | |||
(d) | Fixed assets: | ||
Fixed assets are recorded at cost, net of related grants and income tax credits. Cost includes material, direct labour, certain overhead charges and interest expenses relating to the projects to construct and connect receiving and distribution networks. Expenditures for additions, improvements and replacements are capitalized, whereas expenses for maintenance and repairs are charged to operating and administrative expenses as incurred. |
F-10
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Significant accounting policies (continued): |
(d) | Fixed assets (continued): | ||
Depreciation is calculated using the following depreciation basis and periods or rates: |
Asset | Basis | Period/rate | ||||||
Receiving and distribution networks | Straight-line | 3 years to 20 years | ||||||
Furniture and equipment | Declining balance | 20% to 33.3% | ||||||
and straight-line | 3 years to 7 years | |||||||
Terminals and operating system | Straight-line | 5 years and 10 years | ||||||
Buildings | Declining balance | 5% | ||||||
Coding and transmission material | Declining balance | 20% |
Leasehold improvements are amortized over the term of the lease. | |||
The Company does not record an asset retirement obligation in connection with its cable distribution networks. The Company expects to renew all of its agreements with utility companies to access their support structures in the future, making the retirement date, relating to these assets, undeterminable. | |||
(e) | Revenue recognition: | ||
The Cable segment provides services under arrangement with multiple deliverables comprised of a separate unit of accounting for subscriber services (connecting fees and operating services) and a separate unit of accounting for sales of equipment to subscribers. | |||
Operating revenues from cable television and other services, such as Internet access and telephony, are recognized when services are provided. Revenues from sales of equipment to subscribers and costs of equipment are recognized in income when the equipment is delivered. When subscribers are invoiced, the portion of unearned revenues is recorded under “Deferred revenue”. Revenues from video rentals are recorded as revenue when services are provided. | |||
Promotional offers are accounted for as a reduction of the related service revenue when customers are taking advantage of the offer. |
F-11
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Significant accounting policies (continued): |
(f) | Goodwill: | ||
Goodwill is 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 with its fair value. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and the second step of the impairment test is not required. The second step 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 with 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 and is presented as a separate line item in the statement of operations before extraordinary items and discontinued operations. | |||
The Company carried out the test in 2003, 2004 and 2005 and concluded it was not required to record an impairment in the carrying value of goodwill. | |||
(g) | Other assets: | ||
Deferred charges are recorded at cost and include long-term financing costs that are amortized over the term of the debt using the straight-line method. Development costs related to new specialty services and pre-operating expenditures are amortized when commercial operations begin, using the straight-line method over a three-year period. Video rental inventory, less residual value, is depreciated on a straight-line basis over a period of six to twelve months. Depreciation of video rental inventory is charged to direct costs. | |||
(h) | Inventories: | ||
Inventories are recorded at the lower of cost, using the average cost method, or replacement value. | |||
(i) | Foreign currency translation: | ||
Transactions originating in foreign currencies are translated into Canadian dollars at the exchange rate at the date of the transaction. Monetary assets and liabilities are translated at the year-end rate of exchange and non-monetary items are translated at historical exchange rates. Translation gains and losses are recognized in the statement of operations. |
F-12
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Significant accounting policies (continued): |
(j) | Derivative financial instruments: | ||
The Company uses various derivative financial instruments to manage its exposure to fluctuations in foreign currency exchange rates and interest rates. The Company does not hold or issue derivative instruments for speculative purposes. | |||
The Company entered into cross-currency interest rate swap agreements to hedge the foreign currency denominated debt and manage exchange rate exposures relating to certain debt instruments denominated in foreign currency. These swaps are designated as hedges of firm commitments to pay interest, and change the basis from Libor to Bankers’ Acceptance rates, on the foreign currency denominated debt and the principal at maturity, which would otherwise expose the Company to foreign currency risk. Translation gains and losses on the related foreign currency denominated debt are offset by corresponding translation losses or gains on the swap agreements. | |||
The Company also enters into forward exchange contracts to hedge the foreign exchange fluctuations of their customers’ equipment purchases. Translation gains and losses associated with the derivative instruments are deferred under other current assets or liabilities on the balance sheet and recorded in earnings in the period in which the underlying hedged transaction is recognized. | |||
The derivative financial instruments that have not been designated as hedge of foreign currency risk and interest rate risk are marked to market with changes in fair value recognized in the statement of operations. | |||
(k) | Cash and cash equivalents: | ||
Cash and cash equivalents are comprised of cash and short-term liquid investments maturing within three months from the date of acquisition, net of issued and outstanding cheques. | |||
(l) | Income taxes: | ||
The Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, future income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enacted or substantively enacted date. Future income tax assets are recognized and, if realization is not considered “more likely than not”, a valuation allowance is provided. |
F-13
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Significant accounting policies (continued): |
(m) | Employee future benefits: | ||
The Company and an affiliated company offer defined benefit career salary pension plan and a last five years average salary pension plan for certain employees. The Company also maintains defined contribution pension plans for other 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 assumptions. | |||
Pension plan expense is charged to operations and includes: |
– | The cost of pension plan benefits provided in exchange for employees’ services rendered during the year; | ||
– | The 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; | ||
– | The interest cost of pension plan obligations, the expected return on pension fund assets, and the amortization of cumulative unrecognized net actuarial gains and losses in excess of 10% of the greater of the benefit obligation or fair value of plan assets over the expected average remaining service life of the employee group covered by the plans. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. |
The Company provides post-retirement benefits to eligible employees. The costs of these benefits, which are principally life insurance and health care, are accounted for during the employees’ working active period. | |||
(n) | Advertizing: | ||
Advertizing cost is expensed as incurred. The advertizing expenses for 2003, 2004 and 2005 amounted to $17.8 million, $21.9 million and $24.1 million, respectively. | |||
(o) | Stock-based compensation: | ||
The Company accounts for all stock-based awards granted by the parent company to certain of its employees that are direct awards of stock or call for settlement in cash or other assets, including stock appreciation rights, by the fair value method. Under the fair-value based method, compensation cost attributable to awards to employees that call for settlement in cash or other assets is recognized over the vesting period in operating expenses. Changes in fair value between the grant date and the measurement date result in a change in the measure of the compensation cost. |
F-14
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Significant accounting policies (continued): |
(p) | Use of estimates: | ||
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant areas requiring the use of management estimates relate to the determination of pension and other employee benefits, the useful life of assets for depreciation, amortization and evaluation of net recoverable amount of fixed assets, goodwill, and development and pre-operating costs and provisions for income taxes. Accordingly, actual results could differ from those estimates. |
2. | Business combinations and reorganization: |
(a) | On June 30, 2003, a subsidiary of the Company acquired for a cash consideration of $0.9 million, at the carrying value of the investment held by the parent company, a small group of Internet (dial-up) customers from its parent company. Assets acquired, amounting to $0.9 million, have been recorded as goodwill. | ||
(b) | On October 7, 2003, the Company acquired from its parent company all the issued and outstanding shares of Vidéotron TVN Inc. and of Le SuperClub Vidéotron Ltée in consideration of the issuance of 354,813 common shares for a total stated capital of $141.9 million. The excess of the consideration issued over the net book value of the business acquired, amounting to $103.1 million, has been charged to deficit and contributed surplus. This business combination was accounted for using the continuity of interest method, and the results of operations of the acquired companies have been included in these consolidated financial statements as if this group of companies had always been subsidiaries of the Company. | ||
(c) | On February 8, 2002, the Company sold its internal wire business to an affiliated company, Câblage QMI Inc., and received as consideration $19.5 million in preferred shares. On December 23, 2003, Câblage QMI Inc. sold back its business to the Company and received in exchange notes amounting to $16.1 million. On the same date, the parent company of Câblage QMI Inc. sold its investment in Câblage QMI Inc. to the Company and received in exchange 1 Series F preferred share of the Company’s capital stock retractable at an amount of $2.0 million. On December 27, 2003, Câblage QMI Inc. was wound up into the Company. Since all these transactions are between companies under common control, they have been accounted for at book value. |
F-15
Table of Contents
Notes to Consolidated Financial Statements, Continued
2. | Business combinations and reorganization (continued): |
(d) | On May 20, 2004, a subsidiary of the Company acquired the assets of Jumbo Entertainment Inc. for a total cash consideration of $7.2 million. | ||
This acquisition is summarized as follows: |
(in millions) | ||||
Assets acquired: | ||||
Inventories | $ | 1.1 | ||
Fixed assets | 0.9 | |||
Goodwill | 5.2 | |||
Assets acquired at fair value | $ | 7.2 | ||
(e) | On January 16, 2004, Videotron (1998) Ltée, a subsidiary of the Company, contracted a subordinated loan of $1.1 billion bearing interest at 10.75% from Quebecor Media Inc. On the same day, Videotron (1998) Ltée invested the whole proceeds of $1.1 billion into 1,100,000 preferred shares, Series D of Quebecor Media Inc. Those shares, carry the rights to receive an annual dividend of 11%. In December 2004, Videotron (1998) Ltée reimbursed the loan and Quebecor Media Inc. redeemed the preferred shares for $1.1 billion. | ||
(f) | On December 31, 2004, the subsidiary Videotron (1998) ltée has been wound up into Videotron Ltée. This transaction had no impact on the consolidated financial statements. | ||
(g) | On January 1, 2005, the subsidiary Vidéotron TVN Inc. has been wound up into Vidéotron Ltée. This transaction had no impact on the consolidated financial statements. | ||
(h) | On January 1, 2006, the subsidiary Vidéotron (Régional) Ltée has been wound up into CF Câble Inc. This transaction had no impact on the consolidated financial statements. |
3. | Employee future benefits: | |
The Company and affiliated companies maintain various defined benefit plans 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 pension plans were performed on December 31, 2003. The next actuarial valuations will be performed as at December 31, 2006 at the latest. |
F-16
Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Employee future benefits (continued): | |
The Company provides postretirement benefits to eligible employees. The costs of these benefits, which are principally life insurance and health care, are accounted for during the employee’s active service period. | ||
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets for the years ended December 31, 2004 and 2005, and a statement of funded status as at these dates: |
2004 | 2005 | |||||||||||||||||||||||
Post- | Post- | |||||||||||||||||||||||
Pension | retirement | Pension | retirement | |||||||||||||||||||||
benefits | benefits | Total | benefits | benefits | Total | |||||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||||||
Change in benefit obligations: | ||||||||||||||||||||||||
Benefit obligations, beginning of year | $ | 44,012 | $ | 3,046 | $ | 47,058 | $ | 52,556 | $ | 5,488 | $ | 58,044 | ||||||||||||
Service costs | 2,717 | 2,119 | 4,836 | 3,695 | 247 | 3,942 | ||||||||||||||||||
Plan participants’ contributions | 2,046 | – | 2,046 | 3,436 | – | 3,436 | ||||||||||||||||||
Interest costs | 2,984 | 321 | 3,305 | 3,458 | 342 | 3,800 | ||||||||||||||||||
Actuarial loss | 3,438 | 59 | 3,497 | 18,072 | 1,737 | 19,809 | ||||||||||||||||||
Transfer from another pension plan | 853 | – | 853 | – | – | – | ||||||||||||||||||
Benefits and settlement paid | (3,494 | ) | (57 | ) | (3,551 | ) | (2,783 | ) | (59 | ) | (2,842 | ) | ||||||||||||
Benefit obligations, end of year | $ | 52,556 | $ | 5,488 | $ | 58,044 | $ | 78,434 | $ | 7,755 | $ | 86,189 | ||||||||||||
F-17
Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Employee future benefits (continued): |
2004 | 2005 | |||||||||||||||||||||||
Post- | Post- | |||||||||||||||||||||||
Pension | retirement | Pension | retirement | |||||||||||||||||||||
benefits | benefits | Total | benefits | benefits | Total | |||||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||||||
Change in plan assets: | ||||||||||||||||||||||||
Fair value of plan assets at beginning of year | $ | 51,174 | $ | – | $ | 51,174 | $ | 59,328 | $ | – | $ | 59,328 | ||||||||||||
Plan participants’ contributions | 2,046 | – | 2,046 | 3,436 | – | 3,436 | ||||||||||||||||||
Actual return on plan assets | 7,776 | – | 7,776 | 9,271 | – | 9,271 | ||||||||||||||||||
Employer contributions | 1,200 | 57 | 1,257 | 1,529 | 59 | 1,588 | ||||||||||||||||||
Transfer from another pension plan | 626 | – | 626 | – | – | – | ||||||||||||||||||
Benefits and settlement paid | (3,494 | ) | (57 | ) | (3,551 | ) | (2,783 | ) | (59 | ) | (2,842 | ) | ||||||||||||
Fair value of plan assets, end of year | $ | 59,328 | $ | – | $ | 59,328 | $ | 70,781 | $ | – | $ | 70,781 | ||||||||||||
2004 | 2005 | |||||||
Equity securities | 68.9 | % | 72.2 | % | ||||
Debt securities | 27.1 | % | 25.0 | % | ||||
Real estate | 4.0 | % | 2.8 | % |
F-18
Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Employee future benefits (continued): | |
As at December 31, 2005, plan assets included shares of the parent company and of a company under common control at a market value of $0.8 million ($0.9 million in 2004). |
2004 | 2005 | |||||||||||||||||||||||
Post- | Post- | |||||||||||||||||||||||
Pension | retirement | Pension | retirement | |||||||||||||||||||||
benefits | benefits | Total | benefits | benefits | Total | |||||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||||||
Reconciliation of funded status: | ||||||||||||||||||||||||
Excess (deficit) of fair value of plan assets over benefit obligations, end of year | $ | 6,772 | $ | (5,488 | ) | $ | 1,284 | $ | (7,653 | ) | $ | (7,755 | ) | $ | (15,408 | ) | ||||||||
Unrecognized actuarial (gain) loss | (2,448 | ) | (345 | ) | (2,793 | ) | 10,823 | 1,441 | 12,264 | |||||||||||||||
Net amount recognized in balance sheet | $ | 4,324 | $ | (5,833 | ) | $ | (1,509 | ) | $ | 3,170 | $ | (6,314 | ) | $ | (3,144 | ) | ||||||||
2004 | 2005 | |||||||||||||||||||||||
Post- | Post- | |||||||||||||||||||||||
Pension | retirement | Pension | retirement | |||||||||||||||||||||
benefits | benefits | Total | benefits | benefits | Total | |||||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||||||
Deferred pension charges | $ | 4,324 | $ | – | $ | 4,324 | $ | 3,946 | $ | – | $ | 3,946 | ||||||||||||
Accrued benefit liability | – | (5,833 | ) | (5,833 | ) | (776 | ) | (6,314 | ) | (7,090 | ) | |||||||||||||
Net amount recognized | $ | 4,324 | $ | (5,833 | ) | $ | (1,509 | ) | $ | 3,170 | $ | (6,314 | ) | $ | (3,144 | ) | ||||||||
F-19
Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Employee future benefits (continued): | |
Components of the net benefit costs are as follows: |
2003 | ||||||||||||
Post- | ||||||||||||
Pension | retirement | |||||||||||
benefits | benefits | Total | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Service costs | $ | 1,999 | $ | 175 | $ | 2,174 | ||||||
Interest costs | 2,554 | 256 | 2,810 | |||||||||
Actual return on plan assets | (8,123 | ) | – | (8,123 | ) | |||||||
Actuarial loss on accrued benefit obligation | 1,914 | – | 1,914 | |||||||||
Elements of net benefit cost adjustments to recognize the long-term nature and valuation allowance | (1,656 | ) | 431 | (1,225 | ) | |||||||
Difference between actual and expected return on plan assets | 4,798 | – | 4,798 | |||||||||
Deferral of actuarial loss on accrued benefit obligation | (1,914 | ) | – | (1,914 | ) | |||||||
Amortization of previously deferred actuarial loss | (109 | ) | 11 | (98 | ) | |||||||
Total adjustments to recognize the long-term nature of benefit costs | 2,775 | 11 | 2,786 | |||||||||
Defined contribution pension plan: | ||||||||||||
Employer’s contribution during the period | 2,954 | – | 2,954 | |||||||||
4,073 | 442 | 4,515 | ||||||||||
Portion related to affiliated companies | (1,048 | ) | – | (1,048 | ) | |||||||
Net benefit costs | $ | 3,025 | $ | 442 | $ | 3,467 | ||||||
F-20
Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Employee future benefits (continued): |
2004 | ||||||||||||
Post- | ||||||||||||
Pension | retirement | |||||||||||
benefits | benefits | Total | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Service costs | $ | 2,717 | $ | 2,119 | $ | 4,836 | ||||||
Interest costs | 2,984 | 321 | 3,305 | |||||||||
Actual return on plan assets | (7,776 | ) | – | (7,776 | ) | |||||||
Actuarial loss on accrued benefit obligation | 3,438 | 59 | 3,497 | |||||||||
Elements of net benefit cost adjustments to recognize the long-term nature and valuation allowance | 1,363 | 2,499 | 3,862 | |||||||||
Difference between actual and expected return on plan assets | 3,771 | – | 3,771 | |||||||||
Deferral of actuarial loss on accrued benefit obligation | (3,383 | ) | (59 | ) | (3,442 | ) | ||||||
Amortization of previously deferred actuarial loss | – | 21 | 21 | |||||||||
Other | – | (83 | ) | (83 | ) | |||||||
Total adjustments to recognize the long-term nature of benefit costs | 388 | (121 | ) | 267 | ||||||||
Defined contribution pension plan: | ||||||||||||
Employer’s contribution during the period | 4,337 | – | 4,337 | |||||||||
6,088 | 2,378 | 8,466 | ||||||||||
Portion related to affiliated companies | (1,118 | ) | – | (1,118 | ) | |||||||
Net benefit costs | $ | 4,970 | $ | 2,378 | $ | 7,348 | ||||||
F-21
Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Employee future benefits (continued): |
2005 | ||||||||||||
Post- | ||||||||||||
Pension | retirement | |||||||||||
benefits | benefits | Total | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Service costs | $ | 3,695 | $ | 247 | $ | 3,942 | ||||||
Interest costs | 3,457 | 342 | 3,799 | |||||||||
Actual return on plan assets | (9,271 | ) | – | (9,271 | ) | |||||||
Actuarial loss on accrued benefit obligation | 18,072 | 1,737 | 19,809 | |||||||||
Elements of net benefit cost adjustments to recognize the long-term nature and valuation allowance | 15,953 | 2,326 | 18,279 | |||||||||
Difference between actual and expected return on plan assets | 4,740 | – | 4,740 | |||||||||
Deferral of actuarial loss on accrued benefit obligation | (18,011 | ) | (1,737 | ) | (19,748 | ) | ||||||
Amortization of previously deferred actuarial loss | – | 20 | 20 | |||||||||
Other | – | (68 | ) | (68 | ) | |||||||
Total adjustments to recognize the long-term nature of benefit costs | (13,271 | ) | (1,785 | ) | (15,056 | ) | ||||||
Defined contribution pension plan: | ||||||||||||
Employer’s contribution during the period | 4,406 | – | 4,406 | |||||||||
7,088 | 541 | 7,629 | ||||||||||
Portion related to affiliated companies | (1,378 | ) | – | (1,378 | ) | |||||||
Net benefit costs | $ | 5,710 | $ | 541 | $ | 6,251 | ||||||
F-22
Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Employee future benefits (continued): | |
The weighted average rates used in the measurement of the Company’s benefit obligations as at December 31, 2005, 2004 and 2003 and current periodic costs are as follows: |
2003 | 2004 | 2005 | ||||||||||
Benefit obligations: | ||||||||||||
Rates at end of year: | ||||||||||||
Discount rate | 6.25 | % | 6.00 | % | 5.00 | % | ||||||
Expected return on plan assets | 7.75 | % | 7.50 | % | 7.50 | % | ||||||
Rate of compensation increase | 3.25 | % | 3.50 | % | 3.50 | % | ||||||
Current periodic costs: | ||||||||||||
Rates at beginning of year: | ||||||||||||
Discount rate | 6.75 | % | 6.25 | % | 6.00 | % | ||||||
Expected return on plan assets | 7.75 | % | 7.75 | % | 7.50 | % | ||||||
Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | ||||||
Postretirement | ||||||||
benefits | ||||||||
Increase | Decrease | |||||||
Sensitivity analysis | 1% | 1% | ||||||
Effect on service and interest costs | $ | 80 | $ | (59 | ) | |||
Effect on benefit obligations | 971 | (720 | ) | |||||
F-23
Table of Contents
Notes to Consolidated Financial Statements, Continued
4. | Depreciation and amortization: |
2003 | 2004 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Fixed assets | $ | 121,928 | $ | 129,642 | $ | 130,860 | ||||||
Other assets | 1,030 | 573 | 981 | |||||||||
$ | 122,958 | $ | 130,215 | $ | 131,841 | |||||||
5. | Financial expenses: |
2003 | 2004 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Third parties: | ||||||||||||
Interest on long-term debt | $ | 63,588 | $ | 57,180 | $ | 61,207 | ||||||
Write-off and amortization of deferred financing costs | 4,128 | 1,397 | 1,836 | |||||||||
Amortization of debt premium and discount | (1,066 | ) | (1,106 | ) | (2,188 | ) | ||||||
Loss (gain) on repayment of long-term debt | 17,094 | 187 | (312 | ) | ||||||||
Change in fair value of interest rate swaps | – | 4,579 | (1,165 | ) | ||||||||
(Gain) loss on foreign currency denominated long-term debt | (23,623 | ) | 1,298 | 1,413 | ||||||||
Gain on foreign currency denominated short-term monetary items | (1,848 | ) | (857 | ) | (1,401 | ) | ||||||
Other interests, bank fees and penalty charges | 1,510 | 2,178 | 204 | |||||||||
59,783 | 64,856 | 59,594 | ||||||||||
Interest income | (676 | ) | (1,396 | ) | (1,270 | ) | ||||||
59,107 | 63,460 | 58,324 | ||||||||||
Parent company: | ||||||||||||
Interest expense (note 2 (e)) | 5,495 | 114,525 | 6,882 | |||||||||
$ | 64,602 | $ | 177,985 | $ | 65,206 | |||||||
F-24
Table of Contents
Notes to Consolidated Financial Statements, Continued
5. | Financial expenses (continued): | |
Interest paid to and interest received from third parties in 2003 amounted to $61.0 million and $0.7 million, respectively, $51.1 million and $1.2 million in 2004 and $66.0 million and $2.2 million in 2005. | ||
Interest paid to and interest received from affiliated companies in 2003 amounted to $0.1 million and nil, respectively, $108.5 million and nil in 2004, and nil and nil in 2005. | ||
6. | Other items: |
2003 | 2004 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Restructuring costs (1) | $ | (2,500 | ) | $ | – | $ | – |
(1) | The final costs of the 2002 restructuring program were lower than estimated and the excess amount was reversed in 2003. |
F-25
Table of Contents
Notes to Consolidated Financial Statements, Continued
7. | Income taxes: | |
The following schedule reconciles income taxes computed on income before income taxes and non-controlling interest in a subsidiary based on the consolidated basic income tax rate and the effective income tax rate: |
2003 | 2004 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Income taxes based on the combined | ||||||||||||
Federal and Provincial (Quebec) basic income tax rate of 33.12% in 2003, 31.02% in 2004 and 31.02% in 2005 | $ | 29,871 | $ | 44,679 | $ | 57,482 | ||||||
Change due to the following items: | ||||||||||||
Federal large corporations tax | 2,405 | 1,822 | 1,806 | |||||||||
Non-taxable dividend from the parent company | – | (34,449 | ) | – | ||||||||
Settlement of notices of assessment | – | (17,483 | ) | 1,080 | ||||||||
Non-deductible charges and/or loss deductible at a lower rate or for which the tax benefit was not recorded | (4,432 | ) | 1,776 | (4 | ) | |||||||
(Reduction) increase in enacted tax rate | (1,097 | ) | – | 12,852 | ||||||||
Other | 83 | 215 | (1,888 | ) | ||||||||
Income taxes based on the effective income tax rate | $ | 26,830 | $ | (3,440 | ) | $ | 71,328 | |||||
F-26
Table of Contents
Notes to Consolidated Financial Statements, Continued
7. | Income taxes (continued): | |
The tax effects of significant items comprising the Company’s net future tax liability are as follows: |
2004 | 2005 | |||||||
(in thousands of Canadian dollars) | ||||||||
Future income tax assets: | ||||||||
Operating loss carryforwards | $ | 108,883 | $ | 62,894 | ||||
Other provisions | 8,706 | 6,657 | ||||||
Differences between book and tax basis of fixed assets and other assets | 9,049 | 5,653 | ||||||
126,638 | 75,204 | |||||||
Future income tax liabilities: | ||||||||
Differences between book and tax basis of fixed assets | (164,112 | ) | (173,265 | ) | ||||
Differences between book and tax basis of other assets | (3,585 | ) | (11,340 | ) | ||||
(167,697 | ) | (184,605 | ) | |||||
Net future income tax liability | $ | (41,059 | ) | $ | (109,401 | ) | ||
Presented as follows: | ||||||||
Future income tax assets: | ||||||||
Short-term | $ | 58,228 | $ | 63,971 | ||||
Long-term | 23,559 | 2,376 | ||||||
81,787 | 66,347 | |||||||
Future income tax long-term liability | (122,846 | ) | (175,748 | ) | ||||
Net future income tax liability | $ | (41,059 | ) | $ | (109,401 | ) | ||
F-27
Table of Contents
Notes to Consolidated Financial Statements, Continued
7. | Income taxes (continued): | |
During the year ended December 31, 2005, the Company acquired from a company under common control of the ultimate parent company income tax deductions of $0.7 million, of which $0.3 million is recorded as income taxes receivable and $0.4 million as future tax assets. The consideration payable to this company under common control amounts to $0.7 million. This transaction allows the Company to realize a gain of $0.023 million which has been credited to contributed surplus. | ||
As at December 31, 2005, the Company had net operating loss carryforwards for income tax purposes available to reduce future federal and provincial taxable income of approximately $189.6 million and $210.5 million which expire as follows: |
Federal | Provincial | |||||||
(in thousands of Canadian dollars) | ||||||||
2007 | $ | 34,614 | $ | 24,681 | ||||
2008 | 14,891 | 16,213 | ||||||
2009 | – | – | ||||||
2010 | 82,613 | 86,684 | ||||||
2014 | 54,042 | 79,680 | ||||||
2015 | 3,418 | 3,270 | ||||||
$ | 189,578 | $ | 210,528 | |||||
8. | Accounts receivable: |
2004 | 2005 | |||||||
(in thousands of Canadian dollars) | ||||||||
Trade | $ | 91,933 | $ | 112,148 | ||||
Interest receivable on swaps | 4,689 | 6,375 | ||||||
Allowance for doubtful accounts | (6,134 | ) | (7,194 | ) | ||||
$ | 90,488 | $ | 111,329 | |||||
F-28
Table of Contents
Notes to Consolidated Financial Statements, Continued
2004 | 2005 | |||||||
(in thousands of Canadian dollars) | ||||||||
Subscribers’ equipment | $ | 17,700 | $ | 15,541 | ||||
Video store materials | 5,416 | 5,469 | ||||||
Other supplies and spare parts | 7,035 | 6,118 | ||||||
$ | 30,151 | $ | 27,128 | |||||
10. | Fixed assets: |
2004 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | depreciation | value | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Receiving and distribution networks | $ | 1,564,393 | $ | 778,741 | $ | 785,652 | ||||||
Furniture and equipment | 218,065 | 164,794 | 53,271 | |||||||||
Terminals and operating system | 103,382 | 75,063 | 28,319 | |||||||||
Buildings | 21,364 | 8,777 | 12,587 | |||||||||
Coding and transmission material | 7,648 | 5,154 | 2,494 | |||||||||
Land | 1,680 | – | 1,680 | |||||||||
$ | 1,916,532 | $ | 1,032,529 | $ | 884,003 | |||||||
2005 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | depreciation | value | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Receiving and distribution networks | $ | 1,698,738 | $ | 877,194 | $ | 821,544 | ||||||
Furniture and equipment | 242,895 | 179,489 | 63,406 | |||||||||
Terminals and operating system | 128,161 | 76,718 | 51,443 | |||||||||
Buildings | 22,396 | 9,433 | 12,963 | |||||||||
Coding and transmission material | 7,647 | 4,562 | 3,085 | |||||||||
Land | 1,649 | – | 1,649 | |||||||||
$ | 2,101,486 | $ | 1,147,396 | $ | 954,090 | |||||||
F-29
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
11. | Other assets: |
2004 | 2005 | |||||||
(in thousands of Canadian dollars) | ||||||||
Long-term financing fees (i) | $ | 15,765 | $ | 16,630 | ||||
Employee future benefit costs (note 3) | 4,324 | 3,946 | ||||||
Development and pre-operating costs (ii) | 1,648 | 2,686 | ||||||
Deferred connection fees (iii) | 9,354 | 15,530 | ||||||
Video rental inventory (iv) | 2,734 | 3,371 | ||||||
Investment | 66 | 66 | ||||||
Other | 607 | 528 | ||||||
$ | 34,498 | $ | 42,757 | |||||
(i) | Net of accumulated amortization of $3.9 million in 2004 and $3.1 million in 2005. | |
(ii) | Net of accumulated amortization of $2.9 million in 2004 and $0.9 million in 2005. | |
(iii) | Net of accumulated amortization of $1.9 million in 2004 and $8.5 million in 2005. | |
(iv) | Net of accumulated amortization of $7.0 million in 2004 and $6.8 million in 2005. |
12. | Accounts payable and accrued liabilities: |
2004 | 2005 | |||||||
(in thousands of Canadian dollars) | ||||||||
Trade accounts payable and accruals | $ | 55,015 | $ | 66,227 | ||||
Subscribers’ equipment suppliers | 18,215 | 20,166 | ||||||
Royalties and service providers dues | 46,100 | 48,219 | ||||||
Employees’ salaries and dues | 25,428 | 28,773 | ||||||
Provincial and federal sales tax | 12,786 | 12,056 | ||||||
Interest | 31,513 | 26,278 | ||||||
$ | 189,057 | $ | 201,719 | |||||
F-30
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
2004 | 2005 | |||||||
(in thousands of Canadian dollars) | ||||||||
Bank facility (a): | ||||||||
Revolving credit | $ | – | $ | – | ||||
Senior Secured First Priority Notes (b) | 92,271 | – | ||||||
Senior Notes (c) | 796,637 | 971,697 | ||||||
Subordinated loan — Quebecor Media Inc. (d) | 150,000 | 150,000 | ||||||
Long-term portion of the long-term debt | $ | 1,038,908 | $ | 1,121,697 | ||||
(a) | Bank facility: | ||
Bank credit facility, bearing interest at Bankers’ Acceptances and Canadian LIBOR rates, plus, in each case, a margin depending upon Vidéotron Ltée leverage ratio, is secured by a first ranking hypothec on the universality of all tangible and intangible assets, current and future, of Vidéotron Ltée and its subsidiaries. | |||
The credit facilities contain usual covenants such as maintaining certain financial ratios and certain restrictions as to the payment of dividends and acquisitions and dispositions of assets. The unused amount under the Revolving Facility at year-end is $450.0 million as at December 31, 2005 and 2004 (see note 21). | |||
On October 8, 2003, concurrently with the issuance of the Senior Notes, the Company repaid entirely and terminated its former bank facility term-loans A and B, borrowed an amount of $368.1 million under a term-loan C and reduced the authorized amount under the revolving credit facility from $150.0 million to $100.0 million. Term-loan C was payable in quarterly installments of $12.5 million beginning on December 1, 2003. On November 19, 2004, concurrently with the issuance of additional Senior Notes, the term-loan C, having a balance of $318.1 million, was repaid in full and the revolving credit facility was increased from $100.0 million to $450.0 million with an extended maturity date to November 2009. |
F-31
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
13. | Long-term debt (continued): |
(b) | Senior Secured First Priority Notes: | ||
On July 15, 2005, the Company used its cash on hand and its Revolving Credit Facility to reimburse the aggregate principal amount of US$75.6 million of its subsidiary, CF Cable TV Inc., Senior Secured First Priority Notes, which bore interest at 9.125% and were due in 2007. The gain on settlement of long-term debt includes the write-off of the unamortized premium of $0.8 million, net of deferred financing costs amounting to $0.5 million. Also, an amount of $7.4 million was paid as settlement of the foreign exchange forward contracts related to these Notes. | |||
(c) | Senior Notes: |
(i) | On October 8, 2003, the Company issued US$335.0 million of aggregate principal amount of Senior Notes at a discount rate of 99.0806% for net proceeds of US$331.9 million, before issuance fees of US$5.7 million. These Notes bear interest at a rate of 6.875% payable every six months on January 15 and July 15, and mature on January 15, 2014. The Notes contain certain restrictions for Vidéotron Ltée, including limitations on its ability to incur additional indebtedness, and are unsecured. Vidéotron Ltée entered into cross-currency interest swaps to hedge foreign exchange fluctuations related to the interest and capital repayment of these Notes denominated in foreign currency. | ||
On November 19, 2004, the Company issued an additional US$315.0 million of aggregate principal amount of 6.875% Senior Notes maturing on January 15, 2014, at a premium of 5.0% for total proceeds of US$330.8 million, before issuance fees of US$4.1 million. The Company has contracted cross-currency interest swaps to hedge foreign exchange fluctuations related to the interest and capital repayment of these Notes denominated in foreign currency. The Notes will be redeemable, in whole or in part, at any time on or after January 15, 2009, with a premium decreasing from 3.438% on January 15, 2009 to nil on January 15, 2012. | |||
(ii) | On September 16, 2005, the Company issued US$175.0 million of aggregate principal amount of Senior Notes at a discount rate of 99.5% for net proceeds of US$174.1 million, before issuance fees of $3.7 million. These Notes bear interest at a rate of 6.375% payable every six months on December 15 and June 15, and mature on December 15, 2015. The Notes contain certain restrictions for Vidéotron Ltée, including limitations on its ability to incur additional indebtedness, and are unsecured. Vidéotron Ltée entered into a cross-currency interest swaps to hedge foreign exchange fluctuations related to the interest and capital repayment of these Notes denominated in foreign currency. In accordance with the registered Exchange Offer, Vidéotron Ltée will complete, during the first quarter of 2006, the exchange of the Senior Notes for new Notes having substantially identical terms to the Senior Notes. The notes will be redeemable, in whole or in part, at any time on or after December 15, 2010, with a premium decreasing from 3.188% on December 15, 2010 to nil on December 15, 2013. |
F-32
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
13. | Long-term debt (continued): |
(d) | Subordinated loan — Quebecor Media Inc.: | ||
On March 24, 2003, the Company contracted a subordinated loan of $150.0 million from its parent company. The $150.0 million subordinated loan, maturing in March 2015, bears interest at the rate of 90-day Bankers’ Acceptance rates plus 1.5%, payable in arrears on the last day of each quarter starting June 30, 2003. The obligations of the Company are subordinated in right of payment to the prior payment in full of all existing and future indebtedness of the Company under or in connection with the Credit Agreement. The holders of all other senior indebtedness of the Company will be entitled to receive payments in full of all amounts due on or in respect of all other existing and future senior indebtedness of the Company before the Lender is entitled to receive or retain payment of principal (see note 21). | |||
In June 2003, the Company notified the Lender according to the subordinated loan agreement that it would stop the payment of all interests on the loan indefinitely. The amount of interest owed to Quebecor Media Inc. as at December 31, 2005 totaled $17.9 million ($10.7 million at December 31, 2004). | |||
Minimum principal payments on long-term debt in each of the next five years and thereafter are as follows: |
(in thousands of Canadian dollars) | ||||
2006 | $ | – | ||
2007 | – | |||
2008 | – | |||
2009 | – | |||
2010 and thereafter | 1,121,697 | |||
14. | Share capital: | |
Authorized: |
F-33
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
14. | Share capital (continued): | |
Authorized (continued): |
2004 | 2005 | |||||||||||||||
Retractable | Retractable | |||||||||||||||
Common | preferred | Common | preferred | |||||||||||||
shares | shares | shares | shares | |||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||
Issued and paid: | ||||||||||||||||
11,174,813 common shares | $ | 173,236 | $ | – | $ | 173,236 | $ | – | ||||||||
170,000 preferred shares, Series G (2004 - 133,000) | - | – | – | – | ||||||||||||
$ | 173,236 | $ | – | $ | 173,236 | $ | – | |||||||||
F-34
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
14. | Share capital (continued): | |
Vidéotron Ltée modified its articles of amalgamation as follows: | ||
On March 28, 2003, the parent company converted one of its Series E preferred shares into 750,000 common shares at a stated capital of $26.8 million. Furthermore, on May 14, 2003, the parent company converted its last Series E preferred shares into 70,000 common shares at a stated capital of $4.5 million. The excess of the preferred share retractable value over the stated capital converted into common shares, amounting to $301.2 million, has been credited to the contributed surplus. | ||
On October 7, 2003, the Company acquired from its parent company all the issued and outstanding shares of Vidéotron TVN Inc. and of Le SuperClub Vidéotron Ltée in consideration of the issuance of 354,813 common shares for a total stated capital of $141.9 million. The excess of the consideration issued over the net book value of the business acquired, amounted to $103.1 million, of which $26.7 million has been charged to the contributed surplus and $76.4 million to the deficit. This business combination was accounted for using the continuity of interest method, and the results of operations of the acquired companies have been included in these consolidated financial statements as if this group of companies had always been subsidiaries of the Company. | ||
On December 23, 2003, the Company acquired from its parent company all the issued and outstanding shares of Câblage QMI Inc. in consideration of the issuance of 1 Series F preferred share, retractable at an amount of $2.0 million. | ||
On January 16, 2004 and September 30, 2004, Videotron Ltée issued 88,000 and 45,000 preferred shares Series G, respectively, to Groupe Divertissement SuperClub Inc., the wholly-owned subsidiary of Le Superclub Videotron Ltée, for a total cash consideration of $88.0 million and $45.0 million, respectively. Series G shares are eliminated upon consolidation. | ||
On March 26, 2004, the Company redeemed the Series F preferred share, for an amount of $3.7 million. The excess of the consideration paid over the preferred share’s retractable value, in the amount of $1.7 million, has been charged to deficit. | ||
On April 18, 2005, Vidéotron Ltée issued 57,000 preferred shares, Series G, to Groupe de Divertissement Superclub Inc., a wholly-owned subsidiary of Le Superclub Vidéotron Ltée, for a total cash consideration of $57.0 million. On the same date, Vidéotron Ltée redeemed 20,000 preferred shares, Series G, from Groupe de Divertissement Superclub Inc. for a total cash consideration of $20.0 million. Series G shares are eliminated upon consolidation. |
F-35
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
15. | Stock option plan: | |
Under a stock option plan established by the parent company, 6,185,714 Common Shares of the parent company were set aside for officers, senior employees and other key employees of the parent company and its subsidiaries. Each option may be exercised within a maximum period of ten 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 the parent company as at the date of grant, as determined by the parent company’s Board of Directors (if the Common Shares of the parent company are not listed on a stock exchange at the time of the grant) or the trading price of the Common Shares of the parent company on the stock exchanges where such shares are listed at time of the grant. Unless authorized by the parent company’s Compensation Committee in the context of a change of control, no options may be exercised by an optionee if the shares of the parent company have not been listed on a recognized stock exchange. At December 31, 2007, if the shares of the parent company have not been so listed, optionees may exercise, between January 1 and January 31, each year, starting January 1, 2008, their right to receive an amount in cash equal to the difference between the fair market value as determined by the parent company’s Board of Directors, and the exercise price of their vested options. Except under specific circumstances and unless the parent company’s Compensation Committee decides otherwise, options vest over a five-year period in accordance with one of the following vesting schedules as determined by the parent company’s Compensation Committee at the date 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 the grant, and (iii) equally over three years with the first 33% vesting on the third anniversary of the date of the grant. |
F-36
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
15. | Stock option plan (continued): | |
The following table gives summary information on outstanding options granted by the parent company to the employees of the Company as at December 31, 2004 and 2005: |
2004 | 2005 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
average | average | |||||||||||||||
exercise | exercise | |||||||||||||||
Options | price | Options | price | |||||||||||||
Balance at beginning of year | 545,639 | $ | 18.25 | 562,067 | $ | 18.69 | ||||||||||
Granted | 48,756 | 22.25 | 36,913 | 28.11 | ||||||||||||
Transferred and cancelled | (32,328 | ) | 16.70 | (16,645 | ) | 18.38 | ||||||||||
Balance at end of year | 562,067 | $ | 18.69 | 582,335 | $ | 19.25 | ||||||||||
Vested options at end of year | 73,569 | $ | 17.45 | 222,111 | $ | 18.36 | ||||||||||
Outstanding options | Vested options | |||||||||||||||
Weighted average | Weighted average | |||||||||||||||
Exercise price | Number | years to maturity | Number | exercise price | ||||||||||||
$15.19 | 28,637 | 7.41 years | 11,455 | $ | 15.19 | |||||||||||
16.17 | 172,229 | 6.27 years | 88,804 | 16.17 | ||||||||||||
19.46 | 240,749 | 7.59 years | 80,712 | 19.46 | ||||||||||||
21.42 | 8,869 | 7.92 years | 3,548 | 21.42 | ||||||||||||
21.75 | 19,999 | 8.20 years | 4,000 | 21.75 | ||||||||||||
21.77 | 62,011 | 6.23 years | 31,006 | 21.77 | ||||||||||||
22.98 | 12,928 | 8.69 years | 2,586 | 22.98 | ||||||||||||
27.86 | 30,057 | 9.12 years | – | – | ||||||||||||
29.17 | 6,856 | 9.81 years | – | – | ||||||||||||
$15.19 to $29.17 | 582,335 | 7.2 years | 222,111 | $ | 18.36 | |||||||||||
F-37
Table of Contents
Notes to Consolidated Financial Statements, Continued
Years ended December 31, 2003, 2004 and 2005
16. | Financial instruments: |
(a) | Fair value: | ||
The carrying amount of cash and cash equivalents, marketable securities, accounts receivable, issued and outstanding cheques, accounts receivable from/payable to affiliated companies, and accounts payable and accrued liabilities approximates their fair value as these items will be realized or paid within one year. | |||
As at December 31, the estimated fair values of long-term debt and derivative financial instruments are as follows: |
2004 | 2005 | |||||||||||||||
Book | Fair | Book | Fair | |||||||||||||
value | value | value | value | |||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||
Liabilities: | ||||||||||||||||
Financial liabilities: | ||||||||||||||||
Long-term debt | $ | 1,038,908 | $ | 1,051,039 | $ | 1,121,697 | $ | 1,117,398 | ||||||||
Derivative financial instruments: | ||||||||||||||||
Interest rate swaps | (4,579 | ) (i) | (4,579 | ) | (935 | )(i) | (935 | ) | ||||||||
Assets (liabilities): | ||||||||||||||||
Cross currency interest rate swaps | (45,371 | ) | (72,298 | ) | (73,835 | ) | (135,048 | ) | ||||||||
Forward exchange | (8,476 | ) | (8,414 | ) | – | (158 | ) |
(i) | Including an amount of $1.2 million in 2004 and $0.9 million in 2005 classified with interest payable in the balance sheet. |
F-38
Table of Contents
Notes to Consolidated Financial Statements, Continued
16. | Financial instruments (continued): |
(b) | Management of interest rate risk and foreign exchange risk: | ||
In 2003, the Company entered into interest rate swaps to manage its interest rate exposure on its bank facility. The Company was committed to exchange, at specific intervals, the difference between the fixed and floating interest rate calculated by reference to the notional amounts. As at December 31, 2004 and 2005, this bank facility was paid off, but the Company is still committed to pay fixed interest rates ranging from 3.75% to 5.41% on a notional amount of $95.0 million, and will receive a floating interest rate based on Bankers’ Acceptance having a three-month maturity. These swaps expire in 2006 and 2007. | |||
During the year ended December 31, 2003, the Company has concluded cross currency interest swaps to hedge the foreign exchange fluctuations related to its US Senior Notes by fixing the US/Canadian dollar exchange rate at 1.3425 on a notional amount of US$335.0 million, and by fixing the interest rate at 7.66% on a notional amount of $181.2 million, and by opting for a floating interest rate based on bankers’ acceptance rate plus 2.73% on a notional amount of $268.5 million. | |||
During the year ended December 31, 2004, the Company has concluded cross-currency interest swaps to hedge the foreign exchange fluctuations relating to its US Senior Notes issued in November 2004 by fixing the US dollar/Canadian dollar exchange rate at 1.1950, and by fixing an interest rate at 7.45% on a notional amount of $149.4 million, and fixing the exchange rate at 1.2000 and by opting for a floating interest rate based on the bankers’ acceptance rate plus 2.80% on a notional amount of $228.0 million. The Company also concluded a forward exchange contract to hedge the foreign exchange fluctuations relating to its CF Cable notes by fixing the US dollar/Canadian dollar exchange rate at 1.3573 on a notional amount of $53.5 million. The contract was settled on July 15, 2005, with the reimbursement of the Senior Secured First Priority Notes. | |||
During the year ended December 31, 2005, the Company concluded cross-currency interest swaps to hedge the foreign exchange fluctuations relating to its US Senior Notes issued in September 2005 by fixing the US dollar/Canadian dollar exchange rate at 1.1781, and by fixing an interest rate at 5.98% on a notional amount of $206.2 million. | |||
During the year ended December 31, 2005, the Company concluded forward exchange contracts to hedge the foreign exchange fluctuations relating to its 2006 customers equipment and other purchases by fixing the US dollar/Canadian dollar exchange rate at 1.1790 on an amount of $10.4 million. |
F-39
Table of Contents
Notes to Consolidated Financial Statements, Continued
16. | Financial instruments (continued): |
(c) | Other disclosures: |
(i) | The credit risk of the financial instruments arises from the possibility that the counterparties to the agreements or contracts may default on their obligations under the agreements. In order to minimize this risk, the Company’s general policy is to deal only with counterparties with a Standard & Poor’s rating (or the equivalent) of at least A -. | ||
(ii) | The Company is exposed to a credit risk towards its customers. However, credit risk concentration is minimized because of the large number of customers. |
17. | Commitments and guarantees: |
(a) | Under the terms of operating leases, the Company is committed to make the following minimum annual lease payments over the next years: |
(in thousands of Canadian dollars) | ||||||||||||
Minimum | Leases | Minimum net | ||||||||||
annual lease | assumed by | annual lease | ||||||||||
payments | franchisees (b) | payments | ||||||||||
2006 | $ | 14,671 | $ | 2,159 | $ | 12,512 | ||||||
2007 | 8,735 | 1,609 | 7,126 | |||||||||
2008 | 6,885 | 1,187 | 5,698 | |||||||||
2009 | 5,149 | 968 | 4,181 | |||||||||
2010 | 3,344 | 660 | 2,684 | |||||||||
2011 and thereafter | 6,829 | 1,556 | 5,273 | |||||||||
The operating lease expense for the year amounted to $15.1 million (2004 — $12.9 million; 2003 — $12.2 million). | |||
(b) | Management fee: | ||
In 2002, the Company began paying an annual management fee to Quebecor Media for services rendered to the Company pursuant to a five-year management services agreement. These services include internal audit, legal and corporate, financial planning and treasury, tax, real estate, human resources, risk management, public relations and other services. The agreement provides for an annual management fee of $11.4 million in respect of 2005 (2003 - $5.3 million; 2004 — $7.3 million) and amounts to be agreed upon for the year 2006. In addition, Quebecor Media is entitled to the reimbursement of out-of-pocket expenses incurred in connection with the services provided under the agreement. The agreement also provides that in no event may the fees and reimbursements paid to Quebecor Media for any given year exceed 1.5% of the Company’s consolidated revenues for such year. |
F-40
Table of Contents
Notes to Consolidated Financial Statements, Continued
17. | Commitments and guarantees (continued): |
(c) | Disclosure of guarantees: | ||
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 operating leases prior to maturity and should the fair value of the leased assets be less than the guaranteed residual value, the Company must, under certain conditions, compensate the lessor for a portion of the shortfall. As at December 31, 2005, the maximum exposure in respect of these guarantees is $6.5 million and no amount has been recorded in the consolidated financial statements. | |||
Guarantees under lease agreements: | |||
A subsidiary of the Company has provided guarantees to the lessor under premise leases for certain franchisees, with expiry dates through 2016. The Company must, under certain conditions, compensate the lessor should the franchisee default. As at December 31, 2005, the maximum exposure in respect of these guarantees is $8.1 million. No liability has been recorded in the consolidated financial statements since the subsidiary does not expect to make any payments pertaining to these guarantees. Recourse against the franchisee is also available, up to the total amount due. | |||
Guarantees related to the Senior Notes: | |||
Under the terms of the indentures governing the 2014 and 2015 Senior Notes, the Company is committed to pay any amount of withholding taxes that could eventually be levied by any Canadian Taxing Authority on payments made to the lenders, so that the amounts the lenders would receive are not less than amounts receivable if no taxes are levied. The amount of such guarantee is not limited and it is not possible for the Company to establish a maximum amount of the guarantee as it is dependent exclusively on future actions, if any, by the Taxation Authorities. Although no recourse exists for such liability, the Company has the right to redeem such long-term debt at their face value, if such taxes were levied by the Canadian Taxing Authorities, thereby terminating the guarantee. |
F-41
Table of Contents
Notes to Consolidated Financial Statements, Continued
18. | Supplemental cash flow information: |
2003 | 2004 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Non-cash financing and investing activities: | ||||||||||||
(i) Purchase of fixed assets financed by accounts payable and accrued liabilities | $ | 958 | $ | 5,669 | $ | 14,802 | ||||||
(ii) Issuance of share capital in consideration of the acquisition of a subsidiary | 2,000 | – | – | |||||||||
(iii) Deferred charge expenditures financed by accounts payable and accrued liabilities and by affiliated companies | 1,195 | 1,209 | – |
19. | Related party transactions: | |
In addition to the transactions disclosed elsewhere in these financial statements, the Company entered into the following transactions with affiliated companies. These transactions have been recorded at the exchange value in the normal course of business, which is the amount established and agreed to by the related parties: |
2003 | 2004 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Parent company: | ||||||||||||
Operating and administrative expenses | $ | 8,492 | $ | 10,329 | $ | 15,637 | ||||||
Operating and administrative expenses recovered | (216 | ) | (159 | ) | (155 | ) | ||||||
Acquisition of fixed and intangible assets | 1,613 | – | – | |||||||||
Companies under common control: | ||||||||||||
Operating revenue | 2,450 | 1,915 | 2,375 | |||||||||
Direct costs | 18,271 | 15,846 | 25,542 | |||||||||
Operating and administrative expenses | 34,087 | 29,769 | 47,725 | |||||||||
Directors of the parent company: | ||||||||||||
Operating and administrative expenses | 581 | 247 | 622 | |||||||||
Acquisition of deferred financing costs | 189 | 91 | 85 | |||||||||
F-42
Table of Contents
Notes to Consolidated Financial Statements, Continued
19. | Related party transactions (continued): | |
The Company and a company under common control entered into a signal transmission services agreement until 2014, renewable for an additional 15-year period. The service charges incurred from this agreement amounted to $7.0 million in 2003, $6.5 million in 2004 and $7.7 million in 2005. | ||
The Company and a company under common control entered into internet band with services agreements until 2005, renewable for a 12-month period. Service charges incurred from these agreements amounted to $12.2 million in 2003, $6.1 million in 2004 and $6.9 million in 2005. | ||
The Company and a company under common control entered into a telephone services agreement in 2005. Service charges incurred from this agreement amounted to $9.2 million in 2005. | ||
For the year ended December 31, 2005, the Company paid Quebecor Media management fees of $11.4 million (2003 — $5.3 million; 2004 — $7.3 million), which is reflected in other operating expenses. | ||
20. | Contingencies: | |
On March 13, 2002, a legal action was initiated by the shareholders of a cable company against Vidéotron Ltée. They contend that Vidéotron Ltée did not honor its commitment related to a stock purchase agreement signed in August 2000. The plaintiffs are requesting compensations totalling $26.0 million. Management of the Company claims that the suit is not justified and intends to defend vigorously its case in Court. | ||
In the normal course of business, the Company is a party to various claims and lawsuits. Even though the outcome of these various pending cases as at December 31, 2005 cannot be determined with certainty, the management of the Company believes that their outcome will not have a material adverse impact on its operating results or financial position. |
F-43
Table of Contents
Notes to Consolidated Financial Statements, Continued
21. | Subsequent events: |
(i) | On January 1, 2006, a company under common control, Vidéotron Telecom Ltd., has merged with the Company. This transaction will be accounted for using the continuity of interest method. The net assets of Vidéotron Telecom Ltd. transferred as a result of the merger with the Company are summarized as follows: |
Current assets | $ | 44,227 | ||
Fixed assets | 197,727 | |||
Future tax assets | 34,337 | |||
Other assets | 1,092 | |||
277,383 | ||||
Current liabilities | 31,289 | |||
Retractable preferred shares | 2,229 | |||
33,518 | ||||
Net assets transferred to the Company | $ | 243,865 | ||
(ii) | On January 17, 2006, the Company reimbursed the principal amount of the subordinated loan and all interests owed at that date to Quebecor Media Inc. for a total consideration of $168.0 million. At that date, the Company also reduced the paid-up capital of its common shares and paid a total cash consideration of $83.7 million to the parent company. The repayment of the loan and the reduction of the paid-up capital have been financed through the use of the revolving facility in the amount of $237 million. |
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States: | |
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in Canada which are different in some respects from those in the United States (“US”), as described below. The following tables set forth the impact of significant differences between Canadian GAAP and US GAAP on the Company’s consolidated financial statements, including disclosures, that are required under US GAAP. |
F-44
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statements of Operations |
2003 | 2004 | 2005 | ||||||||||
(restated — note 1 (b)) | ||||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Net income for the year based on Canadian GAAP | $ | 63,311 | $ | 147,372 | $ | 113,875 | ||||||
Adjustments: | ||||||||||||
Push-down basis of accounting (i) | (7,954 | ) | (18,108 | ) | (7,096 | ) | ||||||
Development and pre-operating costs (iii) | 2,485 | (1,210 | ) | (1,036 | ) | |||||||
Accounting for derivative instruments and hedging activities (iv) | 1,607 | 12,266 | 7,542 | |||||||||
Income taxes (v) | (774 | ) | 375 | 2,234 | ||||||||
Net income for the year based on US GAAP | 58,675 | 140,695 | 115,519 | |||||||||
Other comprehensive (loss) gain (vi): | ||||||||||||
Pension and postretirement benefits (vii) | (613 | ) | 835 | (61 | ) | |||||||
Accounting for derivative instruments and hedging activities (iv) | (843 | ) | (14,473 | ) | (18,271 | ) | ||||||
Income taxes (v) | – | – | 10,882 | |||||||||
Comprehensive income for the year based on US GAAP | $ | 57,219 | $ | 127,057 | $ | 108,069 | ||||||
Accumulated other comprehensive loss at beginning of year | $ | (314 | ) | $ | (1,770 | ) | $ | (15,408 | ) | |||
Changes in the year | (1,456 | ) | (13,638 | ) | (7,450 | ) | ||||||
Accumulated other comprehensive loss at end of year | $ | (1,770 | ) | $ | (15,408 | ) | $ | (22,858 | ) | |||
F-45
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Shareholder’s Equity |
2004 | 2005 | |||||||
(in thousands of Canadian dollars) | ||||||||
Shareholder’s equity (deficit) based on Canadian GAAP | $ | 38,030 | $ | (58,072 | ) | |||
Cumulative adjustments: | ||||||||
Push-down basis of accounting (i) | 4,235,626 | 4,228,530 | ||||||
Goodwill impairment (ii) | (2,004,000 | ) | (2,004,000 | ) | ||||
Development and pre-operating costs (iii) | (1,656 | ) | (2,692 | ) | ||||
Accounting for derivative instruments and hedging activities (iv) | (15,559 | ) | (26,288 | ) | ||||
Income taxes (v) | 514 | 13,630 | ||||||
Pension and postretirement benefits (vii) | (92 | ) | (153 | ) | ||||
Shareholder’s equity based on US GAAP | $ | 2,252,863 | $ | 2,150,955 | ||||
(i) | Push-down basis of accounting: | ||
The basis of accounting used in the preparation of these financial statements under US GAAP reflects the push-down resulting from the acquisition on October 23, 2000 by Quebecor Media Inc. of the Company and its subsidiaries. Under Canadian GAAP, each entity has retained the historical carrying value basis of its assets and liabilities. The excess of the purchase price over the value assigned to the net assets of the Company at the date of acquisition has been allocated to goodwill and has been amortized, up to December 31, 2001, on the straight-line basis over 40 years. | |||
The principal adjustments, taking into account the final allocation of the purchase price finalized in the fourth quarter of 2001, to the historical consolidated financial statements of the Company to reflect Parent’s cost basis were: |
(a) | The carrying values of fixed assets were increased by $114.6 million; | ||
(b) | The deferred charges related to financing fees and exchange losses on long-term debt have been written off to reflect the fair value of the assumed long-term debt, and further reduction in deferred charges was recorded for a total amount of $22.6 million; | ||
(c) | Accrued charges increased by $40.3 million; |
F-46
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Shareholder’s Equity (continued) |
(i) | Push-down basis of accounting (continued): |
(d) | Future income tax liability increased by $24.9 million; and | ||
(e) | The $4,360.5 million excess of parent’s cost over the value assigned to the net assets of the Company at the date of acquisition has been recorded as goodwill and $4,387.3 million was credited to contributed surplus. In 2004, the Company and its parent materialized income tax benefits in the amount of $84.3 million which had not been recognized at the date of acquisition. Therefore, the goodwill has been reduced by $84.3 million, contributed surplus has been reduced by $67.4 million and income tax expense for US GAAP purposes has been increased by $16.9 million. |
(ii) | Goodwill impairment: | ||
The accounting requirements for goodwill under Canadian GAAP and US GAAP are similar in all material respects. However, in accordance with the transitional provisions contained in Section 3062 of the CICA Handbook, an impairment loss recognized during the financial year, in which the new recommendations are initially applied, is recognized as the effect of a change in accounting policy and charged to opening retained earnings, without restatement of prior periods. Under US GAAP, an impairment loss recognized as a result of transitional goodwill impairment test is recognized as the effect of a change in accounting principles in the statement of operations above the caption “net income”. | |||
(iii) | Development and pre-operating costs: | ||
Under Canadian GAAP, certain development and pre-operating costs, which satisfy specified criteria for recoverability, are deferred and amortized. Under US GAAP, these costs are expensed as incurred. |
F-47
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Shareholder’s Equity (continued) |
(iv) | Accounting for derivative instruments and hedging activities: | ||
The Company adopted, at the beginning of 2001, Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” as amended (SFAS 133), which establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recorded as either assets or liabilities in the balance sheet at fair value with changes in fair value recorded in the statement of operations unless the instrument is effective and qualifies for hedge accounting. Under Canadian GAAP, derivative financial instruments are accounted for on an accrual basis. Realized and unrealized gains and losses are deferred and recognized in income in the same period and in the same financial statement category as the income or expense arising from the corresponding hedged position. Furthermore, under Canadian GAAP, the change in foreign exchange rate on long-term foreign currency denominated instrument is recorded either as an asset or liability when hedge accounting is used. Under US GAAP, these changes are recorded in the statement of operations or other comprehensive income based on whether a hedging relationship has been established which qualifies as a hedging relationship under US GAAP. | |||
(v) | Income taxes: | ||
This adjustment represents the tax impact of the US GAAP adjustments. Furthermore, under Canadian GAAP, income taxes are measured using substantially enacted tax rates, while under US GAAP measurement is based on enacted tax rates. | |||
(vi) | Comprehensive income (loss): | ||
Comprehensive income is presented in accordance with FAS No. 130, “Reporting Comprehensive Income”. This standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners. Other comprehensive income consists of adjustments to shareholder’s equity related to the accrued pension benefit liability, representing the excess of the accumulated pension benefit obligation as compared to the fair value of plan assets and to changes in the derivative fair values of contracts that are designated effective and qualify as cash flow hedges. |
F-48
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Shareholder’s Equity (continued) |
(vii) | Pension and postretirement benefits: | ||
The accounting requirements for pension and postretirement benefits under Canadian GAAP and US GAAP are similar in all material respects. However, under US GAAP, if the accumulated benefit obligation exceeds the fair value of a pension plan’s assets, the Company is required to recognize a minimum accrued liability equal to the unfunded accumulated benefit obligation, which is recorded as a separate component of shareholder’s equity under the caption “other comprehensive income”. | |||
(viii) | Operating income before the undernoted: | ||
US GAAP requires that depreciation and amortization and other items be included in the determination of operating income and does not permit the disclosure of subtotals of the amounts of operating income before these items. Canadian GAAP permits the subtotals of the amounts of operating income before these items. | |||
(ix) | Consolidated statements of cash flows: | ||
The disclosure of a subtotal of the amount of funds provided by operations before changes in non-cash operating working capital items in the consolidated statement of cash flows is allowed by Canadian GAAP while it is not allowed by US GAAP. | |||
(x) | Guaranteed debt: | ||
The consolidated information below has been presented in accordance with the requirements of the Securities and Exchange Commission for guarantor financial statements. | |||
The Company’s Senior Notes due 2014 and 2015 described in note 13 (c) are guaranteed by specific subsidiaries of the Company (the “Subsidiary Guarantors”). The accompanying condensed consolidated financial information as at December 31, 2004 and 2005 and for the years 2003, 2004 and 2005 has been prepared in accordance with US GAAP. The information under the column headed “Consolidated Guarantors” is for all the Subsidiary Guarantors. Investments in the Subsidiary Guarantors are accounted for by the equity method in the separate column headed “Vidéotron Ltée”. Each Subsidiary Guarantor is wholly-owned by the Company. All guarantees are full and unconditional, and joint and several (to the extent permitted by applicable law). | |||
The main subsidiaries included under the column “Subsidiary Guarantors” are CF Cable TV Inc., Vidéotron (Regional) Ltée and Le SuperClub Vidéotron Ltée, and its subsidiary, Groupe de Divertissement SuperClub Inc. | |||
The “Non-Subsidiary Guarantors” is Société d’Édition et de Transcodage T.E. Ltée. |
F-49
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(x) | Guaranteed debt (continued): | ||
On July 15, 2005, CF Cable TV Inc. paid its senior secured first priority note and became a guarantor of the senior notes issued by its parent company, Vidéotron (Régional) Ltée, a wholly-owned subsidiary of CF Cable TV Inc., became also a guarantor of the senior notes of Vidéotron Ltée. |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Revenues | $ | 424,904 | $ | 245,920 | $ | 159,945 | $ | (25,768 | ) | $ | 805,001 | |||||||||
Direct cost | 162,244 | 37,449 | 47,906 | (1,632 | ) | 245,967 | ||||||||||||||
Operating and administrative expenses | 139,858 | 103,718 | 61,103 | (23,875 | ) | 280,804 | ||||||||||||||
Depreciation and amortization | 82,468 | 33,048 | 17,794 | (307 | ) | 133,003 | ||||||||||||||
Financial expenses | 79,425 | (1,557 | ) | (13,555 | ) | (1,889 | ) | 62,424 | ||||||||||||
Other items | – | – | – | – | – | |||||||||||||||
(Loss) income before the undernoted | (39,091 | ) | 73,262 | 46,697 | 1,935 | 82,803 | ||||||||||||||
Income taxes | (14,811 | ) | 25,656 | 11,908 | 1,326 | 24,079 | ||||||||||||||
(24,280 | ) | 47,606 | 34,789 | 609 | 58,724 | |||||||||||||||
Share in the results of a company subject to significant influence | 6,470 | – | 77 | (6,547 | ) | – | ||||||||||||||
Non-controlling interest | – | – | – | (49 | ) | (49 | ) | |||||||||||||
Net (loss) income | $ | (17,810 | ) | $ | 47,606 | $ | 34,866 | $ | (5,987 | ) | $ | 58,675 | ||||||||
F-50
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Cash Flows | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2003 |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net income (loss) | $ | (17,810 | ) | $ | 47,606 | $ | 34,866 | $ | (5,987 | ) | $ | 58,675 | ||||||||
Items not involving cash: | ||||||||||||||||||||
Depreciation and amortization | 86,340 | 37,250 | 17,484 | (307 | ) | 140,767 | ||||||||||||||
Net premium and write-off of financing cost upon early redemption of long-term debt | 17,094 | – | – | – | 17,094 | |||||||||||||||
Future income taxes | (16,361 | ) | 14,592 | 10,459 | 1,326 | 10,016 | ||||||||||||||
Adjustment of goodwill | 2,012 | – | 488 | – | 2,500 | |||||||||||||||
Loss on disposal of fixed assets | (110 | ) | 18,507 | 50 | – | 18,447 | ||||||||||||||
Gain on foreign currency denominated debt | (1,649 | ) | – | (21,251 | ) | (723 | ) | (23,623 | ) | |||||||||||
Share in the results of a company | (6,470 | ) | – | (77 | ) | 6,547 | – | |||||||||||||
Other | 102 | (148 | ) | 1,729 | (811 | ) | 872 | |||||||||||||
Changes in non-cash operating working capital | 63,759 | (71,359 | ) | (23,225 | ) | (45 | ) | (30,870 | ) | |||||||||||
126,907 | 46,448 | 20,523 | – | 193,878 | ||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Acquisition of fixed assets | (54,598 | ) | (21,154 | ) | (19,879 | ) | 5,347 | (90,284 | ) | |||||||||||
Disbursements for deferred charges | – | (113 | ) | – | – | (113 | ) | |||||||||||||
Acquisition of short-term investments | (22,100 | ) | – | (1,030 | ) | – | (23,130 | ) | ||||||||||||
Proceeds from disposal of fixed assets | 5,651 | 3,494 | 27 | (5,347 | ) | 3,825 | ||||||||||||||
Proceeds from investment | 7,231 | (7,231 | ) | – | – | – | ||||||||||||||
Other | – | (900 | ) | – | – | (900 | ) | |||||||||||||
(63,816 | ) | (25,904 | ) | (20,882 | ) | – | (110,602 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Repayment of long-term debt | (1,033,321 | ) | – | (24 | ) | – | (1,033,345 | ) | ||||||||||||
Issuance of long-term debt | 1,038,732 | – | - | – | 1,038,732 | |||||||||||||||
Financing cost on long-term debt | (9,086 | ) | – | – | – | (9,086 | ) | |||||||||||||
Recouping fees and termination swaps | (48,375 | ) | – | – | – | (48,375 | ) | |||||||||||||
Dividends to parent company | (19,956 | ) | – | – | – | (19,956 | ) | |||||||||||||
Other | 20,248 | (20,000 | ) | (312 | ) | – | (64 | ) | ||||||||||||
(51,758 | ) | (20,000 | ) | (336 | ) | – | (72,094 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 11,333 | 544 | (695 | ) | – | 11,182 | ||||||||||||||
Cash and cash equivalents, beginning of year | 13,855 | (871 | ) | 1,112 | – | 14,096 | ||||||||||||||
Cash and cash equivalents, end of year | $ | 25,188 | $ | (327 | ) | $ | 417 | $ | – | $ | 25,278 | |||||||||
F-51
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Operations | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2004 |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Revenues | $ | 439,463 | $ | 282,872 | $ | 168,315 | $ | (9,678 | ) | $ | 880,972 | |||||||||
Direct cost | 162,467 | 31,481 | 56,755 | (261 | ) | 250,442 | ||||||||||||||
Operating and administrative expenses | 123,412 | 131,734 | 45,203 | (9,417 | ) | 290,932 | ||||||||||||||
Depreciation and amortization | 85,157 | 37,111 | 20,317 | – | 142,585 | |||||||||||||||
Financial expenses | (13,857 | ) | 153,145 | 27,364 | (1,200 | ) | 165,452 | |||||||||||||
Dividend income from related companies | – | (121,824 | ) | (16,658 | ) | 27,427 | (111,055 | ) | ||||||||||||
Income (loss) before the undernoted | 82,284 | 51,225 | 35,334 | (26,227 | ) | 142,616 | ||||||||||||||
Income taxes | 20,620 | (21,436 | ) | 2,407 | 230 | 1,821 | ||||||||||||||
61,664 | 72,661 | 32,927 | (26,457 | ) | 140,795 | |||||||||||||||
Share in the results of a company subject to significant influence | 10,628 | – | 138 | (10,766 | ) | – | ||||||||||||||
Non-controlling interest | – | – | (1 | ) | (99 | ) | (100 | ) | ||||||||||||
Net income (loss) | $ | 72,292 | $ | 72,661 | $ | 33,064 | $ | (37,322 | ) | $ | 140,695 | |||||||||
F-52
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Cash Flows | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2004 |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net loss | $ | 72,292 | $ | 72,661 | $ | 33,064 | $ | (37,322 | ) | $ | 140,695 | |||||||||
Items not involving cash: | ||||||||||||||||||||
Depreciation and amortization | 86,290 | 40,451 | 20,314 | – | 147,055 | |||||||||||||||
Future income taxes | 19,607 | (21,667 | ) | 1,565 | 230 | (265 | ) | |||||||||||||
Loss on disposal of fixed assets | 9,274 | 439 | 3,461 | – | 13,174 | |||||||||||||||
Loss on foreign currency denominated debt | – | – | 1,332 | (34 | ) | 1,298 | ||||||||||||||
Shares in the results of a company subject to significant influence | (10,628 | ) | – | (138 | ) | 10,766 | – | |||||||||||||
Other | (17,190 | ) | (83 | ) | 1,553 | (1,067 | ) | (16,787 | ) | |||||||||||
Changes in non-cash operating working capital | (13,859 | ) | 4,045 | 33,740 | – | 23,926 | ||||||||||||||
145,786 | 95,846 | 94,891 | (27,427 | ) | 309,096 | |||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Acquisition of fixed assets | (70,842 | ) | (41,753 | ) | (24,098 | ) | 13,663 | (123,030 | ) | |||||||||||
Acquisition of other assets | – | (412 | ) | – | – | (412 | ) | |||||||||||||
Proceeds on disposals of fixed assets | 722 | 13,829 | 558 | (13,663 | ) | 1,446 | ||||||||||||||
Acquisition of video stores assets | – | (7,162 | ) | – | – | (7,162 | ) | |||||||||||||
Proceeds on disposal (acquisition) of market securities | 2,100 | – | (220 | ) | – | 1,880 | ||||||||||||||
Acquisition of shares of affiliated company | – | (1,100,000 | ) | (165,000 | ) | 165,000 | (1,100,000 | ) | ||||||||||||
Proceeds from disposal of shares of affiliated company | – | 1,100,000 | 165,000 | (165,000 | ) | 1,100,000 | ||||||||||||||
Other | 70,000 | – | (70,010 | ) | – | (10 | ) | |||||||||||||
1,980 | (35,498 | ) | (93,770 | ) | – | (127,288 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Repayment of long-term debt | (355,630 | ) | – | – | – | (355,630 | ) | |||||||||||||
Issuance of long-term debt | 396,244 | – | – | – | 396,244 | |||||||||||||||
Financing cost on long-term debt | (6,401 | ) | – | – | – | (6,401 | ) | |||||||||||||
Increase in long-term intercompany loan from affiliated company | – | 935,000 | 165,000 | – | 1,100,000 | |||||||||||||||
Repayment of long-term intercompany loan from affiliated company | – | (935,000 | ) | (165,000 | ) | – | (1,100,000 | ) | ||||||||||||
Redemption of retractable preferred shares | (3,660 | ) | (165,000 | ) | – | 165,000 | (3,660 | ) | ||||||||||||
Dividends to parent company | (171,002 | ) | (61,658 | ) | – | 27,427 | (205,233 | ) | ||||||||||||
Issuance of preferred shares | – | 165,000 | – | (165,000 | ) | – | ||||||||||||||
Other | 311 | – | (390 | ) | – | (79 | ) | |||||||||||||
(140,138 | ) | (61,658 | ) | (390 | ) | 27,427 | (174,759 | ) | ||||||||||||
Net increase (decrease) in cash | 7,628 | (1,310 | ) | 731 | – | 7,049 | ||||||||||||||
Cash and cash equivalents, beginning of year | 25,188 | (327 | ) | 417 | – | 25,278 | ||||||||||||||
Cash and cash equivalents, end of year | $ | 32,816 | $ | (1,637 | ) | $ | 1,148 | $ | – | $ | 32,327 | |||||||||
F-53
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Balance Sheet | ||
In accordance with United States GAAP | ||
As at December 31, 2004 |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 34,810 | $ | 108 | $ | 1,312 | $ | – | $ | 36,230 | ||||||||||
Marketable securities | 20,000 | – | 1,250 | – | 21,250 | |||||||||||||||
Accounts receivable | 81,589 | 8,213 | 686 | – | 90,488 | |||||||||||||||
Amounts receivable from affiliated | ||||||||||||||||||||
companies | 133,598 | 27,834 | 277,053 | (438,480 | ) | 5 | ||||||||||||||
Income taxes receivable | 8,526 | 79 | 19 | – | 8,624 | |||||||||||||||
Inventories and prepaid expenses | 11,488 | 23,461 | 601 | – | 35,550 | |||||||||||||||
Future income taxes | 49,589 | 184 | 8,455 | – | 58,228 | |||||||||||||||
339,600 | 59,879 | 289,376 | (438,480 | ) | 250,375 | |||||||||||||||
Fixed assets | 761,758 | 32,455 | 225,081 | (489 | ) | 1,018,805 | ||||||||||||||
Goodwill | 1,903,756 | 67,940 | 376,844 | 233,711 | 2,582,251 | |||||||||||||||
Other assets | 441,324 | 136,351 | 3,616 | (558,433 | ) | 22,858 | ||||||||||||||
Future income taxes | 22,179 | 1,111 | – | 269 | 23,559 | |||||||||||||||
Total assets | $ | 3,468,617 | $ | 297,736 | $ | 894,917 | $ | (763,422 | ) | $ | 3,897,848 | |||||||||
Liabilities and Shareholder’s Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Issued and outstanding cheques | $ | 1,994 | $ | 1,745 | $ | 164 | $ | – | $ | 3,903 | ||||||||||
Accounts payable and accrued liabilities | 214,309 | 32,402 | 25,881 | (5 | ) | 272,587 | ||||||||||||||
Amounts payable to affiliated companies | 102,426 | 138,350 | 249,417 | (438,475 | ) | 51,718 | ||||||||||||||
Deferred revenue and prepaid services | 83,105 | – | 22,305 | – | 105,410 | |||||||||||||||
Income taxes payable | 33 | 1,343 | 267 | – | 1,643 | |||||||||||||||
401,867 | 173,840 | 298,034 | (438,480 | ) | 435,261 | |||||||||||||||
Deferred revenue | 4,480 | – | 1,724 | – | 6,204 | |||||||||||||||
Future income taxes | 129,310 | 3,054 | 36,268 | 168,632 | ||||||||||||||||
Long-term debt | 941,910 | – | 116,840 | (24,568 | ) | 1,034,182 | ||||||||||||||
Non-controlling interest in a subsidiary | – | – | – | 706 | 706 | |||||||||||||||
1,477,567 | 176,894 | 452,866 | (462,342 | ) | 1,644,985 | |||||||||||||||
Shareholder’s Equity: | ||||||||||||||||||||
Capital shares | 306,235 | 31,559 | 165,025 | (329,583 | ) | 173,236 | ||||||||||||||
Contributed surplus | 3,983,147 | 81,725 | 652,298 | (3,389 | ) | 4,713,781 | ||||||||||||||
(Deficit) retained earnings | (2,283,016 | ) | 7,558 | (375,180 | ) | 31,892 | (2,618,746 | ) | ||||||||||||
Other comprehensive loss | (15,316 | ) | – | (92 | ) | – | (15,408 | ) | ||||||||||||
1,991,050 | 120,842 | 442,051 | (301,080 | ) | 2,252,863 | |||||||||||||||
$ | 3,468,617 | $ | 297,736 | $ | 894,917 | $ | (763,422 | ) | $ | 3,897,848 | ||||||||||
F-54
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Operations | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2005 |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Revenues | $ | 777,297 | $ | 227,393 | $ | 4,886 | $ | (1,405 | ) | $ | 1,008,171 | |||||||||
Direct cost | 210,829 | 76,855 | – | (229 | ) | 287,455 | ||||||||||||||
Operating and administrative expenses | 263,576 | 74,358 | 3,432 | (1,174 | ) | 340,192 | ||||||||||||||
Depreciation and amortization | 120,123 | 22,593 | 587 | (98 | ) | 143,205 | ||||||||||||||
Financial expenses | 32,937 | 25,490 | – | (1,401 | ) | 57,026 | ||||||||||||||
Dividend income from related companies | – | (17,920 | ) | – | 17,920 | – | ||||||||||||||
Income (loss) before the undernoted | 149,832 | 46,017 | 867 | (16,423 | ) | 180,293 | ||||||||||||||
Income taxes | 54,418 | 9,764 | 221 | 269 | 64,672 | |||||||||||||||
95,414 | 36,253 | 646 | (16,692 | ) | 115,621 | |||||||||||||||
Share in the results of a company subject to significant influence | 15,146 | 142 | – | (15,288 | ) | – | ||||||||||||||
Non-controlling interest | – | – | – | (102 | ) | (102 | ) | |||||||||||||
Net income (loss) | $ | 110,560 | $ | 36,395 | $ | 646 | $ | (32,082 | ) | $ | 115,519 | |||||||||
F-55
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Cash Flows | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2005 |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||
Net loss | $ | 110,560 | $ | 36,395 | $ | 646 | $ | (32,082 | ) | $ | 115,519 | |||||||||
Items not involving cash: | ||||||||||||||||||||
Depreciation and amortization | 127,005 | 27,006 | 587 | (98 | ) | 154,500 | ||||||||||||||
Future income taxes | 52,213 | 9,454 | 155 | 269 | 62,091 | |||||||||||||||
Loss on foreign denominated debt | 80 | 1,333 | – | – | 1,413 | |||||||||||||||
Other | (62,078 | ) | 581 | 105 | 13,990 | (47,402 | ) | |||||||||||||
Changes in non-cash operating working capital | 101,873 | (34,640 | ) | (814 | ) | – | 66,419 | |||||||||||||
329,653 | 40,129 | 679 | (17,921 | ) | 352,540 | |||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Acquisition of fixed assets | (161,609 | ) | (29,019 | ) | (1,199 | ) | – | (191,827 | ) | |||||||||||
Acquisition of other assets | – | (85 | ) | – | – | (85 | ) | |||||||||||||
Proceeds on disposals of fixed assets | 947 | 304 | �� | – | – | 1,251 | ||||||||||||||
Payment of tax deductions to the parent company | (25,800 | ) | (9,400 | ) | – | – | (35,200 | ) | ||||||||||||
(Acquisition) disposal of marketable securities | (20,000 | ) | – | 754 | – | (19,246 | ) | |||||||||||||
Dividend from subsidiary | 11,000 | (11,000 | ) | – | – | – | ||||||||||||||
Cash transfer pursuant to the liquidation of a subsidiary | (533 | ) | 533 | – | – | – | ||||||||||||||
Acquisition of videostrore | – | 53 | – | – | 53 | |||||||||||||||
(195,995 | ) | (48,614 | ) | (445 | ) | – | (245,054 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Repayment of long-term debt | – | (92,284 | ) | – | – | (92,284 | ) | |||||||||||||
Issuance of long-term debt | 205,130 | – | – | – | 205,130 | |||||||||||||||
Financing cost on long-term debt | (4,945 | ) | – | – | – | (4,945 | ) | |||||||||||||
Settlement of interest swaps | (3,588 | ) | (7,367 | ) | – | – | (10,955 | ) | ||||||||||||
Advance (from) to an affiliated company | (110,168 | ) | 110,168 | – | – | – | ||||||||||||||
Dividends to parent company | (210,000 | ) | – | – | – | (210,000 | ) | |||||||||||||
Dividend (from) to an affiliated company | (17,921 | ) | – | – | 17,921 | – | ||||||||||||||
Other | 497 | 177 | (800 | ) | – | (126 | ) | |||||||||||||
(140,995 | ) | 10,694 | (800 | ) | 17,921 | (113,180 | ) | |||||||||||||
Net (decrease) increase in cash | (7,337 | ) | 2,209 | (566 | ) | – | (5,694 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 32,816 | (1,731 | ) | 1,242 | – | 32,327 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 25,479 | $ | 478 | $ | 676 | $ | – | $ | 26,633 | ||||||||||
F-56
Table of Contents
Notes to Consolidated Financial Statements, Continued
22. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Balance Sheet | ||
In accordance with United States GAAP | ||
As at December 31, 2005 |
Subsidiary | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | non- | and | |||||||||||||||||
Ltée | guarantors | guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 30,398 | $ | 1,109 | $ | 716 | $ | – | $ | 32,223 | ||||||||||
Marketable securities | 40,000 | – | 496 | – | 40,496 | |||||||||||||||
Accounts receivable | 102,620 | 8,018 | 691 | – | 111,329 | |||||||||||||||
Amounts receivable from affiliated companies | 215,145 | 249,256 | 49 | (464,444 | ) | 6 | ||||||||||||||
Income taxes receivable | 385 | 301 | 113 | – | 799 | |||||||||||||||
Inventories and prepaid expenses | 26,059 | 6,304 | 173 | – | 32,536 | |||||||||||||||
Future income taxes | 50,142 | 13,829 | – | – | 63,971 | |||||||||||||||
464,749 | 278,817 | 2,238 | (464,444 | ) | 281,360 | |||||||||||||||
Fixed assets | 840,675 | 233,167 | 3,285 | (391 | ) | 1,076,736 | ||||||||||||||
Goodwill | 1,903,756 | 445,040 | – | 233,711 | 2,582,507 | |||||||||||||||
Other assets | 413,778 | 178,264 | – | (567,500 | ) | 24,542 | ||||||||||||||
Future income taxes | – | 2,376 | – | – | 2,376 | |||||||||||||||
Total assets | $ | 3,622,958 | $ | 1,137,664 | $ | 5,523 | $ | (798,624 | ) | $ | 3,967,521 | |||||||||
Liabilities and Shareholder’s Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Issued and outstanding cheques | $ | 4,919 | $ | 631 | $ | 40 | $ | – | $ | 5,590 | ||||||||||
Accounts payable and accrued liabilities | 304,302 | 32,354 | 542 | (142 | ) | 337,056 | ||||||||||||||
Amounts payable to company under common control | 53,003 | 464,537 | 155 | (464,302 | ) | 53,393 | ||||||||||||||
Deferred revenue and prepaid services | 92,844 | 21,640 | 182 | – | 114,666 | |||||||||||||||
Income taxes payable | 750 | 132 | – | – | 882 | |||||||||||||||
455,818 | 519,294 | 919 | (464,444 | ) | 511,587 | |||||||||||||||
Future income taxes | 151,702 | 51,995 | 261 | – | 203,958 | |||||||||||||||
Long-term deferred revenue | 4,821 | 1,655 | 26 | – | 6,502 | |||||||||||||||
Long-term debt | 1,093,835 | 25,969 | – | (25,969 | ) | 1,093,835 | ||||||||||||||
Non-controlling interest in a subsidiary | – | – | – | 684 | 684 | |||||||||||||||
1,706,176 | 598,913 | 1,206 | (489,729 | ) | 1,816,566 | |||||||||||||||
Shareholder’s Equity: | ||||||||||||||||||||
Share capital | 343,234 | 165,001 | 25 | (335,024 | ) | 173,236 | ||||||||||||||
Contributed surplus | 4,008,204 | 708,538 | 462 | (3,400 | ) | 4,713,804 | ||||||||||||||
(Deficit) retained earnings | (2,411,951 | ) | (334,635 | ) | 3,830 | 29,529 | (2,713,227 | ) | ||||||||||||
Other comprehensive loss | (22,705 | ) | (153 | ) | – | – | (22,858 | ) | ||||||||||||
1,916,782 | 538,751 | 4,317 | (308,895 | ) | 2,150,955 | |||||||||||||||
$ | 3,622,958 | $ | 1,137,664 | $ | 5,523 | $ | (798,624 | ) | $ | 3,967,521 | ||||||||||
F-57
Table of Contents
Chartered Accountants
F-58
Table of Contents
(in thousands of Canadian dollars)
2004 | 2005 | |||||||
Operating revenue | $ | 78,589 | $ | 102,063 | ||||
Direct costs | (11,900 | ) | (17,391 | ) | ||||
Operating and administrative expenses (note 4) | (44,435 | ) | (53,319 | ) | ||||
Depreciation and amortization (note 5) | (33,647 | ) | (34,451 | ) | ||||
Financial expenses (income) (note 6) | (110 | ) | 29 | |||||
Other items (note 7) | (1,526 | ) | – | |||||
Loss before income taxes | (13,029 | ) | (3,069 | ) | ||||
Income taxes (note 8): | ||||||||
Current | 428 | 348 | ||||||
Future | (3,935 | ) | (3,250 | ) | ||||
(3,507 | ) | (2,902 | ) | |||||
Net loss | (9,522 | ) | (167 | ) | ||||
Deficit at beginning of year | (92,210 | ) | (104,315 | ) | ||||
Acquisition and wind-up of a company under common control acquired in March 2004 (note 3) | (2,583 | ) | – | |||||
Deficit at end of year | $ | (104,315 | ) | $ | (104,482 | ) | ||
F-59
Table of Contents
(in thousands of Canadian dollars)
2004 | 2005 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Bank | $ | – | $ | 65 | ||||
Accounts receivable (note 9) | 15,287 | 27,480 | ||||||
Inventories | 3,490 | 2,237 | ||||||
Prepaid expenses | 2,459 | 1,809 | ||||||
Future tax assets (note 8) | 353 | 12,636 | ||||||
21,589 | 44,227 | |||||||
Fixed assets (note 10) | 205,699 | 197,727 | ||||||
Future tax assets (note 8) | 43,370 | 34,337 | ||||||
Other assets (note 11) | 1,663 | 1,092 | ||||||
$ | 272,321 | $ | 277,383 | |||||
Liabilities and Shareholder’s Equity | ||||||||
Current liabilities: | ||||||||
Bank indebtedness | $ | 747 | $ | – | ||||
Accounts payable and accrued liabilities | 18,755 | 26,546 | ||||||
Accounts payable to affiliated companies (note 12) | 3,992 | 2,606 | ||||||
Deferred revenue | 2,566 | 2,137 | ||||||
26,060 | 31,289 | |||||||
Retractable preferred shares (note 13) | 2,229 | 2,229 | ||||||
Shareholder’s equity: | ||||||||
Share capital (note 13) | 160,357 | 160,357 | ||||||
Contributed surplus | 187,990 | 187,990 | ||||||
Deficit | (104,315 | ) | (104,482 | ) | ||||
244,032 | 243,865 | |||||||
$ | 272,321 | $ | 277,383 | |||||
Commitments (note 15) | ||||||||
Contingencies (note 18) | ||||||||
Subsequent event (note 20) |
F-60
Table of Contents
(in thousands of Canadian dollars)
2004 | 2005 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (9,522 | ) | $ | (167 | ) | ||
Adjustments for: | ||||||||
Depreciation and amortization | 33,647 | 34,451 | ||||||
Future income taxes | (3,935 | ) | (3,250 | ) | ||||
Loss (gain) on disposal and write-off of assets | 390 | (34 | ) | |||||
Loss on exit of an operating lease at cease-use date (note 4 (b)) | 652 | – | ||||||
21,232 | 31,000 | |||||||
Net change in non-cash operating items (note 14 (a)) | (178 | ) | (2,176 | ) | ||||
21,054 | 28,824 | |||||||
Cash flows from investing activities: | ||||||||
Purchase of other assets | (8 | ) | (57 | ) | ||||
Acquisition of fixed assets | (21,423 | ) | (27,955 | ) | ||||
Proceeds from sale of fixed assets | 1,544 | – | ||||||
Acquisition of easements | (994 | ) | – | |||||
(20,881 | ) | (28,012 | ) | |||||
Net decrease in bank indebtedness | 173 | 812 | ||||||
Bank indebtedness, beginning of year | (920 | ) | (747 | ) | ||||
(Bank indebtedness) cash, end of year | $ | (747 | ) | $ | 65 | |||
F-61
Table of Contents
(tabular amounts in thousands of Canadian dollars)
The Company was incorporated under Part 1A of the Québec Companies Act and provides telecommunication services in the business sector. | ||
1. | Accounting changes: |
(a) | Long-lived assets: | ||
Effective January 1, 2004, the Company adopted the Canadian Institute of Chartered Accountants (“CICA “) Handbook Section 3063, “Impairment of Long-Lived Assets”. Long-lived assets, including fixed assets and intangible assets with finite useful lives, are amortized over their useful lives. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a group of assets may not be recoverable. If the sum of undiscounted net cash flows expected to result from the use and eventual disposition of a group of assets is less than its carrying amount, it is considered to be impaired. An impairment loss is measured as the amount by which the carrying amount of the group of assets exceeds its fair value. During the two-year period ended December 31, 2005, no such impairment had occurred. | |||
(b) | Asset retirement obligation: | ||
Effective January 1, 2004, the Company retroactively adopted CICA Handbook Section 3110 “Asset Retirement Obligation”. The standard provides guidance for the recognition, measurement and disclosure of liabilities for asset retirement obligations and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of a tangible long-lived asset that result from their acquisition, construction, development or normal operations. | |||
The standard requires the Company to record the fair value of a liability for an asset retirement obligation in the year in which it is incurred and when a reasonable estimate of fair value can be made. The asset retirement cost is capitalized as part of the related asset and is amortized to earnings over time. The standard describes the fair value of a liability for an asset retirement obligation as the amount at which that liability could be settled in a current transaction between willing parties, that is, other than in forced or liquidation transaction and is adjusted for any changes resulting from passage of time and any changes to the timing or the amount of the original estimate or undiscounted cash flows. The Company is subsequently required to allocate the asset retirement cost to expense using a systematic and rational method over the asset useful life. | |||
The adoption of this standard had no impact on the Company’s financial position, results of operations or cash flows. |
F-62
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
2. | Significant accounting policies: |
(a) | Cash and cash equivalents: | ||
Cash and cash equivalents are comprised of cash and term deposits with initial maturities of less than three months, less outstanding cheques. | |||
(b) | Inventories: | ||
Inventories consist primarily of fiber optic cables and related electronics equipment and are valued at the lower of cost, determined essentially on a weighted average cost basis, or replacement value. | |||
(c) | Fixed assets: | ||
Fixed assets are recorded at cost, net of related grants and investment tax credits. Cost includes primarily equipment and direct labour, but also includes financial expenses relating to projects to construct and connect external and internal telecommunication networks for those projects that extend beyond a three-month period. Acquisition, improvement and replacement costs are capitalized, whereas expenses for maintenance and repairs are charged to operating and administrative expenses. | |||
The Company reviews the recoverability of fixed assets whenever events or circumstances indicate that the carrying amount may not be recoverable. Recoverability and measurement of the decline in value are estimated by comparing the carrying amounts of an asset or of a group of assets to undiscounted net cash flows expected to be generated by asset or that group of assets and measurement of impairment represents the difference between carrying and fair value of the asset or group of assets. | |||
Depreciation is calculated using the following depreciation methods and periods or rates: |
Asset | Method | Rate/period | ||||||
Telecommunication networks | Straight-line | 20years | ||||||
Technical equipment | Mainly straight-line | 3 to 20 years | ||||||
Furniture and equipment | Declining balance | 20% to 30% | ||||||
and straight-line | 3 to 7 years | |||||||
Buildings | Declining balance | 5% | ||||||
Leasehold improvements | Straight-line | Over the | ||||||
lease term |
F-63
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
2. | Significant accounting policies (continued): |
(c) | Fixed assets (continued): | ||
The Company does not record an asset retirement obligation in connection with its cable distribution networks. The Company expects to renew all of its agreements with utility companies to access their support structures in the future, making the retirement date, relating to these assets, undeterminable. | |||
(d) | Intangible assets: | ||
Easements have indefinite useful lives and are not amortized. | |||
Intangible assets that have an indefinite useful life are 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 with its fair value and an impairment loss is recognized in the statement of operations, if any. | |||
(e) | Other assets: | ||
Deferred charges are recorded at cost and include primarily expenses relating to the pre-operating period of certain telecommunication operations. These charges are amortized on a straight-line basis over a period of three to five years. Licenses are amortized using the straight-line method over a period of eight years. | |||
(f) | Future taxes: | ||
Future income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Future income tax assets and liabilities are measured using enacted or substantively enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Future income tax assets and liabilities resulting from a change in tax rates are recognized in income in the period that includes the enactment date. Future income tax assets are recognized and, if realization is not considered “more likely than not”, a valuation allowance is provided. | |||
(g) | Revenue recognition and deferred revenue: | ||
Operating revenue related to service contracts is recognized in income over the life of the specific contracts on a straight-line basis representing the period over which the services are provided. Operating revenue from telecommunication services, network access fees and point-to-point telephony is recorded when services are provided. When customers are invoiced, the portion of unearned revenue is recorded as deferred revenue. |
F-64
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
2. | Significant accounting policies (continued): |
(h) | Currency translation: | ||
Revenue and expense items arising from transactions in foreign currency are converted into Canadian dollars at the rate in effect on the transaction date. Monetary assets and liabilities are converted into Canadian dollars at the rates in effect at the balance sheet date, non-monetary items are translated at the rates in effect on the transaction date. Exchange gains or losses are recognized in income. | |||
(i) | Pensions: | ||
Certain employees of the Company participate in a multi-employer defined benefits pension plan sponsored by affiliated companies. This plan provides for the payment of benefits based on the number of years of service and career average earnings of the employees covered by the plans. Accordingly, pension costs are recorded as if the plan is a defined contribution plan. | |||
Also, other employees of the Company participate in defined contribution pension plans sponsored by affiliated companies. The Company also contributes to its unionized and administrative employees personal registered retirement savings plans. The Company accounts for the cost of its share of the defined contribution pension plans and to the retirement savings plan on the accrual basis of accounting. | |||
(j) | Use of estimates: | ||
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
F-65
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
3. | Corporate reorganization: | |
On March 1, 2004, the Company has acquired from its parent company all the outstanding shares of Mensys Business Solutions Centre Inc. (“Mensys”), at an agreed value of $686,000. On December 19, 2003, Mensys sold its entire business to a third party and, since then, Mensys is an inoperative company. As consideration, the Company issued one Class C share, with a stated capital of $686,000. The Company wound up Mensys on the same date. As this transaction is between companies under common control, the net assets acquired were recorded by the Company at the carrying amount in the books of Mensys. The impact of the acquisition and wind-up is summarized as follows: |
Net liabilities acquired: | ||||
Future tax assets | $ | 686 | ||
Taxes receivable | 47 | |||
Assumption of amounts payable to affiliated companies | (2,630 | ) | ||
Net liabilities assumed | $ | (1,897 | ) | |
Consideration: | ||||
Issuance of 1 Class C retractable preferred share | $ | 686 | ||
Deficit assumed upon acquisition and wind-up of Mensys | (2,583 | ) | ||
$ | (1,897 | ) | ||
4. | Operating and administrative expenses: |
(a) | Pension plans: | ||
Pension plan costs recorded for the pension plans and the retirement savings plan amounted to $810,000 for the year ended December 31, 2004 and to $1,320,000 for the year ended December 31, 2005 and were charged to operating and administrative expenses. |
F-66
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
4. | Operating and administrative expenses (continued): |
(b) | Operating and administrative expenses: | ||
During 2004, the Company has put in place a restructuring plan of its activities in Ontario which has resulted in the abandonment of an operating lease, for which the fair value of the remaining lease payments, net of the expected lease rental revenue from the cease-use date to the end of the lease, amounting to $652,000, has been recorded in the operating expenses. |
5. | Depreciation and amortization: |
2004 | 2005 | |||||||
Fixed assets | $ | 32,706 | $ | 33,824 | ||||
Deferred charges | 872 | 275 | ||||||
Licenses | 69 | 352 | ||||||
$ | 33,647 | $ | 34,451 | |||||
6. | Financial expenses (income): |
2004 | 2005 | |||||||
Interest on advances to an affiliated company | $ | (152 | ) | $ | – | |||
Other interest expenses | 211 | 17 | ||||||
Foreign exchange loss (gain) | 51 | (46 | ) | |||||
$ | 110 | $ | (29 | ) | ||||
7. | Other items: |
2004 | 2005 | |||||||
Network outages recovery | $ | (479 | ) | $ | – | |||
Severance pay and other charges (i) | 2,005 | – | ||||||
$ | 1,526 | $ | – | |||||
F-67
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
7. | Other items (continued): |
(i) | In September 2004, the Company settled outstanding claims with former management employees, for a total amount of $3.5 million, of which $1.5 million was already recorded in the books. |
8. | Income taxes: | |
The following schedule reconciles income taxes computed on the loss before income taxes using the combined basic income tax rate and the effective income tax rate: |
2004 | 2005 | |||||||
Income taxes based on the combined: | ||||||||
Federal and provincial basic income tax rate of 31.02% (2004 — 31.02%) | $ | (4,041 | ) | $ | (952 | ) | ||
Change due to the following items: | ||||||||
Non-deductible charges | 12 | 11 | ||||||
Federal large corporation tax | 405 | 368 | ||||||
Change in effective tax rate | – | (2,191 | ) | |||||
Other | 117 | (138 | ) | |||||
Effective income tax | $ | (3,507 | ) | $ | (2,902 | ) | ||
2004 | 2005 | |||||||
Future tax assets: | ||||||||
Operating loss carryforwards | $ | 30,129 | $ | 27,299 | ||||
Fixed assets and other assets | 13,241 | 18,608 | ||||||
Provisions | 353 | 1,066 | ||||||
Net future tax assets | 43,723 | 46,973 | ||||||
Less current future tax asset | (353 | ) | (12,636 | ) | ||||
Net long-term future tax asset | $ | 43,370 | $ | 34,337 | ||||
F-68
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
8. | Income taxes (continued): | |
As at December 31, 2005, the Company had net operating loss carryforwards for income tax purposes available to reduce future federal and provincial taxable income of approximately $91,723,000 and $69,962,000 as follows: |
Federal | Provincial | |||||||
2006 | $ | 4,705 | $ | 4,331 | ||||
2007 | 17,588 | 17,588 | ||||||
2008 | 6,419 | 2,910 | ||||||
2009 | 195 | 98 | ||||||
2010 | 34,978 | 24,567 | ||||||
2014 | 27,838 | 20,468 | ||||||
$ | 91,723 | $ | 69,962 | |||||
9. | Accounts receivable: |
2004 | 2005 | |||||||
Trade: | ||||||||
Third parties | $ | 7,725 | $ | 6,267 | ||||
Companies under common control | 7,562 | 21,213 | ||||||
$ | 15,287 | $ | 27,480 | |||||
10. | Fixed assets: |
2004 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | depreciation | value | ||||||||||
Telecommunication networks | $ | 140,957 | $ | 44,937 | $ | 96,020 | ||||||
Technical equipment | 178,885 | 108,290 | 70,595 | |||||||||
Furniture and equipment | 80,131 | 55,381 | 24,750 | |||||||||
Buildings | 15,423 | 4,407 | 11,016 | |||||||||
Leasehold improvements | 4,902 | 2,734 | 2,168 | |||||||||
Land | 1,150 | – | 1,150 | |||||||||
$ | 421,448 | $ | 215,749 | $ | 205,699 | |||||||
F-69
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
10. | Fixed assets (continued): |
2005 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | depreciation | value | ||||||||||
Telecommunication networks | $ | 144,237 | $ | 52,055 | $ | 92,182 | ||||||
Technical equipment | 198,148 | 126,458 | 71,690 | |||||||||
Furniture and equipment | 83,261 | 63,082 | 20,179 | |||||||||
Buildings | 15,484 | 4,958 | 10,526 | |||||||||
Leasehold improvements | 4,985 | 2,985 | 2,000 | |||||||||
Land | 1,150 | – | 1,150 | |||||||||
$ | 447,265 | $ | 249,538 | $ | 197,727 | |||||||
Included in technical equipment is equipment under capital lease having a cost of $1,040,000 and accumulated depreciation of $876,000 and $1,025,000 as at December 31, 2004 and 2005, respectively. | ||
11. | Other assets: |
2004 | 2005 | |||||||
Deferred charges (including $14,557 of accumulated depreciation) (2004 - $14,281) | $ | 316 | $ | 98 | ||||
Licenses (including $543 of accumulated depreciation) (2004 - $190) | 353 | – | ||||||
Easements at cost (with indefinite life) | 994 | 994 | ||||||
$ | 1,663 | $ | 1,092 | |||||
12. | Accounts payable to affiliated companies: |
2004 | 2005 | |||||||
Companies under common control | $ | 6 | $ | 33 | ||||
Parent company | 3,153 | – | ||||||
Ultimate parent company | 833 | 2,573 | ||||||
$ | 3,992 | $ | 2,606 | |||||
F-70
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
13. | Share capital: | |
Authorized: |
2004 | 2005 | |||||||
Issued and paid: | ||||||||
2,515,576 Class A shares (2,515,276 in 2004) | $ | 160,357 | $ | 160,357 | ||||
2 Class C shares (2 in 2004) | 2,229 | 2,229 | ||||||
162,586 | 162,586 | |||||||
Less retractable preferred shares classified as liabilities: | ||||||||
2 Class C shares (2 in 2004) | (2,229 | ) | (2,229 | ) | ||||
$ | 160,357 | $ | 160,357 | |||||
14. | Additional cash flow information: |
2004 | 2005 | |||||||
(a) Net change in non-cash operating items: | ||||||||
Accounts receivable | $ | (1,415 | ) | $ | (12,252 | ) | ||
Inventories | 1,396 | 1,253 | ||||||
Prepaid expenses | (493 | ) | 650 | |||||
Accounts payable and accrued liabilities | (1,221 | ) | 9,988 | |||||
Amounts payable to affiliated companies | 1,945 | (1,386 | ) | |||||
Deferred revenue | (390 | ) | (429 | ) | ||||
$ | (178 | ) | $ | (2,176 | ) | |||
(b) Other items: | ||||||||
Income taxes paid | $ | 510 | $ | 411 | ||||
Interest paid | 226 | 24 | ||||||
Interest received | (119 | ) | (4 | ) | ||||
(c) Purchase of fixed assets financed by accounts payable | 3,905 | 1,767 | ||||||
F-71
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
15. | Commitments: | |
Under the terms of various operating leases, the Company is committed to make the following minimum annual rental payments: |
2006 | $ | 5,739 | ||
2007 | 3,679 | |||
2008 | 1,775 | |||
2009 | 1,569 | |||
2010 | 1,193 | |||
2011 and subsequent years | 6,448 |
The Company has guaranteed a portion of the residual values of certain assets under operating leases for the benefit of the lessor. If the fair value of the assets, at the end of their respective lease terms is less than the residual value guaranteed, then the Company must, under certain conditions, compensate the lessor for a portion of the shortfall. The maximum exposure in respect of these guarantees is $60,000 ($79,000 in 2004). | ||
16. | Financial instruments: |
(a) | Fair value: | ||
The carrying value of accounts receivable, amounts receivable from parent company, bank indebtedness, accounts payable and accrued expenses and amounts payable to affiliated companies and to parent company approximates their fair value, as these items are short-term in nature. | |||
(b) | Credit risks: | ||
In the normal course of business, the Company assesses regularly the financial position of its clients and reviews the credit history of all new clients. The Company records an allowance for doubtful accounts to cover its exposure to specific customers’ credit risks and historical trends. |
F-72
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
17. | Related party transactions: | |
In addition to transactions disclosed elsewhere in the financial statements, the Company has entered into the following related party transactions, in the normal course of business. These transactions have been recorded at the exchange value, which is the amount established and agreed to by the related parties: |
2004 | 2005 | |||||||
Ultimate parent company: | ||||||||
Operating revenue | $ | 70 | $ | 104 | ||||
Operating and administrative expenses | 1,101 | 1,900 | ||||||
Parent company: | ||||||||
Interest revenues | 152 | 150 | ||||||
Companies under common control: | ||||||||
Operating revenue | 27,479 | 50,059 | ||||||
Operating and administrative expenses | 5,019 | 5,875 | ||||||
Acquisition of fixed assets | 3,268 | 1,035 | ||||||
Directors of parent company: | ||||||||
Operating and administrative expenses | 255 | 146 | ||||||
18. | Contingencies: | |
In the normal course of business, the Company is involved in various claims and litigations. The Company is also being sued by former management employees for wrongful dismissal and other reasons following the reorganization plan established in February 2001. Even if the outcome of these various pending cases as at December 31, 2005 cannot be determined with certainty, the Company believes that they will not have a material adverse impact on its financial position or operating results. |
F-73
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
19. | Significant differences between Canadian generally accepted accounting principles (GAAP) and the United States: | |
The financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”) which are different in some respects from those in the United States (“US”), as described below. The following tables set forth the impact of significant differences between Canadian GAAP and US GAAP on the Company’s financial statements: | ||
Consolidated Statements of Operations |
2004 | 2005 | |||||||
Net loss for the year based on Canadian GAAP | $ | (9,522 | ) | $ | (167 | ) | ||
Adjustments: | ||||||||
Reversal of amortization expense on development and pre-operating costs (ii) | 489 | 241 | ||||||
Income taxes (iii) | (192 | ) | (74 | ) | ||||
Net loss and comprehensive loss for the year based on US GAAP | $ | (9,225 | ) | $ | – | |||
2004 | 2005 | |||||||
Shareholder’s equity based on Canadian GAAP | $ | 244,032 | $ | 243,865 | ||||
Cumulative adjustments: | ||||||||
Push-down basis of accounting (i) | 270,627 | 270,627 | ||||||
Goodwill impairment (i) | (270,627 | ) | (270,627 | ) | ||||
Development and pre-operating costs (ii) | (241 | ) | – | |||||
Income taxes (iii) | 74 | – | ||||||
Shareholder’s equity based on US GAAP | $ | 243,865 | $ | 243,865 | ||||
F-74
Table of Contents
Notes to Financial Statements, Continued
(tabular amounts in thousands of Canadian dollars)
19. | Significant differences between Canadian generally accepted accounting principles (GAAP) and the United States (continued): |
(i) | Push-down basis of accounting: | ||
The reconciliation of net loss and shareholder’s equity from Canadian GAAP to US GAAP reflects the push-down of the purchase price in connection with the acquisition on October 23, 2000, by Quebecor Media Inc., the ultimate parent company of Vidéotron Télécom Ltée. Under Canadian GAAP, each entity has retained the historical carrying value basis of its assets and liabilities. The excess of the purchase price over the fair value assigned to the net assets of the Company at the date of acquisition has been allocated to goodwill and has been amortized, up to December 31, 2001, on the straight-line basis over 40 years. | |||
The main adjustment, taking into account the final allocation of the purchase price finalized in the fourth quarter of 2001, to the historical consolidated financial statements of the Company to reflect Parent’s cost basis, consisted in the recording of goodwill in the amount of $270.6 million with a corresponding amount in the contributed surplus. This goodwill has been completely written off following the implementation of the CICA Handbook Section 3062 and the US equivalent standard. | |||
(ii) | Development and pre-operating costs: | ||
Under Canadian GAAP, certain development and pre-operating costs, which satisfy specified criteria for recoverability, are deferred and amortized. Under US GAAP, these costs are expensed as incurred. | |||
(iii) | Income taxes: | ||
This adjustment represents the tax impact of the US GAAP adjustments. |
20. | Subsequent event: | |
On January 1, 2006, the Company merged its operations with a sister company, Vidéotron ltée. |
F-75