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SECURITIES AND EXCHANGE COMMISSION
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Jurisdiction of incorporation or organization)
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)
Large accelerated filero | Accelerated filero | Non-accelerated filerþ | Smaller reporting companyo | |||
(Do not check if smaller reporting Company) |
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F-1 | ||||||||
Calculation of Ratio of Earnings to Fixed Charges | ||||||||
Subsidiaries of Videotron Ltd. | ||||||||
Certification of Robert Depatie (S.302) | ||||||||
Certification of Yvan Gingras (S.302) | ||||||||
Certification of Robert Depatie (S.906) | ||||||||
Certification of Yvan Gingras (S.906) |
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• | although amortization is a non-cash charge, the assets being amortized will often have to be replaced in the future, and operating income does not reflect cash requirements for such capital expenditures; | ||
• | it does not reflect income tax expense or the cash necessary to pay income taxes; and | ||
• | it does not reflect financial expenses or the cash necessary to pay financial expenses. |
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Year Ended: | Average(1) | High | Low | Period End | ||||||||||||
December 31, 2007 | 0.9309 | 1.0908 | 0.8437 | 1.0120 | ||||||||||||
December 31, 2006 | 0.8818 | 0.9100 | 0.8528 | 0.8582 | ||||||||||||
December 31, 2005 | 0.8254 | 0.8690 | 0.7872 | 0.8579 | ||||||||||||
December 31, 2004 | 0.7682 | 0.8493 | 0.7158 | 0.8309 | ||||||||||||
December 31, 2003 | 0.7139 | 0.7738 | 0.6349 | 0.7738 |
Month Ended: | Average(2) | High | Low | Period End | ||||||||||||
March 2008 (through March 14, 2008) | 1.0100 | 1.0162 | 1.0025 | 1.0135 | ||||||||||||
February 29, 2008 | 1.0014 | 1.0291 | 0.9815 | 1.0061 | ||||||||||||
January 31, 2008 | 0.9902 | 1.0096 | 0.9714 | 0.9982 | ||||||||||||
December 31, 2007 | 0.9979 | 1.0221 | 0.9788 | 1.0120 | ||||||||||||
November 30, 2007 | 1.0351 | 1.0908 | 0.9993 | 0.9993 | ||||||||||||
October 31, 2007 | 1.0255 | 1.0531 | 0.9998 | 1.0531 | ||||||||||||
September 30, 2007 | 0.9754 | 1.0041 | 0.9482 | 1.0041 |
(1) | The average of the exchange rates for all days during the applicable year. | |
(2) | The average of the exchange rates for all days during the applicable month. |
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• | general economic, financial or market conditions; | ||
• | the intensity of competitive activity in the industries in which we operate, including competition from alternative means of programs and content transmission; | ||
• | unanticipated higher capital spending required to address continued development of competitive alternative technologies or the inability to obtain additional capital to continue the development of our business; | ||
• | our ability to implement successfully our business and operating strategies and manage our growth and expansion; | ||
• | the outcome of Canada’s upcoming wireless spectrum auction and our ability to successfully pursue a strategy of becoming a facilities-based wireless provider; | ||
• | our ability to continue to distribute a wide range of television programming and to attract large audiences; | ||
• | variations in the cost, quality and variety of our television programming; | ||
• | disruptions to the network through which we provide our digital television, Internet access and telephony services, and our ability to protect such services from piracy; | ||
• | labour disputes or strikes; | ||
• | 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. |
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Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
AMOUNTS UNDER CANADIAN GAAP | ||||||||||||||||||||
Consolidated Statement of Income Data: | ||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||
Cable television | $ | 558,887 | $ | 576,825 | $ | 618,346 | $ | 677,273 | $ | 735,832 | ||||||||||
Internet | 183,268 | 222,458 | 270,791 | 345,075 | 422,448 | |||||||||||||||
Telephony | — | — | 21,088 | 108,565 | 213,194 | |||||||||||||||
Business solutions | 58,365 | 66,117 | 78,409 | 74,352 | 70,189 | |||||||||||||||
Video stores | 38,450 | 48,058 | 55,146 | 55,585 | 59,956 | |||||||||||||||
Other | 23,795 | 24,274 | 36,626 | 48,745 | 50,987 | |||||||||||||||
Total operating revenues | 862,765 | 937,732 | 1,080,406 | 1,309,595 | 1,552,606 | |||||||||||||||
Direct cost and operating expenses | 570,482 | 573,943 | 666,793 | 796,887 | 909,923 | |||||||||||||||
Amortization | 159,012 | 163,862 | 166,292 | 185,115 | 206,083 | |||||||||||||||
Financial expenses(2)(3)(4) | 91,540 | 92,861 | 74,737 | 79,586 | 67,052 | |||||||||||||||
Impairment of goodwill | — | — | — | — | 5,425 | |||||||||||||||
Other items | 1,113 | 1,930 | — | — | — | |||||||||||||||
Income taxes (recovery) expense | (5,777 | ) | (6,661 | ) | 69,791 | 64,230 | 38,258 | |||||||||||||
Non-controlling interest in a subsidiary | 49 | 100 | 102 | 86 | 173 | |||||||||||||||
Net income | $ | 46,346 | $ | 111,697 | $ | 102,691 | $ | 183,691 | $ | 325,692 | ||||||||||
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Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data (at period end): | ||||||||||||||||||||
Cash and cash equivalents | $ | 29,724 | $ | 32,411 | $ | 26,699 | — | — | ||||||||||||
Total assets | 1,838,539 | 1,895,433 | 1,977,610 | $ | 1,988,032 | $ | 4,132,198 | |||||||||||||
Long-term debt, excluding QMI subordinated loans(5)(6)(7)(8) | 961,175 | 990,008 | 971,697 | 1,021,170 | 950,988 | |||||||||||||||
QMI subordinated loans(6)(7)(8) | 150,000 | 150,000 | 150,000 | — | 1,995,000 | |||||||||||||||
Share Capital(5) | 572,448 | 388,593 | 342,940 | 345,727 | 46,177 | |||||||||||||||
Shareholder’s equity(5) | 297,078 | 229,302 | 76,363 | $ | 249,581 | 259,110 | ||||||||||||||
Cash dividends declared and reductions of paid-up capital | $ | 19,956 | $ | 205,233 | $ | 255,653 | $ | 118,749 | $ | 299,550 |
Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
(dollars in thousands, except ARPU and ratio) | ||||||||||||||||||||
Other Financial Data | ||||||||||||||||||||
Operating income (unaudited)(9) | $ | 292,283 | $ | 363,789 | $ | 413,613 | $ | 512,708 | $ | 642,683 | ||||||||||
Operating income margin (unaudited)(9) | 33.9 | % | 38.8 | % | 38.3 | % | 39.2 | % | 41.4 | % | ||||||||||
Cash flows from operating activities | 221,484 | 329,433 | 387,205 | 440,619 | 552,923 | |||||||||||||||
Cash flows used in investing activities | (291,903 | ) | (111,093 | ) | (274,977 | ) | (265,101 | ) | (2,338,164 | ) | ||||||||||
Cash flows from (used in) financing activities | 52,745 | (215,652 | ) | (117,940 | ) | (202,217 | ) | 1,785,241 | ||||||||||||
Capital expenditures(10) | $ | 108,117 | $ | 144,453 | $ | 219,865 | $ | 302,629 | $ | 330,075 | ||||||||||
Operating Data (unaudited): | ||||||||||||||||||||
Homes passed(11) | 2,351,344 | 2,383,443 | 2,419,335 | 2,457,213 | 2,497,403 | |||||||||||||||
Basic cable customers(12)(13) | 1,424,144 | 1,452,554 | 1,506,113 | 1,572,411 | 1,638,097 | |||||||||||||||
Basic cable penetration(13)(14) | 60.6 | % | 60.9 | % | 62.3 | % | 64.0 | % | 65.6 | % | ||||||||||
Digital customers | 240,863 | 333,664 | 474,629 | 623,646 | 768,211 | |||||||||||||||
Digital penetration(15) | 16.9 | % | 23.0 | % | 31.5 | % | 39.7 | % | 46.9 | % | ||||||||||
Cable Internet customers | 406,277 | 502,630 | 637,971 | 791,966 | 932,989 | |||||||||||||||
Cable Internet penetration(14) | 17.3 | % | 21.1 | % | 26.4 | % | 32.2 | % | 37.4 | % | ||||||||||
Cable telephony customers | — | 2,135 | 162,979 | 397,830 | 636,666 | |||||||||||||||
Cable telephony penetration(14) | — | 0.1 | % | 6.7 | % | 16.2 | % | 25.5 | % | |||||||||||
ARPU(13)(16) | $ | 43.68 | $ | 46.50 | $ | 51.86 | $ | 61.43 | $ | 71.52 | ||||||||||
Ratio of earnings to fixed charges(17) | 1.4 | x | 2.6 | x | 3.8 | x | 3.9 | x | 5.8 | x |
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Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated) (1) | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||
AMOUNTS UNDER U.S. GAAP | ||||||||||||||||||||
Consolidated Statement of Income Data: | ||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||
Cable television | $ | 558,887 | $ | 584,187 | $ | 621,493 | $ | 677,970 | $ | 736,179 | ||||||||||
Internet | 183,268 | 224,450 | 272,926 | 345,112 | 422,585 | |||||||||||||||
Telephony | — | — | 21,983 | 110,501 | 213,304 | |||||||||||||||
Business solutions | 58,365 | 66,117 | 78,409 | 74,352 | 70,189 | |||||||||||||||
Video stores | 38,450 | 48,058 | 55,146 | 55,585 | 59,956 | |||||||||||||||
Other | 23,795 | 24,274 | 36,626 | 48,745 | 50,987 | |||||||||||||||
Total operating revenues | 862,765 | 947,086 | 1,086,583 | 1,312,265 | 1,553,200 | |||||||||||||||
Direct cost and operating expenses | 567,502 | 584,876 | 674,798 | 803,235 | 912,811 | |||||||||||||||
Amortization | 168,564 | 175,743 | 177,415 | 196,335 | 216,711 | |||||||||||||||
Financial expenses(2)(3)(4) | 90,516 | 85,172 | 75,157 | 87,771 | 62,046 | |||||||||||||||
Impairment of goodwill | — | — | — | — | 5,425 | |||||||||||||||
Other items | 3,613 | 1,930 | — | — | — | |||||||||||||||
Income taxes (recovery) expenses | (8,365 | ) | (1,208 | ) | 60,408 | 56,073 | 32,317 | |||||||||||||
Non-controlling interest in a subsidiary | 49 | 100 | 102 | 86 | 173 | |||||||||||||||
Net income | $ | 40,886 | $ | 100,473 | $ | 98,703 | $ | 168,765 | $ | 323,717 | ||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
Balance Sheet Data (at period end): | ||||||||||||||||||||
Cash and cash equivalents | $ | 29,724 | $ | 32,411 | $ | 26,699 | $ | — | $ | — | ||||||||||
Total assets | 4,212,386 | 4,162,179 | 4,225,866 | 4,222,810 | 6,351,118 | |||||||||||||||
Long-term debt, excluding QMI subordinated loans(5)(6)(7)(8) | 963,669 | 991,280 | 958,443 | 1,007,557 | 946,236 | |||||||||||||||
QMI subordinated loans(6)(7)(8) | 150,000 | 150,000 | 150,000 | — | 1,995,000 | |||||||||||||||
Share Capital(5) | 572,448 | 388,593 | 342,940 | 345,727 | 46,177 | |||||||||||||||
Shareholder’s equity(5) | 2,597,996 | 2,437,970 | 2,273,593 | 2,429,137 | 2,475,853 | |||||||||||||||
Cash dividends declared and reductions of paid-up capital | $ | 19,956 | $ | 205,233 | $ | 255,653 | $ | 118,749 | $ | 299,550 |
Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
(dollars in thousands, except ratio) | ||||||||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Operating income (unaudited)(9) | $ | 295,263 | $ | 362,210 | $ | 411,785 | $ | 509,030 | $ | 640,389 | ||||||||||
Operating income margin (unaudited)(9) | 34.2 | % | 38.2 | % | 37.9 | % | 38.8 | % | 41.2 | % | ||||||||||
Cash flows from operating activities | 221,284 | 327,854 | 385,377 | 437,841 | 552,529 | |||||||||||||||
Cash flows used in investing activities | (291,703 | ) | (109,514 | ) | (273,149 | ) | (262,323 | ) | (2,337,770 | ) | ||||||||||
Cash flows from (used in) financing activities | 52,745 | (215,652 | ) | (117,940 | ) | (202,217 | ) | 1,785,241 | ||||||||||||
Capital expenditures(10) | 108,117 | 144,453 | 219,865 | 302,629 | 330,075 | |||||||||||||||
Ratio of earnings to fixed charges(17) | 1.3 | x | 2.7 | x | 3.6 | x | 3.4 | x | 6.0 | x |
(1) | On January 1, 2006, a company under common control, Videotron Telecom Ltd., merged with the Company. On July 1, 2006, the Company also merged with its parent, 9101-0827 Québec inc. Those transactions have been accounted for using the continuity of interest method, and the results of operations and financial position of Videotron Telecom Ltd. and 9101-0827 Québec inc. have been included in these consolidated financial statements as if the three companies had always been combined. Comparative figures have been restated from statements previously presented. In respect of U.S. GAAP financial data, see also Note 20 “Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States” to our consolidated financial statements included under Item 17 of this annual report. | |
(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 |
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and Financial Review and Prospects — Liquidity and Capital Resources — Purchase of Shares of Quebecor Media and Service of Subsidiary Subordinated Loan”. | ||
(3) | On January 3 2007 and May 31, 2007, we entered into back-to-back transactions with Quebecor Media and 9101-0835 Québec Inc., a subsidiary of Quebecor Média Inc. With respect to these back-to-back transactions, we recorded an interest expense of $157.7 million in the year ended December 31, 2007, but we recorded $162.9 million in dividends from Quebecor Media in that same year. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Purchase of Shares of Quebecor Media and Service of Subsidiary Subordinated Loan”. | |
(4) | On May 31 2007, CF Cable TV inc., a wholly-owned subsidiary of Videotron, entered into a back-to-back transaction with Quebecor Media and 9101-0835 Québec Inc. With respect to this back-to-back transaction, we recorded an interest expense of $7.7 million to Quebecor Media in the year ended December 31, 2007, but we recorded $8.0 million in dividends in that same year. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Purchase of Shares of Quebecor Media and Service of Subsidiary Subordinated Loan”. | |
(5) | Long-term debt, excluding QMI subordinated loans, does not include the retractable preferred shares held by Quebecor Media. The retraction price of the retractable preferred shares was $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 in 2004. 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, December 31, 2006 or December 31, 2007. | |
(6) | For the years ended December 31 2003, 2004 and 2005, 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 by our subsidiary Vidéotron (1998) ltée, which is a guarantor of our Senior 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 Senior 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. | |
(7) | For the year ended December 31 2007, the term “QMI subordinated loans” refers to the $1.0 billion and $870.0 million subordinated loans due 2022 we entered into in 2007 in favor of Quebecor Media and the $125 million subordinated loan due 2022 our subsidiary CF Cable TV Inc., entered into in 2007 in favor of Quebecor Media. Interest on the subordinated loan throughout its term is payable in cash at our option. 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”. | |
(8) | We believe that long-term debt, excluding QMI subordinated loans, is, from the perspective of a holder of our issued and outstanding Senior Notes, a meaningful measure of our long-term debt because the QMI subordinated loans are subordinated in right of payment to the prior payment in full of our senior indebtedness, including our Senior Notes; all payments on the QMI subordinated loans are “restricted payments” under the terms of respective indentures governing our Senior Notes, and are restricted in the same manner as dividends on our common shares; and the proceeds of our QMI subordinated loans were invested in retractable preferred shares of Quebecor Media as part of back-to-back transactions to reduce our income tax obligations. Consequently, we disclose long-term debt, excluding QMI subordinated loans, as a supplemental measure of our indebtedness in this annual report. Long-term debt, excluding QMI subordinated loans, is not intended to be, and should not 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 Canadian GAAP or U.S. GAAP. Long-term debt, excluding QMI subordinated loans, is calculated from and reconciled to long-term debt as follows: |
At December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
(unaudited; dollars in millions) | ||||||||||||||||||||
AMOUNTS UNDER CANADIAN GAAP | ||||||||||||||||||||
Long-term debt | $ | 1,111.2 | $ | 1,140.0 | $ | 1,121.7 | $ | 1,021.2 | $ | 2,946.0 | ||||||||||
QMI subordinated loans | (150.0 | ) | (150.0 | ) | (150.0 | ) | — | (1,995.0 | ) | |||||||||||
Long-term debt, excluding QMI subordinated loans, as defined | $ | 961.2 | $ | 990.0 | $ | 971.7 | $ | 1,021.2 | $ | 951.0 |
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At December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
(unaudited; dollars in millions) | ||||||||||||||||||||
AMOUNTS UNDER U.S. GAAP | ||||||||||||||||||||
Long-term debt | $ | 1,113.7 | $ | 1141.3 | $ | 1,108.4 | $ | 1,007.6 | $ | 2,941.2 | ||||||||||
QMI subordinated loans | (150.0 | ) | (150.0 | ) | (150.0 | ) | — | (1,995.0 | ) | |||||||||||
Long-term debt, excluding QMI subordinated loans, as defined | $ | 963.7 | $ | 991.3 | $ | 958.4 | $ | 1,007.6 | $ | 946.2 |
(9) | We use the supplemental financial measure operating income to assess our operating results and financial performance. Operating income and ratios based on this measure are not required by or recognized under Canadian GAAP or U.S. GAAP. We define operating income, reconciled to net income under Canadian GAAP, as net income before amortization, financial expenses, impairment of goodwill, other items (consisting of restructuring charges), income taxes and non-controlling interest in a subsidiary. Operating income margin is operating income as a percentage of operating revenues. Operating income, and ratios using this measure, are 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. Operating income is not intended to represent funds available for debt service, reinvestment, distributions of dividends, or other discretionary uses, and should not be considered in isolation from, or as a substitute for, our financial information reported under Canadian GAAP and U.S. GAAP. We use operating income because we believe that it is a meaningful measure of performance since operating income excludes, among other things, certain non-cash items and items that are not readily comparable from year to year. Operating income is also commonly used in the sector in which we operate, as well as by the investment community to analyze and compare companies. You should note our definition of operating income may not be identical to similarly titled measures reported by other companies, limiting its usefulness as a comparative measure. Our operating income is calculated from and reconciled to net income (loss) as follows: |
Year Ended December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
(restated)(1) | (restated)(1) | (restated)(1) | ||||||||||||||||||
(dollars in millions) | ||||||||||||||||||||
AMOUNTS UNDER CANADIAN GAAP | ||||||||||||||||||||
Net income | $ | 46.3 | $ | 111.7 | $ | 102.7 | $ | 183.7 | $ | 325.7 | ||||||||||
Amortization | 159.0 | 163.9 | 166.3 | 185.1 | 206.1 | |||||||||||||||
Financial expenses | 91.5 | 92.9 | 74.7 | 79.6 | 67.1 | |||||||||||||||
Impairment of goodwill | — | — | — | — | 5.4 | |||||||||||||||
Other items | 1.1 | 1.9 | — | — | — | |||||||||||||||
Income taxes (recovery) expense | (5.8 | ) | (6.7 | ) | 69.8 | 64.2 | 38.3 | |||||||||||||
Non-controlling interest in a subsidiary | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | |||||||||||||||
Operating income as defined | $ | 292.3 | $ | 363.8 | $ | 413.6 | $ | 512.7 | $ | 642.8 | ||||||||||
AMOUNTS UNDER U.S. GAAP | ||||||||||||||||||||
Net income | $ | 40.9 | $ | 100.5 | $ | 98.7 | $ | 168.8 | $ | 323.7 | ||||||||||
Amortization | 168.6 | 175.7 | 177.4 | 196.3 | 216.7 | |||||||||||||||
Financial expenses | 90.5 | 85.2 | 75.2 | 87.8 | 62.0 | |||||||||||||||
Impairment of goodwill | — | — | — | — | 5.4 | |||||||||||||||
Other items | 3.6 | 1.9 | — | — | — | |||||||||||||||
Income taxes (recovery) expense | (8.4 | ) | (1.2 | ) | 60.4 | 56.1 | 32.3 | |||||||||||||
Non-controlling interest in a subsidiary | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | |||||||||||||||
Operating income as defined | $ | 295.3 | $ | 362.2 | $ | 411.8 | $ | 509.1 | $ | 640.3 | ||||||||||
(10) | Capital expenditures are comprised of acquisition of fixed assets. | |
(11) | “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. | |
(12) | “Basic cable customers” are customers who receive basic cable television service, including analog and digital customers. | |
(13) | The number of basic customers for 2003 was restated in order to permit such numbers to be compared to the numbers of basic customers for the years 2004 through 2007, inclusive. | |
(14) | Represents customers as a percentage of total homes passed. | |
(15) | Represents customers as a percentage of basic customers. | |
(16) | Average monthly revenue per user, or ARPU, is an industry metric that we use to measure our average cable, Internet and telephony revenues per month per basic cable customer. ARPU is not a measurement that is required by or recognized under Canadian GAAP or U.S. GAAP, and our definition and calculation of ARPU may not be the same as similarly titled measurements reported by other companies. |
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We calculate ARPU by dividing our combined cable television, Internet access and telephony revenues by the average number of our basic cable customers during the applicable period, and then dividing that result by the number of months in the applicable period. | ||
(17) | 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. |
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• | increase our vulnerability to general adverse economic and industry conditions; | ||
• | require us to dedicate a substantial portion of our cash flow from operations to making interest and principal payments on our indebtedness, 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, among other things, our ability to borrow additional funds on commercially reasonable terms, if at all. |
• | incur additional debt, including guarantees by our restricted subsidiaries; | ||
• | pay dividends and make other restricted payments; | ||
• | create or permit certain liens; | ||
• | use the proceeds from sales of assets and subsidiary stock; | ||
• | create or permit restrictions on the ability of our restricted subsidiaries, if any, to pay dividends or make other distributions; | ||
• | engage in certain transactions with affiliates; | ||
• | enter into sale and leaseback transactions; and | ||
• | enter into mergers, consolidations and transfers of all or substantially all of our assets. |
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• | a guarantor delivered its guarantee with the intent to defeat, hinder, delay or defraud its existing or future creditors; | ||
• | 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. |
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• | a higher quality and more reliable network; | ||
• | the ability to launch and deploy new products and services rapidly and efficiently; and | ||
• | a lower cost structure through reduced maintenance and technical support costs. |
�� | ||||||||||||||||||||||||
Twelve Months Ended August 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | CAGR(1) | |||||||||||||||||||
(Homes passed and basic cable customers in millions, dollars in billions) | ||||||||||||||||||||||||
Canada | ||||||||||||||||||||||||
Industry Revenue | $ | 4.0 | $ | 4.4 | $ | 4.7 | $ | 4.9 | $ | 6.0 | 10.7 | % | ||||||||||||
Homes Passed(2) | 10.5 | 10.9 | 10.5 | 11.2 | 12.7 | 4.9 | % | |||||||||||||||||
Basic Cable Customers | 7.2 | 7.1 | 6.8 | 6.8 | 7.4 | 0.7 | % | |||||||||||||||||
Basic Penetration | 68.6 | % | 65.1 | % | 64.8 | % | 60.7 | % | 58.3 | % | (4.0 | )% |
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Twelve Months Ended August 31, | ||||||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | CAGR(3) | |||||||||||||||||||
(Homes passed and basic cable customers in millions, dollars in billions) | ||||||||||||||||||||||||
U.S. | ||||||||||||||||||||||||
Industry Revenue | US$ | 51.3 | US$ | 57.6 | US$ | 62.3 | US$ | 68.2 | US$ | 74.7 | 7.8 | % | ||||||||||||
Homes Passed(2) | 102.9 | 108.2 | 110.8 | 111.6 | 123.0 | 3.6 | % | |||||||||||||||||
Basic Cable Customers | 66.0 | 65.4 | 65.4 | 65.6 | 65.1 | (0.3 | )% | |||||||||||||||||
Basic Penetration | 64.1 | % | 60.7 | % | 59.0 | % | 58.8 | % | 52.9 | % | (4.7 | )% |
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 2002 through 2006. | |
(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 2003 through 2007. |
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• | Basic Service.All of our customers receive a package of basic programming, consisting of local broadcast television stations, the four U.S. commercial networks and PBS, selected Canadian specialty programming services, and local and regional community programming. Our basic service customers generally receive 27 channels on basic cable. | ||
• | Extended Basic Service.This expanded programming level of services, which is generally comprised of approximately 18 channels, includes a package of French- and English-language specialty television programming and U.S. cable channels in addition to the basic service channel line-up described above. Branded as “Telemax”, this service was introduced in almost all of our markets largely to satisfy customer demand for greater flexibility and choice. |
• | Cable Internet Access.Leveraging our advanced cable infrastructure, we offer cable Internet access to our residential customers primarily via cable modems attached to personal computers. We provide this service at speeds of up to 360 times the speed of a conventional telephone modem. In February 2008, we also effected a limited launch (to our customers in Laval, Québec only) of our Wideband services, which offer speeds of up to 900 times the speed of a conventional telephone modem. We currently plan to extend the coverage of this offering later in 2008. As of December 31, 2007, we had 932,989 cable Internet access customers, representing 57.0% of our basic customers and 37.4% of our total homes passed. Based on internal estimates, we are the largest provider of Internet access services in the areas we serve with an estimated market share of 52.9% as of December 31, 2007. | ||
• | Digital Television.We have installed headend equipmentcapableof delivering digitally encoded transmissions to a two-way digital-capable set-top box in the customer’s home. This digital connection provides significant advantages. In particular, it increases channel capacity, which allows us to increase both programming and service offerings while providing increased flexibility in packaging our services. Our basic digital package includes 25 television channels, 45 audio services providing CD-quality music, 16 AM/FM radio channels, an interactive programming guide as well as television-based e-mail capability. Our extended digital basic television offering, branded as “à la carte” (i.e., individual channel selections), offers customers the ability to select more than 200 additional channels of their choice, including U.S. super-stations and other special entertainment programs, allowing them to customize their choices. This also offers customers significant programming flexibility including the option of French-language only, English-language only or a combination of French- and English-language programming, as well as many foreign-language channels. We also offer pre-packaged themed service tiers in the areas of news, sports and discovery. Customers who purchase basic service and one customized package can also purchase channels on anà la cartebasis at a specified cost per channel per month. As part of our digital service offering, customers can also purchase near-video-on-demand services on a per-event basis. As of December 31, 2007, we had 768,211 customers for our digital television service, representing 46.9% of our basic customers and 30.8% 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, 2007, we had over |
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• | Cable Telephony. In January 2005, we launched our cable telephony service using VoIP technology in selected areas of the Province of Québec, and since then we have been progressively rolling-out this offering among our other residential and commercial customers in the Province of Québec. As of December 31, 2007, our cable telephony service is available to 96.9% of our homes passed. Our cable telephony service includes both local and long-distance calling, and permits all of our telephony customers, both residential and commercial, to access all service features mandated by CRTC Decision 97-8 and other regulatory decisions and orders, including: enhanced 911 Emergency service; number portability from and to any local exchange carrier; a message relay service allowing subscribers to communicate with the hearing impaired; and a variety of personal privacy features including universal call tracing. We also offer free basic listings in local telephone directories, as well as full operator assistance, including: operator-assisted calls; collect and third-party calls; local, national and international directory assistance; person-to-person calls; and busy-line verification. Finally, we offer as part of our telephony service a host of convenient, optional features, including: name and number caller ID; call waiting with long-distance distinctive ring and audible indicator tone; name and number caller ID on call waiting; visual indicator of a full voice mail box and audible message waiting indicators; automatic call forwarding; three-way conference calling; automatic recalling; and last incoming call identification and recall. VoIP allows us to deliver new cutting-edge features, such as voice-mail to e-mail functionality launched in December 2005, which allows customers to access their voice-mail via e-mail in the form of audio-file attachments. In keeping with our competitive strength of providing differentiated, bundled service offerings, we offer free installation of our telephony service to existing cable television and/or Internet customers and to new bundled customers. We also offer discounts to our bundled customers, when compared to the sum of the prices of the individual services provided to these customers. In addition, we offer discounts for a second telephone line subscription. On October 24, 2007, we launched our Softphone service, our new computer-based service providing users with more flexibility when traveling, the ability to make local calls anywhere in the world, and new communications management capabilities. As of December 31, 2007, we had 636,666 subscribers to our cable telephony service (including 314 Softphone customers), representing a penetration rate of 38.8% of our basic cable subscribers and 25.5% of our homes passed. | ||
• | Mobile Wireless Telephony Services. On August 10, 2006, we launched our MVNO-based mobile wireless telephony services in the Québec City area, utilizing the Rogers Wireless GSM/GPRS network. Since then, the service has been completely rolled out throughout the Province of Québec. Through our strategic relationship with Rogers Wireless, the operator of Canada’s largest integrated wireless voice and data network, we offer Québec consumers a quadruple play of television, broadband Internet, cable telephony and Videotron branded mobile wireless telephony services. Our services include international roaming and popular options such as voicemail, call waiting, call display, call forwarding, text messaging and conference calling. We are responsible for acquiring and billing customers, as well as for providing customer support under our own brand. As of December 31, 2007, over 45,682 lines had been activated. In order to offer our customers integrated mobile multimedia services and be more competitive, our parent company, Quebecor Media, has filed an application to participate in Canada’s 3G Spectrum Auction, which is scheduled to commence on May 27, 2008. | ||
• | 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 cablecustomersare able to rent their video-on-demand selections for a period of 24 hours, which they are then able to watch at their convenience with full stop, rewind, fast forward, pause and replay functionality during that period. Our video-on-demand service is available to 99% of the homes passed by us. We 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. |
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• | Other Products and Services.To maintain and enhance our market position, we are focused onincreasingpenetration of high-definition television and personal video recorders, as well as other high-value products and services. |
As of December 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||
Homes passed(1) | 2,351,344 | 2,383,443 | 2,419,335 | 2,457,213 | 2,497,403 | |||||||||||||||
Cable | ||||||||||||||||||||
Basic customers(2) | 1,424,144 | 1,452,554 | 1,506,113 | 1,572,411 | 1,638,097 | |||||||||||||||
Penetration(3) | 60.6 | % | 60.9 | % | 62.3 | % | 64.0 | % | 65.6 | % | ||||||||||
Digital customers | 240,863 | 333,664 | 474,629 | 623,646 | 768,211 | |||||||||||||||
Penetration(4) | 16.9 | % | 23.0 | % | 31.5 | % | 39.7 | % | 46.9 | % | ||||||||||
Number of digital set-top boxes | 257,350 | 362,053 | 537,364 | 738,530 | 953,393 | |||||||||||||||
Dial-up Internet Access | ||||||||||||||||||||
Dial-up customers | 28,821 | 23,973 | 18,034 | 13,426 | 9,052 | |||||||||||||||
Cable Internet Access | ||||||||||||||||||||
Cable modem customers | 406,277 | 502,630 | 637,971 | 791,966 | 932,989 | |||||||||||||||
Penetration(3) | 17.3 | % | 21.1 | % | 26.4 | % | 32.2 | % | 37.4 | % | ||||||||||
Telephony Services | ||||||||||||||||||||
Cable telephony customers | — | 2,135 | 162,979 | 397,860 | 636,666 | |||||||||||||||
Penetration(3) | 0.1 | % | 6.7 | % | 16.2 | % | 25.5 | % | ||||||||||||
Wireless telephony lines | — | — | — | 11,826 | 45,682 |
(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 2003 and 2004 were restated in order to permit such numbers to be compared to the 2005 through 2007 numbers of basic customers. | |
(3) | Represents customers as a percentage of total homes passed. | |
(4) | Represents customers for the digital service as a percentage of basic customers. |
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Service | Price Range | |
Basic analog cable(1) | $15.07 – $29.88 | |
Extended basic analog cable(1) | $28.50 – $42.19 | |
Basic digital cable | $13.98 – $15.98 | |
Extended basic digital cable(1) | $27.98 – $76.98 | |
Pay-television | $ 3.99 – $29.99 | |
Pay-per-view (per movie or event) | $ 3.99 – $54.99 | |
Video-on-demand (per movie or event) | $ 0.99 – $29.99 | |
Dial-up Internet access | $ 9.95 – $19.95 | |
Cable Internet access(2) | $27.95 – $89.95 | |
Cable telephony | $16.95 – $22.95 | |
Mobile wireless telephony | $22.65 – $78.35 |
(1) | These rates reflect price increases, effective March 15, 2008, of $1.00 on basic analog cable, extended basic analog cable and extended basic digital cable. | |
(2) | These rates reflect price increases, effective March 1, 2008, of $1.00 on basic internet and $2.00 on high-speed internet. |
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450 MHz | 480 to | 750 to | Two-Way | |||||||||||||
and Under | 625 MHz | 860 MHz | Capability | |||||||||||||
December 31, 2003 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2004 | 3 | % | 23 | % | 74 | % | 97 | % | ||||||||
December 31, 2005 | 2 | % | 23 | % | 75 | % | 98 | % | ||||||||
December 31, 2006 | 2 | % | 23 | % | 75 | % | 98 | % | ||||||||
December 31, 2007 | 1 | % | 2 | % | 97 | % | 99 | % |
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• | continue to rapidly deploy advanced products and services such as cable Internet access, digital television, cable telephony and mobile wireless telephony services; | ||
• | design product offerings that provide greater opportunity for customer entertainment and information choices; | ||
• | target marketing opportunities based on demographic data and past purchasing behavior; | ||
• | develop targeted marketing programs to attract former customers, households that have never subscribed to our services and customers of alternative or competitive services; | ||
• | enhance the relationship between customer service representatives and our customers by training and motivating customer service representatives to promote advanced products and services; | ||
• | leverage the retail presence of Le SuperClub Vidéotron and third-party commercial retailers; | ||
• | cross-promote the wide variety of content and services offered within the Quebecor Media group (including, for example, the content of TVA Group productions and the1-900service for audience voting during reality television shows popular in Québec) in order to distribute our cable, data transmission, cable telephony and mobile wireless telephony services to our existing and future customers; | ||
• | introduce new value-added packages of products and services, which we believe increases average revenue per user, or ARPU, and improves customer retention; and | ||
• | leverage our business market, using the Videotron Telecom network and expertise with our commercial customer base, which should enable us to offer additional bundled services to our customers and may result in new business opportunities. |
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• | Over-the-air Television and Providers of Other Entertainment.Cable television has long competed with broadcast television, which consists of television signals that the viewer is able to receive without charge using an over-the-air antenna. The extent of such competition is dependent upon the quality and quantity of broadcast signals available through over-the-air reception compared to the services provided by the local cable system. Cable systems also face competition from alternative methods of distributing and receiving television signals and from other sources of entertainment such as live sporting events, movie theatres and home video products, including videotape recorders, DVD players and video games. The extent to which a cable television service is competitive depends in significant part upon the cable system’s ability to provide a greater variety of programming, superior technical performance and superior customer service than are available over the-air or through competitive alternative delivery sources. | ||
• | Direct Broadcast Satellite.Direct broadcast satellite, or DBS, is a significant competitor to cable systems. DBS delivers programming via signals sent directly to receiving dishes from medium- and high-powered satellites, as opposed to cable delivery transmissions. This form of distribution generally provides more channels than some of our television systems and is fully digital. DBS service can be received virtually anywhere in Canada through the installation of a small rooftop or side-mounted antenna. Like digital cable distribution, DBS systems use video compression technology to increase channel capacity and digital technology to improve the quality of the signals transmitted to their customers. | ||
• | DSL.The deployment of digital subscriber line technology, known as DSL, provides customers with Internet access at data transmission speeds greater than that available over conventional telephone lines. DSL service is comparable to cable-modem Internet access over cable systems. We also face competition from other providers of DSL service. | ||
• | VDSL.The CRTC and Industry Canada have authorized video digital subscriber line, or VDSL, services. VDSL technology increases the capacity of DSL lines available, which permits the distribution of digital video. We expect that we will soon face competition from incumbent local exchange carriers, which have been granted licenses to launch video distribution services using this technology. ILECs are currently installing this new technology, which operates over the copper lines in phone lines, in our markets. This technology can achieve speeds as high as 52 Mbps upstream, but VDSL can only operate over a short distance of about 4,000 feet (1,200 metres). As a result, telephone companies are replacing many of their main feeds with fibre-optic cable. By placing a VDSL transceiver, a VDSL gateway, in larger multiple dwelling units, the distance limitation is overcome. Further, as a result of such improvements in broadband speeds over DSL and the evolution of compression technology, incumbent telephone carriers |
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in our service areas may be in a position to enable delivery of digital television over their cable Internet connections (IPTV) in the coming years. Advanced trials are underway in Canada and in other countries. Tests in our service markets are still being performed. If successful, IPTV may provide telecommunications carriers with a way to offer services similar to those offered by cable operators in the consumer market. | |||
• | Private Cable.Additional competition is posed by satellite master antenna television systems known as “SMATV systems” serving multi-dwelling units, such as condominiums, apartment complexes, and private residential communities. | ||
• | Other Cable Distribution.Currently, a cable operator offering television distribution and providing cable-modem Internet access service is serving the greater Montréal area. This cable operator, which has approximately 15,000 customers, is owned by the regional ILEC. | ||
• | Wireless Distribution.Cable television systems also compete with wireless program distribution services such as multi-channel multipoint distribution systems, or MDS. This technology uses microwave links to transmit signals from multiple transmission sites to line-of-sight antennas located within the customer’s premises. | ||
• | Grey and Black Market DBS Providers.Cable and other distributors of television signals continue to face competition from the use of access codes and equipment that enable the unauthorized decoding of encrypted satellite signals, from unauthorized access to our analog and digital cable signals (black market) and from the reception of foreign signals through subscriptions to foreign satellite television providers that are not lawful distributors in Canada (grey market). | ||
• | Telephony Service.Our cable telephony service competes against other telephone companies, including both the incumbent telephone service provider in Québec, which controls a significant portion of the telephony market in Québec, as well as other VoIP telephony service providers and mobile wireless telephone service providers. | ||
• | Mobile wireless telephony services.Our mobile wireless telephony service competes against a mix of competitors, some of them being active in all the products we offer, while others only offer mobile wireless telephony services in our market. If we were to become a facilities-based wireless provider, we would compete primarily with established incumbent wireless service providers and MVNOs, and could in the future compete with other new entrant companies, including other MVNOs. In addition, users of wireless voice and data systems may find their communications needs satisfied by other current or developing technologies, such as WIFI, “hotspots” or trunk radio systems, which have the technical capability to handle mobile telephone calls. Our facilities-based wireless provider business would also compete with rivals for dealers and retail distribution outlets. | ||
• | Other Internet Service Providers.In the Internet access business, cable operators compete against other Internet service providers offering residential and commercial Internet access services. The CRTC requires the large Canadian incumbent cable operators to offer access to their high speed Internet system to competitive Internet service providers at mandated rates. |
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• | In the first phase, the Telecommunications Act should be amended to give the federal Cabinet authority to waive the foreign ownership and control restrictions on Canadian telecommunications common carriers when it deems a foreign investment or class of investments to be in the public interest. During the first phase, there should be a presumption that investments in any new start-up telecommunications investment or in any telecommunications common carrier with less than 10% of the revenues in any telecommunications service market are in the public interest. This presumption could be rebutted by evidence related to a particular investor or investment. The presumption should apply to all investments in fixed or mobile wireless telephony markets as well as to investments in new entrants and smaller players (i.e., those below the 10% limit). To encourage longer-term investment, foreign investors should remain exempt from the foreign investment restrictions if they are successful in growing the market share of their businesses beyond 10%. | ||
• | The second phase of liberalization should be undertaken after completion of the review of broadcasting policy proposed by the Panel. At that time, there should be a broader liberalization of the foreign investment rules in a manner that treats all telecommunications common carriers including the cable telecommunications industry in a fair and competitively neutral manner. The proposed liberalization should apply to the “carriage” business of BDUs, and new broadcasting policies should focus any necessary Canadian ownership restrictions on broadcasting “content” businesses. The Cabinet should retain the authority to screen significant investments in the Canadian telecommunications carriage business to ensure that they are consistent with the public interest. |
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• | Competition and Carriage Rules.The 1998 Regulations provide equitable opportunities for all distributors of broadcasting services. Similar to the signal carriage and substitution requirements that are imposed on existing cable television systems, under the 1998 Regulations, new broadcasting distribution undertakings are also subject to carriage and substitution requirements. The 1998 Regulations prohibit a distributor from giving an undue preference to any person, including itself, or subjecting any person to an undue disadvantage. This gives the CRTC the ability to address complaints of anti-competitive behavior on the part of certain distributors. | ||
• | Signal Substitution.A significant aspect of television broadcasting in Canada is simultaneous program substitution, or simulcasting, a regulatory requirement under which Canadian distribution undertakings, such as cable television systems with over 6,000 customers, are required to substitute the foreign programming service, with local Canadian signal, including Canadian commercials, for broadcasts of |
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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. |
(1) | 30% or more of the households in the licensed service area have access to the services of another broadcasting distribution undertaking. The CRTC has advised that as of August 31, 1997, the 30% availability criterion was satisfied for all licensed cable areas; and | ||
(2) | the number of customers for basic cable service has decreased by at least 5% since the date on which a competitor started offering its basic cable service in the particular area. |
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• | 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 servicing and repayment of our debt; and | ||
• | distributions to our shareholder. |
Fixed assets additions | 2006 | 2007 | ||||||
(in millions) | ||||||||
Customer premises equipment | $ | 111.9 | $ | 122.9 | ||||
Capacity infrastructure | 68.2 | 76.8 | ||||||
Line extensions | 25.7 | 27.3 | ||||||
Upgrade/Rebuild | 50.3 | 53.0 | ||||||
Support Capital | 46.5 | 50.1 | ||||||
Total fixed assets additions | $ | 302.6 | $ | 330.1 | ||||
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Payments Due by Period | ||||||||||||||||||||
as at December 31, 2007 | ||||||||||||||||||||
Total | <1 year | 2-3 years | 4-5 years | >5 years | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Contractual obligations: | ||||||||||||||||||||
67/8% Senior Notes due January 15, 2014 | $ | 652.8 | $ | $ | — | $ | — | $ | 652.8 | |||||||||||
63/8% Senior Notes due December 15, 2015 | 172.8 | — | — | — | 172.8 | |||||||||||||||
Cash Interest Expense(1) | 593.3 | 84.8 | 169.7 | 169.7 | 169.1 | |||||||||||||||
Bank Credit Facility | 147.7 | — | 147.7 | — | — | |||||||||||||||
Lease and purchasing agreements | 72.6 | 33.6 | 22.1 | 9.8 | 7.1 | |||||||||||||||
Total contractual cash obligations | $ | 1,639.2 | $ | 118.4 | $ | 339.5 | $ | 179.5 | $ | 1,001.8 | ||||||||||
(1) | Estimate of interest to be paid on long-term debt based on interest rates and foreign exchange rates as at December 31, 2007. |
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• | funds from operations; | ||
• | financing from related party transactions; | ||
• | capital markets debt financing; and | ||
• | our credit facilities. |
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• | The Company uses foreign exchange forward contracts to hedge the foreign currency rate exposure on anticipated equipment or inventory purchases in a foreign currency. These foreign exchange forward contracts are designated as cash flow hedges. Under hedge accounting, foreign exchange translation gains and losses are recognized in financial expenses as an adjustment to the cost of fixed assets or inventories when the transaction is recorded. | ||
• | The Company uses cross-currency interest rate swaps to hedge (i) the foreign currency rate exposure on interest and principal payments on certain foreign currency denominated debt and/or (ii) the fair value exposure on certain debt resulting from changes in interest rates. The cross-currency interest rate swaps that set, in fixed Canadian dollars, all future interest and principal payments on US denominated debt are designated as cash flow hedges. The Company’s cross-currency interest rate swaps that set, in Canadian dollars, all future interest and principal payments on US denominated debt, in addition to converting the interest rate from a fixed rate to a floating rate or to converting a floating rate index to another floating rate index, are designated as fair value hedges. |
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Name and Municipality of Residence | Age | Position | ||
Serge Gouin | 64 | Director and Chairman of the Board | ||
Outremont, Québec | ||||
Jean La Couture, FCA | 61 | Director and Chairman of the Audit Committee | ||
Montréal, Québec | ||||
André Delisle | 61 | Director and Member of the Audit Committee | ||
Montréal, Québec | ||||
A.Michel Lavigne, FCA | 57 | Director and Member of the Audit Committee | ||
Brossard, Québec | ||||
Pierre Karl Péladeau | 46 | Director | ||
Montréal, Québec | ||||
Robert Dépatie | 49 | President and Chief Executive Officer | ||
Rosemère, Québec | ||||
Yvan Gingras | 50 | Executive Vice President, Finance and Operations, and Chief Financial Officer | ||
Montréal, Québec | ||||
Donald Lizotte | 41 | President, Le SuperClub Vidéotron and Vice President, Retail | ||
Kirkland, Québec | Sales Videotron | |||
Jean Novak | 44 | President, Videotron Business Service | ||
Beaconsfield, Québec | ||||
Manon Brouillette Outremont, Québec | 39 | Senior Vice President, Marketing, Content and New Product Development, Consumers Division | ||
Daniel Proulx | 49 | Senior Vice President, Engineering | ||
Montréal, Québec | ||||
Frédéric Despars | 40 | Vice President, Legal Affairs | ||
Candiac, Québec | ||||
André Gascon | 46 | Vice President, Information Technologies | ||
Longueuil, Québec | ||||
Marie-Josée Marsan | 45 | Vice President, Control | ||
Montréal, Québec | ||||
Roger Martel | 59 | Vice President, Internal Audit | ||
Montréal, Québec | ||||
Louis Morin | 50 | Vice President | ||
Kirkland, Québec | ||||
Édouard G. Trépanier | 56 | Vice President, Regulatory Affairs | ||
Boucherville, Québec | ||||
Normand Vachon | 59 | Vice President, Human Resources | ||
Repentigny, Québec | ||||
Jean-François Pruneau | 37 | Treasurer | ||
Repentigny, Québec | ||||
Claudine Tremblay | 54 | Secretary | ||
Nuns’ Island, Québec | ||||
Christian Marcoux | 33 | Assistant Secretary | ||
Laval, Québec | ||||
Dominique Poulin Gouin | 52 | Assistant Secretary | ||
Outremont, Québec |
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Years of Participation | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$116,666 or more | $ | 23,333 | $ | 35,000 | $ | 46,667 | $ | 58,333 | $ | 70,000 |
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Years of Credited Service | ||||||||||||||||||||
Compensation | 10 | 15 | 20 | 25 | 30 | |||||||||||||||
$200,000 | $ | 16,667 | $ | 25,000 | $ | 33,333 | $ | 41,667 | $ | 50,000 | ||||||||||
$300,000 | $ | 36,667 | $ | 55,000 | $ | 73,333 | $ | 91,667 | $ | 110,000 | ||||||||||
$400,000 | $ | 56,667 | $ | 85,000 | $ | 113,333 | $ | 141,667 | $ | 170,000 | ||||||||||
$500,000 | $ | 76,667 | $ | 115,000 | $ | 153,333 | $ | 191,667 | $ | 230,000 | ||||||||||
$600,000 | $ | 96,667 | $ | 145,000 | $ | 193,333 | $ | 241,667 | $ | 290,000 | ||||||||||
$800,000 | $ | 136,667 | $ | 205,000 | $ | 273,333 | $ | 341,667 | $ | 410,000 | ||||||||||
$1,000,000 | $ | 176,667 | $ | 265,000 | $ | 353,333 | $ | 441,667 | $ | 530,000 |
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Year Ended December 31, | ||||||||
2006 | 2007 | |||||||
(dollars in millions) | ||||||||
Revenues | $ | 25.3 | $ | 22.3 | ||||
Purchases | 63.5 | 64.1 | ||||||
Accounts payable | 41.5 | 54.7 |
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• | the initial purchase by Videotron of the information technology infrastructure equipment of Quebecor World; | ||
• | the provision of consulting services by certain Quebecor World personnel to Videotron for corporate information technology services; and | ||
• | the provision of information technology managed services by Videotron to Quebecor World in Canada. |
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1. | On July 1, 2006, Vidéotron ltée and 9101-0827 Québec inc. 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 1163819882. 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 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 (a) the retirement or non-retirement of our directors under an age limit requirement or (b) 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: |
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(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. |
(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. |
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(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. | ||
(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- |
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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. | ||
(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. |
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(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. | |||
(f) | Sinking fund provisions: None. |
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(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 |
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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. | |||
(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. |
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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 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. |
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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. | |||
(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(Québec), 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 |
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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. | ||
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 Videotron, 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. 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 |
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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, 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 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 Videotron, 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 “Vidéotron Group”), guarantees of all the members of the Videotron Group, pledges of the shares of Videotron and the members of the Vidéotron Group, and other security. | |||
This amended and restated credit facility contains customary covenants that restrict and limit the ability of Videotron and the members of the Vidéotron Group to, among other things, enter into merger or amalgamation transactions, grant encumbrances, sell assets, pay dividends or make other distributions, issue shares of capital stock, incur indebtedness and enter into related party transactions. In addition, this amended and restated credit facility contains customary financial covenants. It also contains customary events of default including the non-payment of principal or interest, the breach of any financial covenant, the failure to perform or observe any other covenant, certain bankruptcy events relating to us and the members of the Vidéotron Group, and the occurrence of a change of control. |
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(d) | Back-to-back transaction agreement, effective as of January 3, 2007, by and between Quebecor Media and Videotron | |
On January 3, 2007, we entered in a back-to-back transaction by contracting a subordinated loan of $1.0 billion from Quebecor Media and used the entire proceeds of this borrowing to purchase 1,000,000 Preferred Shares, Series B of 9101-0835 Québec inc., a subsidiary of Quebecor Media. The subordinated loan bears interest at a rate of 10.5%, payable semi-annually, and matures on January 3, 2022. The Preferred Shares, Series B carry the right to receive a cumulative annual dividend of 10.85% payable semi-annually. See also Note 6 to our consolidated financial statements included under “Item 17. Financial Statements” of this annual report. | ||
(e) | Back-to-back transaction agreement, effective as of May 31, 2007, by and between Quebecor Media and Videotron | |
On May 31, 2007, we entered in a back-to-back transaction by contracting a subordinated loan of $870.0 million from Quebecor Media and used the entire proceeds of this borrowing to purchase 870,000 Preferred Shares, Series B of 9101-0835 Québec inc., a subsidiary of Quebecor Media. The subordinated loan bears interest at a rate of 10.5%, payable semi-annually, and matures on May 31, 2022. The Preferred Shares, Series B carry the right to receive a cumulative annual dividend of 10.85% payable semi-annually. See also Note 6 to our consolidated financial statements included under “Item 17. Financial Statements” of this annual report. | ||
(f) | Back-to-back transaction agreement, effective as of May 31, 2007, by and between Quebecor Media and CF Cable TV Inc., a wholly-owned subsidiary of Vidéotron | |
On May 31, 2007, CF Cable TV inc., a wholly-owned subsidiary of the Company, entered into a back-to-back transaction by contracting a subordinated loan of $125.0 million from Quebecor Média Inc. and invested the $125 million into 125,000 preferred shares, Series B, of 9101-0835 Québec Inc., a subsidiary of Quebecor Média Inc. The subordinated loan bears interest at a rate of 10.5% payable every six months on June 20 and December 20, and matures on May 31, 2022. The preferred shares carry the right to receive a cumulative annual dividend of 10.85%, payable semi-annually. See also Note 6 to our consolidated financial statements included under “Item 17. Financial Statements” of this annual report. | ||
(g) | Back-to-back transaction agreement, effective as of January 4, 2008, by and between Quebecor Media and Vidéotron | |
On January 4, 2008, the Company contracted a subordinated loan of $415.0 million from Quebecor Média Inc., bearing interest at a rate of 10.5%, payable every six months on June 20 and December 20, and maturing on January 4, 2023. on the same day, the company invested the total proceeds of $415.0 million into 415,000 preferred shares, Series B, of 9101-0835 Québec inc., a subsidiary of Quebecor media Inc. These shares carry the right to receive an annual dividend of 10.85%, payable semi-annually. See also Note 6 to our consolidated financial statements included under “Item 17. Financial Statements” of this annual report. | ||
(h) | Back-to-back transaction agreement, effective as of January 4, 2008, by and between Quebecor Media and CF Cable TV Inc., a wholly-owned subsidiary of Videotron | |
On January 4, 2008, CF Cable TV inc., a wholly-owned subsidiary of Videotron, contracted a subordinated loan of $170.0 million from Quebecor Media, bearing interest at a rate of 10.5%, payable every six months on June 20 and December 20, and maturing on January 4, 2023. On the same day, CF Cable TV Inc. invested the total proceeds of $170.0 million into 170,000 preferred shares, Series B, of 9101-0835 Québec inc., a subsidiary of Quebecor Media. These shares carry the right to receive an annual dividend of 10.85%, payable semi-annually. See also Note 6 to our consolidated financial statements included under “Item 17. Financial Statements” of this annual report. |
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• | dealers in stocks, securities or currencies; | ||
• | securities traders that use a mark-to-market accounting method; | ||
• | banks and financial institutions; | ||
• | insurance companies; | ||
• | regulated investment companies; | ||
• | real estate investment trusts; | ||
• | tax-exempt organizations; | ||
• | persons holding notes as part of a hedging or conversion transaction or a straddle; | ||
• | persons deemed to sell notes under the constructive sale provisions of the Code; | ||
• | persons who or that are, or may become, subject to the expatriation provisions of the Code; | ||
• | persons whose functional currency is not the U.S. dollar; and | ||
• | direct, indirect or constructive owners of 10% or more of our outstanding voting shares. |
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• | an individual citizen or resident alien of the United States; | ||
• | a corporation or other entity treated as such formed in or under the laws of the United States, any state thereof or the District of Columbia; | ||
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or | ||
• | a trust, if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more “U.S. persons” (within the meaning of the Code) have the authority to control all substantial decisions of the trust, or if a valid election is in effect to be treated as a U.S. person. |
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• | the amount of cash and the fair market value of any property received (less any portion allocable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary interest income); and | ||
• | the U.S. Holder’s tax basis in the notes. |
• | fails to furnish a social security number or other taxpayer identification number (“TIN”) certified under penalty of perjury within a reasonable time after the request for the TIN; | ||
• | furnishes an incorrect TIN; | ||
• | is notified by the IRS that is has failed to report properly interest or dividends; or |
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• | under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is the correct number and that such holder is not subject to backup withholding. |
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Exchange rate | ||||||||||||||||
on interest and | ||||||||||||||||
capital payments | ||||||||||||||||
Annual | per CDN dollar | |||||||||||||||
Notional | Annual effective | nominal | for one US | |||||||||||||
Period covered | amount | interest rate | interest rate | 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 |
December 31, 2006 | December 31, 2007 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
value | Fair value | value | Fair value | |||||||||||||
(in millions) | ||||||||||||||||
Long-term debt | $ | (1,021.2 | ) | $ | (1,010.6 | ) | $ | (973.4 | ) | $ | (938.2 | ) | ||||
Interest rate swaps | 0.0 | 0.0 | — | — | ||||||||||||
Cross-currency interest rate swaps | (71.8 | ) | (141.1 | ) | (241.3 | ) | (241.3 | ) | ||||||||
Foreign exchange forward contracts | — | 2.1 | (4.2 | ) | (4.2 | ) |
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(in thousands of | ||||
Year ending December 31, | dollars) | |||
2008 | $ | — | ||
2009 | $ | 147.7 | ||
2010 | $ | — | ||
2011 | $ | — | ||
2012 | $ | — | ||
2013 and thereafter | $ | 825.6 |
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Year Ended | ||||||||
December 31, | ||||||||
2006 | 2007 | |||||||
(in thousands) | ||||||||
Audit Fees | $ | 544.5 | $ | 590.3 | ||||
Audit-Related Fees (1) | 46.4 | 56.6 | ||||||
All Other Fees (2) | — | 327.4 | ||||||
Total | $ | 590.9 | $ | 974.3 | ||||
(1) | Audit-Related Fees include fees for the audits of our employee pension plans, the review of one subsidiary’s financial statements and various reports to statutory authorities. | |
(2) | All Other Fees include fees billed for assistance with respect to internal controls over financial reporting and disclosure controls and procedures. |
1.1 | Articles of Amalgamation of Videotron Ltd. as of July 1, 2006 (translation) (incorporated by reference to Exhibit 1.1 to Videotron Ltd.’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed on March 30, 2007). |
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1.2 | By-laws of Videotron Ltd. as of July 1, 2006 (incorporated by reference to Exhibit 1.2 to Videotron Ltd.’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006, filed on March 30, 2007). | |
1.3 | Articles of Incorporation of Le SuperClub Vidéotron ltée (translation) (incorporated by reference to Exhibit 3.7 to Videotron Ltd.’s Amendment No. 1 to the Registration Statement on Form F-4 dated January 8, 2004, Registration Statement No. 333-110697). | |
1.4 | 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 Le 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 Le 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) (incorporated by reference to Exhibit 1.13 to Videotron Ltd.’s Annual Report on Form 20-F for the fiscal year ended December 31, 2005, dated March 21, 2006). | |
1.14 | By-Laws of CF Cable TV Inc. (incorporated by reference to Exhibit 1.14 to Videotron Ltd.’s Annual Report on Form 20-F for the fiscal year ended December 31, 2005, dated March 21, 2006). | |
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). |
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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). | |
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 Videotron 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., Videotron 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). |
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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, a Second Amending Agreement, dated as of June 29, 2001, a Third Amending Agreement, dated December 12, 2001 and accepted by the Lenders as of December 21, 2001, a Fourth Amending Agreement, dated as of December 23, 2002, a Fifth Amending Agreement, dated as of March 24, 2003, a Sixth Amending Agreement, dated as of October 8, 2003, 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 of 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 of the Guarantors under Videotron’s Ltd.’s 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). | |
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, filed on 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. |
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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. |
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VIDEOTRON LTD. | ||||
By: | /s/ Yvan Gingras | |||
Name: | Yvan Gingras | |||
Title: | Executive Vice President, Finance and Operations, and Chief Financial Officer | |||
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Videotron Ltd. | ||
Annual Consolidated Financial Information as at December 31, 2007 and 2006 and for the Years Ended December 31, 2007, 2006 and 2005 | ||
F-2 | ||
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005 | F-3 | |
Consolidated Statements of Comprehensive Income for the years ended December 31, 2007, 2006 and 2005 | F-4 | |
Consolidated Statements of Shareholder’s Equity (Deficiency in Assets) for the years ended December 31, 2007, 2006 and 2005 | F-5 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 | F-6 | |
Consolidated Balance Sheets as at December 31, 2007 and 2006 | F-8 | |
Notes to Consolidated Financial Statements for the years ended December 31, 2007, 2006 and 2005 | F-9 |
F-1
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F-2
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(in thousands of Canadian dollars)
2007 | 2006 | 2005 | ||||||||||
Operating revenues: | ||||||||||||
Cable television | $ | 735,832 | $ | 677,273 | $ | 618,346 | ||||||
Internet | 422,448 | 345,075 | 270,791 | |||||||||
Telephony | 213,194 | 108,565 | 21,088 | |||||||||
Business solution | 70,189 | 74,352 | 78,409 | |||||||||
Video stores | 59,956 | 55,585 | 55,146 | |||||||||
Other | 50,987 | 48,745 | 36,626 | |||||||||
1,552,606 | 1,309,595 | 1,080,406 | ||||||||||
Direct costs and operating expenses | 909,923 | 796,887 | 666,793 | |||||||||
Amortization | 206,083 | 185,115 | 166,292 | |||||||||
Financial expenses (note 3) | 67,052 | 79,586 | 74,737 | |||||||||
Impairment of goodwill (note 1 (m)) | 5,425 | — | — | |||||||||
Income before income taxes and non-controlling interest | 364,123 | 248,007 | 172,584 | |||||||||
Income taxes (note 4): | ||||||||||||
Current | 67 | (439 | ) | 2,911 | ||||||||
Future | 38,191 | 64,669 | 66,880 | |||||||||
38,258 | 64,230 | 69,791 | ||||||||||
325,865 | 183,777 | 102,793 | ||||||||||
Non-controlling interest | 173 | 86 | 102 | |||||||||
Net income | $ | 325,692 | $ | 183,691 | $ | 102,691 | ||||||
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(in thousands of Canadian dollars)
2007 | 2006 | 2005 | ||||||||||
Net income | $ | 325,692 | $ | 183,691 | $ | 102,691 | ||||||
Other comprehensive income: | ||||||||||||
Unrealized gain on derivative instruments | 17,172 | — | — | |||||||||
Income taxes | (2,028 | ) | — | — | ||||||||
Comprehensive income | $ | 340,836 | $ | 183,691 | $ | 102,691 | ||||||
F-4
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(in thousands of Canadian dollars)
Accumulated | Total | |||||||||||||||||||
Share | Contributed | other compre- | shareholder’s | |||||||||||||||||
capital | surplus | Deficit | hensive loss | equity | ||||||||||||||||
Balance as at December 31, 2004 | $ | 388,593 | $ | 576,934 | $ | (736,225 | ) | $ | — | $ | 229,302 | |||||||||
Transfer of tax deductions from a company controlled by the ultimate parent company (note 16) | — | 23 | — | — | 23 | |||||||||||||||
Reduction of paid-up capital (note 11) | (45,653 | ) | — | — | — | (45,653 | ) | |||||||||||||
Net income for the year | — | — | 102,691 | — | 102,691 | |||||||||||||||
Dividend | — | — | (210,000 | ) | — | (210,000 | ) | |||||||||||||
Balance as at December 31, 2005 | 342,940 | 576,957 | (843,534 | ) | — | 76,363 | ||||||||||||||
Transfer of tax deductions from a company controlled by the ultimate parent company (note 16) | — | 22 | — | — | 22 | |||||||||||||||
Issuance of shares (note 11) | 111,536 | — | — | — | 111,536 | |||||||||||||||
Reduction of paid-up capital (note 11) | (108,749 | ) | — | — | — | (108,749 | ) | |||||||||||||
Excess of consideration paid over the carrying value of debt transferred to the parent company (note 9) | — | — | (3,282 | ) | — | (3,282 | ) | |||||||||||||
Net income for the year | — | — | 183,691 | — | 183,691 | |||||||||||||||
Dividend | — | — | (10,000 | ) | — | (10,000 | ) | |||||||||||||
Balance as at December 31, 2006, as previously reported | 345,727 | 576,979 | (673,125 | ) | — | 249,581 | ||||||||||||||
Cumulative effect of changes in accounting policies (note 1) | — | — | (9,311 | ) | (22,446 | ) | (31,757 | ) | ||||||||||||
Balance as at January 1, 2007, as restated | 345,727 | 576,979 | (682,436 | ) | (22,446 | ) | 217,824 | |||||||||||||
Reduction of paid-up capital (note 11) | (299,550 | ) | — | — | — | (299,550 | ) | |||||||||||||
Net income for the year | — | — | 325,692 | — | 325,692 | |||||||||||||||
Other comprehensive income, net of income taxes | — | — | — | 15,144 | 15,144 | |||||||||||||||
Balance as at December 31, 2007 | $ | 46,177 | $ | 576,979 | $ | (356,744 | ) | $ | (7,302 | ) | $ | 259,110 | ||||||||
F-5
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(in thousands of Canadian dollars)
2007 | 2006 | 2005 | ||||||||||
Cash flows related to operating activities: | ||||||||||||
Net income | $ | 325,692 | $ | 183,691 | $ | 102,691 | ||||||
Adjustments for the following items: | ||||||||||||
Amortization of fixed assets | 203,902 | 183,619 | 164,684 | |||||||||
Amortization of other assets | 21,435 | 17,835 | 11,705 | |||||||||
Amortization of financing costs and debt premium or discount | (945 | ) | 432 | (352 | ) | |||||||
Impairment of goodwill | 5,425 | — | — | |||||||||
Future income taxes | 38,191 | 64,669 | 66,880 | |||||||||
Loss (gain) on disposal of fixed assets | 3,245 | 1,416 | (1,318 | ) | ||||||||
Non-controlling interest | 173 | 86 | 102 | |||||||||
(Gain) loss on revaluation of Additional Amount payable | — | (3,286 | ) | 10,140 | ||||||||
Net (gain) loss on derivative instruments and on foreign currency translation of financial instruments (note 3) | (9,124 | ) | (19 | ) | 248 | |||||||
Gain on repayment of long-term debt | — | — | (312 | ) | ||||||||
Other | 1,142 | 755 | (765 | ) | ||||||||
589,136 | 449,198 | 353,703 | ||||||||||
Net change in non-cash balances related to operations: | ||||||||||||
Accounts receivable | (26,832 | ) | (22,187 | ) | (19,315 | ) | ||||||
Amounts receivable from and payable to affiliated companies | 3,715 | 3,606 | 24,131 | |||||||||
Inventories | 104 | (10,225 | ) | 4,286 | ||||||||
Prepaid expenses | (7,824 | ) | (1,363 | ) | 967 | |||||||
Accounts payable and accrued liabilities | (1,044 | ) | 19,015 | 16,189 | ||||||||
Deferred revenue | 15,298 | 19,013 | 15,320 | |||||||||
Other assets | (20,973 | ) | (18,902 | ) | (16,758 | ) | ||||||
Other | 1,343 | 2,464 | 8,682 | |||||||||
(36,213 | ) | (8,579 | ) | 33,502 | ||||||||
Cash flows provided by operating activities | 552,923 | 440,619 | 387,205 | |||||||||
Cash flows related to investing activities: | ||||||||||||
Acquisition of fixed assets | (330,075 | ) | (302,629 | ) | (219,865 | ) | ||||||
Acquisition of shares of a company under common control | (1,995,000 | ) | — | — | ||||||||
Net decrease (increase) in temporary investments | 987 | 39,509 | (19,246 | ) | ||||||||
Payment of tax deductions to a parent company | (14,863 | ) | — | (35,200 | ) | |||||||
Other | 787 | (1,981 | ) | (666 | ) | |||||||
Cash flows used in investing activities | (2,338,164 | ) | (265,101 | ) | (274,977 | ) | ||||||
Sub-total, balance carried forward | (1,785,241 | ) | 175,518 | 112,228 |
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Consolidated Statements of Cash Flows, Continued
(in thousands of Canadian dollars)
2007 | 2006 | 2005 | ||||||||||
Sub-total, balance brought forward | $ | (1,785,241 | ) | $ | 175,518 | $ | 112,228 | |||||
Cash flows related to financing activities: | ||||||||||||
Net change in bank indebtedness | (8,965 | ) | 18,470 | — | ||||||||
Net borrowings under bank credit facility (note 10) | 98,721 | 49,000 | — | |||||||||
Repayment of long-term debt | — | — | (92,284 | ) | ||||||||
Settlement of derivative financial instruments | 35 | (938 | ) | (10,955 | ) | |||||||
Issuance of long-term debt, net of financing costs | — | — | 200,185 | |||||||||
Subordinated loan from parent company | 1,995,000 | — | — | |||||||||
Issuance of shares | — | 111,536 | — | |||||||||
Transfer of Additional Amount payable to parent company | — | (111,536 | ) | — | ||||||||
Repayment of subordinated loan to parent company | — | (150,000 | ) | — | ||||||||
Reimbursement of advance to parent company | — | — | 40,893 | |||||||||
Dividends | — | (10,000 | ) | (210,000 | ) | |||||||
Reduction in paid-up capital | (299,550 | ) | (108,749 | ) | (45,653 | ) | ||||||
Other | — | — | (126 | ) | ||||||||
Cash flows provided by (used in) financing activities | 1,785,241 | (202,217 | ) | (117,940 | ) | |||||||
Net change in cash and cash equivalents | — | (26,699 | ) | (5,712 | ) | |||||||
Cash and cash equivalents at beginning of year | — | 26,699 | 32,411 | |||||||||
Cash and cash equivalents at end of year | $ | — | $ | — | $ | 26,699 | ||||||
Cash and cash equivalents are comprised of: | ||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 26,699 | ||||||
Non-cash financing and investing activities: | ||||||||||||
Purchase of fixed assets financed by accounts payable and accrued liabilities | $ | 33,868 | $ | 35,778 | $ | 16,569 | ||||||
Cash interest payments (net of receipts) | $ | 80,143 | $ | 80,514 | $ | 62,765 | ||||||
Cash interest payments to parent company | 159,078 | 17,951 | — | |||||||||
Cash income tax payments (net of refunds) | (206 | ) | 988 | 3,224 | ||||||||
F-7
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(in thousands of Canadian dollars)
2007 | 2006 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Temporary investments | $ | — | $ | 987 | ||||
Accounts receivable | 161,366 | 134,677 | ||||||
Amounts receivable from affiliated companies (note 16) | 12,266 | 2,660 | ||||||
Income taxes | 220 | 310 | ||||||
Inventories (note 5) | 39,445 | 39,451 | ||||||
Prepaid expenses | 16,316 | 8,568 | ||||||
Future income taxes (note 4) | 31,585 | 24,728 | ||||||
261,198 | 211,381 | |||||||
Investments (note 6) | 1,995,000 | — | ||||||
Fixed assets (note 7) | 1,408,805 | 1,289,429 | ||||||
Future income taxes (note 4) | 2,970 | 3,358 | ||||||
Other assets (note 8) | 30,466 | 45,282 | ||||||
Goodwill | 433,759 | 438,582 | ||||||
�� | ||||||||
$ | 4,132,198 | $ | 1,988,032 | |||||
Liabilities and Shareholder’s Equity | ||||||||
Current liabilities: | ||||||||
Bank indebtedness | $ | 9,505 | $ | 18,470 | ||||
Accounts payable and accrued liabilities | 267,432 | 263,290 | ||||||
Amounts payable to affiliated companies (note 16) | 54,683 | 41,529 | ||||||
Deferred revenue | 151,928 | 135,335 | ||||||
Income taxes | 119 | 81 | ||||||
483,667 | 458,705 | |||||||
Long-term debt (note 10) | 950,988 | 1,021,170 | ||||||
Subordinated loan to parent company (note 6) | 1,995,000 | — | ||||||
Derivative financial instruments (note 15) | 245,556 | 71,828 | ||||||
Deferred revenue | 21,112 | 22,407 | ||||||
Pension plan accrued liability | 9,656 | 8,624 | ||||||
Future income taxes (note 4) | 166,162 | 154,943 | ||||||
Non-controlling interest | 947 | 774 | ||||||
3,873,088 | 1,738,451 | |||||||
Shareholder’s equity: | ||||||||
Share capital (note 11) | 46,177 | 345,727 | ||||||
Contributed surplus | 576,979 | 576,979 | ||||||
Deficit | (356,744 | ) | (673,125 | ) | ||||
Accumulated other comprehensive loss (note 13) | (7,302 | ) | — | |||||
259,110 | 249,581 | |||||||
$ | 4,132,198 | $ | 1,988,032 | |||||
Contingencies (note 17)
Subsequent events (note 19)
F-8
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Videotron Ltd. (the “Company”) is a cable service provider in the province of Québec for pay-television services, Internet access and telephony services. It also provides business telecommunication services, wireless communication services and operates a chain of video stores. | ||
1. | Summary of significant accounting policies: | |
The accompanying consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). The significant differences between generally accepted accounting principles in Canada and in the United States are described in note 20. |
(a) | Basis of presentation: | ||
These consolidated financial statements, expressed in Canadian dollars, include the consolidated financial statements of Videotron Ltd. and its subsidiaries, CF Cable TV Inc., Le SuperClub Vidéotron Ltée, SETTE inc. and Videotron US inc., incorporated under the laws of the State of Delaware, on September 20, 2007. | |||
Certain comparative figures for the years 2006 and 2005 have been reclassified to conform to the financial presentation adopted for the year ended December 31, 2007. | |||
(b) | Change in accounting policies: | ||
Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530,Comprehensive Income, Section 3855,Financial Instruments — Recognition and Measurementand Section 3865,Hedges. | |||
Changes in accounting policies in conformity with these new accounting standards are as follows: |
(i) | Comprehensive income: | ||
Section 1530 introduces the concept of comprehensive income, which is calculated by including other comprehensive income with net income. Other comprehensive income represents changes in shareholder’s equity arising from transactions and other events with non-owner sources, such as unrealized gains and losses on financial assets classified as available-for-sale and changes in the fair value of the effective portion of cash flow hedging instruments. With the adoption of this Section, the consolidated financial statements now include a consolidated statement of comprehensive income. |
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1. | Summary of significant accounting policies (continued): |
(b) | Change in accounting policies (continued): |
(ii) | Financial instruments: | ||
Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and derivatives. Under this standard, financial instruments are now classified as held for trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities, and measurement in subsequent periods depends on their classification. Transaction costs are expensed as incurred for financial instruments classified as held for trading. For other financial instruments, transaction costs are capitalized on initial recognition and presented as a reduction of the underlying financial instruments. | |||
Financial assets and financial liabilities held for trading are measured at fair value with changes recognized in income. Available-for-sale financial assets are measured at fair value or at cost, in the case of financial assets that do not have a quoted market price in an active market and changes in fair value recorded in comprehensive income. Financial assets held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method of amortization. The Company has classified its cash and cash equivalents and temporary investments as held for trading. Amounts receivable, amounts receivable from related parties, loans and other long-term receivables have been classified as loans and receivables. All investments were classified as available-for-sale. All of the Company’s financial liabilities were classified as other liabilities. | |||
Derivative instruments are recorded as financial assets or liabilities at fair value, including those derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contracts. Changes in the fair values of derivatives are recognized in financial expenses with the exception of derivatives designated as a cash flow hedge, for which hedge accounting is used. In accordance with the new standards, the Company selected January 1, 2003 as its transition date for adopting the standard related to embedded derivatives. | |||
(iii) | Hedges: | ||
Section 3865 specifies the criteria that must be satisfied in order for hedge accounting to be applied and the accounting for each of the permitted hedging strategies. |
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Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(b) | Change in accounting policies (continued): |
(iii) | Hedges (continued): | ||
Accordingly, for derivatives designated as fair value hedges, such as certain cross currency interest rate swaps used by the Company, changes in the fair value of the hedging derivative recorded in income are substantially offset by changes in the fair value of the hedged item to the extent that the hedging relationship is effective. When a fair value hedge is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments to the carrying value of the hedged item are amortized to income over the remaining term of the original hedging relationship. | |||
For derivative instruments designated as cash flow hedges, such as certain cross currency interest rate swaps and forward exchange contracts used by the Company, the effective portion of a hedge is reported in other comprehensive income until it is recognized in income during the same period in which the hedged item affects income, while the ineffective portion is immediately recognized in the consolidated statement of income. When a cash flow hedge is discontinued, the amounts previously recognized in accumulated other comprehensive income are reclassified to income when the variability in the cash flows of the hedged item affects income. | |||
Upon adoption of these new standards, the transition rules require that the Company adjust either the opening retained earnings or accumulated other comprehensive income as if the new rules had always been applied in the past, without restating comparative figures of prior years. Accordingly, the following adjustments were recorded in the consolidated financial statements as at January 1, 2007: |
• | Decrease in other assets of $14.5 million; | ||
• | Increase in derivative financial instruments of $60.6 million; | ||
• | Decrease in long-term debt of $28.6 million; | ||
• | Decrease in future income tax liabilities of $14.8 million; | ||
• | Increase in deficit of $9.3 million; | ||
• | Increase in accumulated other comprehensive loss of $22.4 million. |
The adoption of the new standards resulted in an increase of $11.3 million in net income during the year ended December 31, 2007. |
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Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(c) | Foreign currency translation: |
(d) | Use of estimates: |
(e) | Impairment of long-lived assets: |
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Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(f) | Revenue recognition: |
(g) | Cash and cash equivalents: |
(h) | Temporary investments: |
(i) | Trade receivables: |
(j) | Inventories: |
F-13
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Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(k) | Income taxes: |
(l) | Fixed assets: |
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% |
F-14
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Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(l) | Fixed assets (continued): |
(m) | Goodwill and other intangible assets: |
F-15
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(n) | Other assets: |
(o) | Stock-based compensation: |
(p) | Derivative financial instruments and hedge accounting: |
F-16
Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(p) | Derivative financial instruments and hedge accounting (continued): |
• | The Company uses foreign exchange forward contracts to hedge the foreign currency rate exposure on anticipated equipment or inventory purchases in a foreign currency. These foreign exchange forward contracts are designated as cash flow hedges. Under hedge accounting, foreign exchange translation gains and losses are recognized in financial expenses as an adjustment to the cost of fixed assets or inventories when the transaction is recorded. | ||
• | The Company uses cross-currency interest rate swaps to hedge (i) the foreign currency rate exposure on interest and principal payments on certain foreign currency denominated debt and/or (ii) the fair value exposure on certain debt resulting from changes in interest rates. The cross-currency interest rate swaps that set, in fixed Canadian dollars, all future interest and principal payments on US denominated debt are designated as cash flow hedges. The Company’s cross-currency interest rate swaps that set, in Canadian dollars, all future interest and principal payments on US denominated debt, in addition to converting the interest rate from a fixed rate to a floating rate or to converting a floating rate index to another floating rate index, are designated as fair value hedges. |
• | For purchases hedged by foreign exchange forward contracts, foreign exchange translation gains and losses were recognized as an adjustment to the cost of equipment or inventory, when the transaction was recorded. | ||
• | For long-term debt in foreign currency hedged by cross-currency interest rate swaps, foreign exchange translation gains and losses on long-term debt were deferred and recorded as derivative instruments under other assets or other liabilities. The fees on forward foreign exchange contracts and on cross-currency swaps were recognized as an adjustment to interest expense over the term of the agreement. | ||
• | In addition, realized and unrealized gains or losses associated with derivative instruments that were terminated or ceased to be effective prior to maturity for purposes of hedge accounting, were deferred under other current or non-current assets or liabilities on the balance sheet and recognized in income in the period in which the underlying hedged transaction was recognized. In the event a designated hedged item was sold, extinguished or matured prior to the termination of the related derivative instrument, any realized or unrealized gain or loss on such derivative instrument was recognized in income. |
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Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(p) | Derivative financial instruments and hedge accounting (continued): |
(q) | Pension plans and postretirement benefits: |
(i) | Pension plans: |
– | Cost of pension plan benefits provided in exchange for employee services rendered during the year; | ||
– | Amortization of the initial net transition asset, prior service costs and amendments on a straight-line basis over the expected average remaining service period of the active employee group covered by the plans; | ||
– | Interest cost of pension plan obligations, expected return on pension fund assets, and amortization of cumulative unrecognized net actuarial gains and losses in excess of 10% of the greater of the accrued benefit obligation or fair value of plan assets, over the expected average remaining service period of the active employee group covered by the plans. |
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Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(q) | Pension plans and postretirement benefits (continued): |
(ii) | Postretirement benefits: |
(r) | Rates subject to CTRC regulations: |
(s) | Future changes in accounting standards: |
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Table of Contents
Notes to Consolidated Financial Statements, Continued
1. | Summary of significant accounting policies (continued): |
(s) | Future changes in accounting standards (continued): |
2. | Business combinations and reorganization: |
Videotron | 9101-0827 | Eliminated on | Total | |||||||||||||||||
Videotron Ltd. | Telecom Ltd. | Quebec Inc. | consolidation | restated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Consolidated net income (loss) for the year ended December 31, 2005 | $ | 113,875 | $ | (167 | ) | $ | (15,730 | ) | $ | 4,713 | $ | 102,691 | ||||||||
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Table of Contents
Notes to Consolidated Financial Statements, Continued
3. | Financial expenses: |
2007 | 2006 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Third parties: | ||||||||||||
Interest on long-term debt | $ | 81,218 | $ | 81,316 | $ | 61,207 | ||||||
Amortization of financing costs and debt premium or discount | (945 | ) | 432 | (352 | ) | |||||||
(Gain) loss on revaluation of Additional Amount payable | — | (3,286 | ) | 10,140 | ||||||||
Gain on repayment of long-term debt | — | — | (312 | ) | ||||||||
Net (gain) loss on derivative instruments and on foreign currency translation of financial instruments(1) (2) | (9,124 | ) | (19 | ) | 248 | |||||||
Loss (gain) on foreign currency translation of short-term monetary items | 1,415 | 1,113 | (1,447 | ) | ||||||||
Other | 63 | 70 | 542 | |||||||||
72,627 | 79,626 | 70,026 | ||||||||||
Interest income | (131 | ) | (512 | ) | (1,271 | ) | ||||||
72,496 | 79,114 | 68,755 | ||||||||||
Parent company: | ||||||||||||
Interest expense (net of income) | 165,460 | 472 | 5,982 | |||||||||
Dividend income | (170,904 | ) | — | — | ||||||||
(5,444 | ) | 472 | 5,982 | |||||||||
$ | 67,052 | $ | 79,586 | $ | 74,737 | |||||||
1) | During the years ended December 31, 2007 and 2006, the Company recorded a loss of $3.4 million and a gain of $0.02 million, respectively, on embedded derivatives not closely related to their host contract and on derivative instruments for which hedge accounting was not used. | |
2) | During the year ended December 31, 2007, the Company recorded a gain of $12.5 million for the ineffective portion of fair value hedges. |
F-21
Table of Contents
Notes to Consolidated Financial Statements, Continued
4. | Income taxes: |
2007 | 2006 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Income taxes at domestic statutory tax rates | $ | 116,592 | $ | 79,412 | $ | 53,536 | ||||||
Increase (reduction) resulting from: | ||||||||||||
Federal large corporations tax | — | — | 2,156 | |||||||||
Non-taxable dividend from the parent company | (54,723 | ) | — | — | ||||||||
Settlement of notices of assessment | — | — | 1,080 | |||||||||
Non-deductible items deductible at a lower rate or for which a tax benefit was not recorded | (4,207 | ) | (1,001 | ) | 3,245 | |||||||
(Reduction) increase in future enacted tax rate | (18,808 | ) | (14,914 | ) | 10,661 | |||||||
Other | (596 | ) | 733 | (887 | ) | |||||||
Income taxes based on the effective income tax rate | $ | 38,258 | $ | 64,230 | $ | 69,791 | ||||||
2007 | 2006 | |||||||
(in thousands of Canadian dollars) | ||||||||
Operating loss carryforwards | $ | 21,650 | $ | 17,676 | ||||
Other provisions | 10,093 | 8,384 | ||||||
Derivative financial instruments | 13,614 | — | ||||||
Fixed assets | (165,808 | ) | (147,080 | ) | ||||
Other assets | (11,156 | ) | (5,837 | ) | ||||
Net future income tax liability | $ | (131,607 | ) | $ | (126,857 | ) | ||
F-22
Table of Contents
Notes to Consolidated Financial Statements, Continued
4. | Income taxes (continued): |
2007 | 2006 | |||||||
(in thousands of Canadian dollars) | ||||||||
Future income tax assets: | ||||||||
Current | $ | 31,585 | $ | 24,728 | ||||
Long-term | 2,970 | 3,358 | ||||||
34,555 | 28,086 | |||||||
Future income tax liability: | ||||||||
Long-term | (166,162 | ) | (154,943 | ) | ||||
Net future income tax liability | $ | (131,607 | ) | $ | (126,857 | ) | ||
5. | Inventories: |
2007 | 2006 | |||||||
(in thousands of Canadian dollars) | ||||||||
Subscribers’ equipment | $ | 20,855 | $ | 23,345 | ||||
Video store materials | 5,658 | 5,524 | ||||||
Supplies and spare parts | 12,932 | 10,582 | ||||||
$ | 39,445 | $ | 39,451 | |||||
F-23
Table of Contents
Notes to Consolidated Financial Statements, Continued
6. | Subordinated loan to parent company: |
2007 | 2006 | |||||||
(in thousands of Canadian dollars) | ||||||||
Subordinated loan — Quebecor Média Inc. | $ | 1,995,000 | $ | — | ||||
7. | Fixed assets: |
2007 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Receiving and distribution networks | $ | 2,512,273 | $ | 1,345,774 | $ | 1,166,499 | ||||||
Furniture and equipment | 413,637 | 291,776 | 121,861 | |||||||||
Terminals and operating system | 138,583 | 58,439 | 80,144 | |||||||||
Coding and transmission material | 7,541 | 3,004 | 4,537 | |||||||||
Buildings | 50,140 | 17,216 | 32,924 | |||||||||
Land | 2,840 | — | 2,840 | |||||||||
$ | 3,125,014 | $ | 1,716,209 | $ | 1,408,805 | |||||||
F-24
Table of Contents
Notes to Consolidated Financial Statements, Continued
7. | Fixed assets (continued): |
2006 | ||||||||||||
Accumulated | Net book | |||||||||||
Cost | amortization | value | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Receiving and distribution networks | $ | 2,273,398 | $ | 1,194,817 | $ | 1,078,581 | ||||||
Furniture and equipment | 365,533 | 264,765 | 100,768 | |||||||||
Terminals and operating system | 151,624 | 79,429 | 72,195 | |||||||||
Coding and transmission material | 8,047 | 2,695 | 5,352 | |||||||||
Buildings | 45,342 | 15,649 | 29,693 | |||||||||
Land | 2,840 | — | 2,840 | |||||||||
$ | 2,846,784 | $ | 1,557,355 | $ | 1,289,429 | |||||||
8. | Other assets: |
2007 | 2006 | |||||||
(in thousands of Canadian dollars) | ||||||||
Deferred connection fees | $ | 18,794 | $ | 18,201 | ||||
Development and pre-operating costs (ii) | 2,617 | 4,227 | ||||||
Financing costs (i) | — | 14,499 | ||||||
Deferred pension charges (note 18) | 3,035 | 3,113 | ||||||
Video rental inventory | 4,562 | 3,739 | ||||||
Easements at cost (with indefinite life) | 994 | 994 | ||||||
Other | 464 | 509 | ||||||
$ | 30,466 | $ | 45,282 | |||||
(i) | Net of accumulated amortization of $5.0 million in 2006. | |
(ii) | Net of accumulated amortization of $4.3 million in 2007 and $2.2 million in 2006. |
F-25
Table of Contents
Notes to Consolidated Financial Statements, Continued
9. | Additional Amount payable: |
10. | Long-term debt: |
Effective | ||||||||||||||||
interest rate as of | ||||||||||||||||
December 31, | Year of | |||||||||||||||
2007 | maturity | 2007 | 2006 | |||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||
Bank credit facility (i) | 5.58 | % | 2009 | $ | 147,721 | $ | 49,000 | |||||||||
Senior Notes(1) (ii) | 6.59 | % | 2014 | 652,816 | 769,105 | |||||||||||
Senior Notes(1) (iii) | 6.44 | % | 2015 | 172,818 | 203,065 | |||||||||||
973,355 | 1,021,170 | |||||||||||||||
Change in fair value related to hedged interest rate risks | (14,477 | ) | — | |||||||||||||
Adjustment related to embedded derivatives | 4,636 | — | ||||||||||||||
Financing fees, net of amortization(2) | (12,526 | ) | — | |||||||||||||
$ | 950,988 | $ | 1,021,170 | |||||||||||||
(1) | Year-end exchange rates were used to translate debt issued in a foreign currency. | |
(2) | Net of accumulated amortization of $7.0 million. |
F-26
Table of Contents
Notes to Consolidated Financial Statements, Continued
10. | Long-term debt (continued): |
(i) | The credit facility of $450.0 million is a revolving credit facility maturing in November 2009 and it bears interest at bankers’ acceptance or Canadian prime rates, plus a margin, depending on the Company’s leverage ratio. The credit facility is secured by a first ranking hypothec on the universality of all tangible and intangible assets, current and future, of the Company and its subsidiaries. The credit facility contains covenants such as maintaining certain financial ratios and some restrictions on the payment of dividends and asset acquisitions and dispositions. | ||
(ii) | In October 2003, a first series of US$335.0 million in aggregate principal amount of Senior Notes was issued at a discount for net proceeds of US$331.9 million, before issuance fees of US$5.7 million. In November 2004, a second series of US$315.0 million in aggregate principal amount of Senior Notes was issued at a premium for total proceeds of US$330.8 million, before issuance fees of US$4.1 million. These notes bear interest at a rate of 6.875%, payable every six months on January 15 and July 15, and mature in January 2014. The notes contain certain restrictions on the Company, including limitations on its ability to incur additional indebtedness, and are unsecured. The Senior Notes are guaranteed by specific subsidiaries of the Company. The Company has fully hedged the foreign currency risk associated with the Senior Notes by using cross-currency interest rate swaps, under which all payments were set in Canadian dollars. The notes are redeemable at the option of the Company, in whole or in part, at any time on or after January 15, 2009, at a decreasing premium. | ||
(iii) | In September 2005, US$175.0 million in aggregate principal amount of Senior Notes were issued at a discount for net proceeds of US$174.1 million, before issuance fees of US$3.2 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 the Company, including limitations on its ability to incur additional indebtedness, and are unsecured. The Senior Notes are guaranteed by specific subsidiaries of the Company. The Company has fully hedged the foreign currency risk associated with the Senior Notes by using cross-currency interest rate swaps, under which all payments were set in Canadian dollars. The notes are redeemable at the option of the Company, in whole or in part, at any time on or after December 15, 2010, at a decreasing premium. | ||
(iv) | The $150.0 million subordinated loan from the Company’s parent company, bore interest at the rate of 90-day Bankers’ Acceptance rates plus 1.5%. On January 17, 2006, the Company reimbursed the principal amount of the subordinated loan and all interest owed at that date to Quebecor Media Inc. for a total consideration of $168.0 million. | ||
(v) | On July 15, 2005, the Company repurchased the entire aggregate principal amount of its subsidiary, CF Cable TV Inc., Senior Secured First Priority Notes, which bore interest at 9.125%, for a total cash consideration of $99.3 million, including the cost of unwinding a hedging contract. The repurchase resulted in a gain of $0.8 million. |
F-27
Table of Contents
Notes to Consolidated Financial Statements, Continued
10. | Long-term debt (continued): |
(in thousands of Canadian dollars) | ||||
2008 | $ | — | ||
2009 | 147,721 | |||
2010 | — | |||
2011 | — | |||
2012 | — | |||
2013 and thereafter | 825,634 | |||
11. | Share capital: |
2007 | 2006 | |||||||
(in thousands of Canadian dollars) | ||||||||
Issued and paid: | ||||||||
2,515,276 common shares, Series A | $ | 46,177 | $ | 345,727 | ||||
Nil preferred shares, Series G | ||||||||
(65,000 as of December 31, 2006) | — | — | ||||||
$ | 46,177 | $ | 345,727 | |||||
F-28
Table of Contents
11. | Share capital (continued): |
F-29
Table of Contents
Notes to Consolidated Financial Statements, Continued
12. | Stock-based compensation plan: |
F-30
Table of Contents
Notes to Consolidated Financial Statements, Continued
12. | Stock-based compensation 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, 2007 and 2006: |
2007 | 2006 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
average | average | |||||||||||||||
exercise | exercise | |||||||||||||||
Options | price | Options | price | |||||||||||||
Balance at beginning of year | 861,767 | $ | 23.43 | 588,257 | $ | 19.34 | ||||||||||
Granted | 1,255,000 | 44.45 | 291,782 | 31.97 | ||||||||||||
Exercised | (1,936 | ) | 22.73 | (8,887 | ) | 29.48 | ||||||||||
Cancelled | (13,605 | ) | 28.74 | (9,385 | ) | 27.17 | ||||||||||
Balance at end of year | 2,101,226 | $ | 35.95 | 861,767 | $ | 23.43 | ||||||||||
Vested options at end of year | 558,096 | $ | 19.44 | 378,451 | $ | 18.69 | ||||||||||
The following table gives summary information on outstanding options as at December 31, 2007: |
Outstanding options | Vested options | |||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
average | average | average | ||||||||||||||||||||||
years to | exercise | exercise | ||||||||||||||||||||||
Range of exercise price | Number | maturity | price | Number | price | |||||||||||||||||||
$15.19 to 21.77 | 524,869 | 5.01 | $ | 18.51 | 510,519 | $ 18.50 | ||||||||||||||||||
22.98 to 33.41 | 321,357 | 8.33 | 31.25 | 47,577 | 29.55 | |||||||||||||||||||
33.42 to 44.45 | 1,255,000 | 9.59 | 44.45 | — | — | |||||||||||||||||||
$15.19 to 44.45 | 2,101,226 | 8.26 | $ | 35.95 | 558,096 | $ 19.44 | ||||||||||||||||||
For the year ended December 31, 2007, a charge of $11.6 million related to the plan was recorded in the statement of income ($5.1 million for 2006). |
F-31
Table of Contents
Notes to Consolidated Financial Statements, Continued
13. | Accumulated other comprehensive loss: |
(in thousands of Canadian dollars) | ||||
Balance as at January 1, 2007 | $ | — | ||
Cumulative effect of changes in accounting policies (note 1 (b)) | (22,446 | ) | ||
Other comprehensive income, net of income tax | 15,144 | |||
Balance as at December 31, 2007 | $ | (7,302 | ) | |
No significant amount is expected to be reclassified to income over the next twelve months, in connection with derivatives designated as cash flow hedges. The remaining accumulated other comprehensive loss is expected to be reversed over an eight-year period. | ||
14. | Commitments and guarantees: |
(a) | Leases and purchasing agreements: | ||
Under the terms of operating leases or purchasing agreements, the Company is committed to make the following minimum annual payments over the next years: |
(in thousands of Canadian dollars) | ||||||||||||
Minimum | Leases | Minimum net | ||||||||||
annual committed | assumed by | annual committed | ||||||||||
payments | franchisees (c) | payments | ||||||||||
2008 | $ 35,766 | $ 2,211 | $ 33,555 | |||||||||
2009 | 15,486 | 1,845 | 13,641 | |||||||||
2010 | 9,923 | 1,465 | 8,458 | |||||||||
2011 | 6,507 | 964 | 5,543 | |||||||||
2012 | 4,984 | 685 | 4,299 | |||||||||
2013 and thereafter | 8,353 | 1,273 | 7,080 | |||||||||
The operating lease expense amounted to $20.8 million in 2007, $21.0 million in 2006 and $21.3 million in 2005. |
F-32
Table of Contents
Notes to Consolidated Financial Statements, Continued
14. | Commitments and guarantees (continued): |
(b) | Management fee: | ||
The Company pays annual management fees to the parent company for services rendered to the Company, including internal audit, legal and corporate, financial planning and treasury, tax, real estate, human resources, risk management, public relations and other services. Management fees amounted to $46.9 million in 2007, $23.4 million in 2006 and $13.3 million in 2005. The agreement provides for an annual management fee to be agreed upon for the year 2008. In addition, the parent company is entitled to the reimbursement of out-of-pocket expenses incurred in connection with the services provided under the agreement. | |||
(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, 2007, the maximum exposure in respect of these guarantees is $7.2 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, 2007, the maximum exposure in respect of these guarantees is $8.4 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. | |||
Outsourcing companies and suppliers: | |||
In the normal course of its operations, the Company enters into contractual agreements with outsourcing companies and suppliers. In some cases, the Company agrees to provide indemnifications in the event of legal procedures initiated against them. In other cases, the Company provides indemnification to counterparties for damages resulting from the outsourcing companies and suppliers. The nature of the indemnification agreements prevents the Company from estimating the maximum potential liability it could be required to pay. No amount has been accrued in the consolidated financial statements with respect to these indemnifications. |
F-33
Table of Contents
Notes to Consolidated Financial Statements, Continued
15. | Financial instruments: | |
The Company is exposed to risks relating to foreign exchange fluctuations and to risks relating to interest rate fluctuations. In order to manage these risks, the Company and its subsidiaries use derivative financial instruments (i) to achieve an optimal balance of fixed and variable rate debts and (ii) to set in Canadian dollars all future payments on debts denominated in US dollars (interest and principal) and on certain equipment or inventory expenditures denominated in a foreign currency. None of these instruments is held or issued for speculative purposes. The Company designates its derivative financial instruments either as fair value hedges or cash flow hedges. |
(a) | Description of derivative financial instruments: |
(i) | Foreign exchange forward contracts: |
Average | Notional | |||||||||||
Currencies (sold/bought) | Maturing | exchange rate | amount | |||||||||
$/ US$ | Less than 1 year | 1.0511 | 76.8 | |||||||||
(ii) | Cross-currency interest rate swaps: |
Exchange rate | ||||||||||||||||||||
Notional | Annual | Annual | of interest and | |||||||||||||||||
amount | effective | nominal | capital payments | |||||||||||||||||
Period | (in millions | interest | interest | per CA dollar for | ||||||||||||||||
covered | of dollars) | rate | rate | one US dollar | ||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 190.0 | Bankers’ | 6.875 | % | 1.2000 | |||||||||||||
acceptances | ||||||||||||||||||||
3 months | ||||||||||||||||||||
plus 2.80% | ||||||||||||||||||||
Senior Notes | 2004 to 2014 | US$ | 125.0 | 7.45 | % | 6.875 | % | 1.1950 | ||||||||||||
Senior Notes | 2003 to 2014 | US$ | 200.0 | Bankers’ | 6.875 | % | 1.3425 | |||||||||||||
acceptances | ||||||||||||||||||||
3 months | ||||||||||||||||||||
plus 2.73% | ||||||||||||||||||||
Senior Notes | 2003 to 2014 | US$ | 135.0 | 7.66 | % | 6.875 | % | 1.3425 | ||||||||||||
Senior Notes | 2005 to 2015 | US$ | 175.0 | 5.98 | % | 6.375 | % | 1.1781 | ||||||||||||
F-34
Table of Contents
Notes to Consolidated Financial Statements, Continued
15. | Financial instruments (continued): |
(b) | Fair value of financial instruments: | ||
The carrying amount of accounts receivable, 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. | |||
Carrying value and fair value of long-term debt and derivative financial instruments as of December 31, 2007 and 2006 are as follows: |
2007 | 2006 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
value | value | value | value | |||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||
Long-term debt | $ | 973,355 | $ | 938,158 | $ | 1,021,170 | $ | 1,010,601 | ||||||||
Cross currency interest rate swaps | (241,320 | ) | (241,320 | ) | (71,828 | ) | (141,062 | ) | ||||||||
Forward foreign exchange | (4,236 | ) | (4,236 | ) | — | 2,083 | ||||||||||
The carrying value of long-term debt excludes adjustments to record changes in fair value of long-term debt related to hedged interest risk, the embedded derivatives and the financing fees. | |||
The fair value of the long-term debt is estimated based on discounted cash flows using year-end market yields or market value of similar instruments with the same maturity. The fair value of the derivative financial instruments is estimated using year-end market rates, and reflects the amount the Company would receive or pay if the instruments were closed out at those dates. | |||
(c) | Credit risk management: | ||
The Company is exposed to credit losses resulting from defaults by counterparties when using financial instruments. | |||
When the Company enters into derivative contracts, the counterparties (either foreign or Canadian) must have at least credit ratings in accordance with the Company’s credit risk management policy and are subject to concentration limits. The Company does not foresee any failure by counterparties in meeting their obligations. The Company is exposed to a credit risk towards its customers. However, credit risk concentration is minimized because of the large number of customers. | |||
The Company does not believe that it is exposed to an unusual level of customer credit risk. |
F-35
Table of Contents
Notes to Consolidated Financial Statements, Continued
16. | 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: |
2007 | 2006 | 2005 | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Parent company: | ||||||||||||
Operating revenue | $ | 139 | $ | 150 | $ | 103 | ||||||
Direct costs and operating expenses | 3,908 | 4,110 | 4,212 | |||||||||
Operating expenses recovered | (23 | ) | (23 | ) | (155 | ) | ||||||
Companies under common control: | ||||||||||||
Operating revenue | 22,164 | 25,146 | 28,673 | |||||||||
Direct costs and operating expenses | 60,187 | 59,384 | 53,469 | |||||||||
Directors of the parent company: | ||||||||||||
Direct costs and operating expenses | 403 | 682 | 768 | |||||||||
Acquisition of deferred financing costs | — | — | 85 | |||||||||
Operating transactions: | ||
The Company entered into an affiliation agreement with Groupe Archambault Inc. (“Archambault”), a company under common control, a subsidiary of Quebecor Media. This agreement provides that the Company pay to Archambault 54% of all revenues generated from the fees paid by customers to use Archambault’s video-on-demand services. This agreement expires on August 31, 2008 and is renewable. | ||
In connection with this affiliation agreement, the Company entered into a video-on-demand services agreement with Archambault. Under this agreement, various technical services will be provided to Archambault. In consideration of these services, Archambault will pay a fee of 8% of all revenues generated from fees paid by customers to use Archambault’s video-on-demand services. The term of this agreement is the same as that of the affiliation agreement. |
F-36
Table of Contents
Notes to Consolidated Financial Statements, Continued
16. | Related party transactions (continued): | |
Operating transactions (continued): | ||
Under the affiliation agreement, the Company paid fees to Archambault of $13.3 million, $9.0 million and $6.7 million and received fees from Archambault of $2.6 million, $1.9 million and $1.0 million for the years 2007, 2006 and 2005, respectively. | ||
On January 1, 2006, pursuant to the merger of Videotron Telecom, Videotron Ltd. became party to the information technology outsourcing agreement between its affiliates, Quebecor World Inc. and Videotron Telecom. Under this agreement, Quebecor World Inc. has retained Videotron Ltd. to outsource Quebecor World Inc.’s corporate information technology services. | ||
Tax transactions: | ||
During the years ended December 31, 2006 and 2005, the Company acquired from a company under common control of the ultimate parent company income tax deductions of $0.3 million and $0.7 million, respectively, that were recorded as income taxes receivable or as future income tax assets. These transactions allowed the Company to realize gains of $0.02 million in 2006 and 2005, which were credited to contributed surplus. | ||
On December 18 and 21, 2007, Videotron’s ultimate parent company, Quebecor Inc., transferred to the Company a total of $57.1 million of non-capital tax losses in exchange for net cash consideration of $12.8 million. This transaction was recorded at the exchange amount. As a result, the Company recorded an income tax asset of $17.7 million and the difference of $4.9 million, between the net cash consideration and the income tax asset, was recorded as a deferred credit, included in accounts payable and accrued liabilities, which will reduce the income tax expense in the future as these tax deductions are used. | ||
On December 21, 2007, Videotron’s ultimate parent company, Quebecor Inc., transferred to CF Cable TV Inc., a wholly-owned subsidiary of the Company, $9.4 million of non-capital tax losses in exchange for a net cash consideration of $2.1 million. This transaction was recorded at the exchange amount. As a result, CF Cable TV Inc. recorded an income tax asset of $2.9 million and the difference of $0.8 million between the net cash consideration and the income tax asset was recorded as a deferred credit, included in accounts payable and accrued liabilities, which will reduce the income tax expense in the future as these tax deductions are used. |
F-37
Table of Contents
Notes to Consolidated Financial Statements, Continued
17. | Contingencies: |
(a) | On July 20, 2007, a motion to certify a class action lawsuit was filed in the Province of Québec against the Company in connection with an interruption of Internet service on July 18, 2007 and other sporadic interruptions of Internet service. The plaintiff is claiming a credit for the portion of the fees paid for the Internet service for the duration of the interruptions. The plaintiff is also seeking punitive damages and damages for troubles and inconveniences. The class certification hearing has not been scheduled yet. Although it is not possible as of the date of these financial statements to determine with a reasonable degree of certainty the outcome of this legal proceeding, the Company’s management believes that the suit is without merit and intends to vigorously defend its position. | ||
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, 2007 cannot be determined with certainty, management believes that their outcome will not have a material adverse impact on its operating results or financial position. | |||
(b) | In December 2006, the Federal Court of Canada ruled that the Part II license fees charged by the CRTC wereultra vires(unconstitutional), in fact and in law, and thus the CRTC could no longer charge Part II license fees. The judgment also established that the Company would not be allowed to claim any amounts paid in previous years. The decision is currently being appealed. However, on October 1, 2007, the CRTC officially confirmed its intention not to collect the fees due on November 30, 2007 and subsequent years. | ||
Management is of the opinion that the Federal Court of Appeal will not reverse the judgment of December 2006. Accordingly, during the third quarter of 2007, the Company reversed all of its current Part II license fees accrual of $11.1 million. |
18. | Pension plans and postretirement benefits: | |
The Company and subsidiaries 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, 2006. The next actuarial valuations will be performed during fiscal year 2010 as at December 31, 2009. | ||
The Company provides postretirement benefits to eligible employees. The costs of these benefits are accounted for during the employee’s active service period. |
F-38
Table of Contents
Notes to Consolidated Financial Statements, Continued
18. | �� | Pension plans and postretirement benefits (continued): |
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, 2007 and 2006, and a statement of funded status at these dates: |
2007 | 2006 | |||||||||||||||||||||||
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 | $ | 87,523 | $ | 9,822 | $ | 97,345 | $ | 78,434 | $ | 7,755 | $ | 86,189 | ||||||||||||
Service costs | 6,217 | 375 | 6,592 | 5,876 | 355 | 6,231 | ||||||||||||||||||
Plan participants’ contributions | 3,428 | — | 3,428 | 4,115 | — | 4,115 | ||||||||||||||||||
Interest costs | 4,730 | 504 | 5,234 | 4,265 | 403 | 4,668 | ||||||||||||||||||
Actuarial loss (gain) | (6,574 | ) | (855 | ) | (7,429 | ) | (1,220 | ) | 1,309 | 89 | ||||||||||||||
Benefits and settlement paid | (4,985 | ) | (108 | ) | (5,093 | ) | (3,947 | ) | — | (3,947 | ) | |||||||||||||
Other | — | 110 | 110 | — | — | — | ||||||||||||||||||
Benefit obligations, end of year | $ | 90,339 | $ | 9,848 | $ | 100,187 | $ | 87,523 | $ | 9,822 | $ | 97,345 | ||||||||||||
2007 | 2006 | |||||||||||||||||||||||
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 | $ | 87,261 | $ | — | $ | 87,261 | $ | 70,781 | $ | — | $ | 70,781 | ||||||||||||
Plan participants’ contributions | 3,428 | — | 3,428 | 4,115 | — | 4,115 | ||||||||||||||||||
Actual return on plan assets | 1,084 | — | 1,084 | 13,616 | — | 13,616 | ||||||||||||||||||
Employer contributions | 4,459 | 108 | 4,567 | 2,696 | 62 | 2,758 | ||||||||||||||||||
Benefits and settlement paid | (4,985 | ) | (108 | ) | (5,093 | ) | (3,947 | ) | (62 | ) | (4,009 | ) | ||||||||||||
Fair value of plan assets, end of year | $ | 91,247 | $ | — | $ | 91,247 | $ | 87,261 | $ | — | $ | 87,261 | ||||||||||||
F-39
Table of Contents
Notes to Consolidated Financial Statements, Continued
18. | Pension plans and postretirement benefits (continued): | |
The defined benefit plan assets are comprised of: |
2007 | 2006 | |||||||
Equity securities | 61.7 | % | 68.1 | % | ||||
Debt securities | 29.3 | % | 26.1 | % | ||||
Other | 9.0 | % | 5.8 | % | ||||
2007 | 2006 | |||||||||||||||||||||||
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 | $ | 908 | $ | (9,848 | ) | $ | (8,940 | ) | $ | (262 | ) | $ | (9,822 | ) | $ | (10,084 | ) | |||||||
Past service cost gain | — | (965 | ) | (965 | ) | — | (1,032 | ) | (1,032 | ) | ||||||||||||||
Unrecognized actuarial loss | 566 | 2,718 | 3,284 | 1,891 | 3,714 | 5,605 | ||||||||||||||||||
Net amount recognized in balance sheet | $ | 1,474 | $ | (8,095 | ) | $ | (6,621 | ) | $ | 1,629 | $ | (7,140 | ) | $ | (5,511 | ) | ||||||||
Amounts recognized in the consolidated balance sheets are as follows: |
2007 | 2006 | |||||||||||||||||||||||
Post- | Post- | |||||||||||||||||||||||
Pension | retirement | Pension | retirement | |||||||||||||||||||||
benefits | benefits | Total | benefits | benefits | Total | |||||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||||||
Deferred pension charges | $ | 3,149 | $ | (114 | ) | $ | 3,035 | $ | 3,215 | $ | (102 | ) | $ | 3,113 | ||||||||||
Accrued benefit liability | (1,675 | ) | (7,981 | ) | (9,656 | ) | (1,586 | ) | (7,038 | ) | (8,624 | ) | ||||||||||||
Net amount recognized | $ | 1,474 | $ | (8,095 | ) | $ | (6,621 | ) | $ | 1,629 | $ | (7,140 | ) | $ | (5,511 | ) | ||||||||
F-40
Table of Contents
Notes to Consolidated Financial Statements, Continued
18. | Pension plans and postretirement benefits (continued): | |
Components of the net benefit costs are as follows: |
2007 | ||||||||||||
Post- | ||||||||||||
Pension | retirement | |||||||||||
benefits | benefits | Total | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Service costs | $ | 6,217 | $ | 375 | $ | 6,592 | ||||||
Interest costs | 4,730 | 504 | 5,234 | |||||||||
Actual return on plan assets | (1,084 | ) | — | (1,084 | ) | |||||||
Current actuarial gain | (6,574 | ) | (855 | ) | (7,429 | ) | ||||||
Elements of net benefit cost adjustments to recognize the long-term nature and valuation allowance | 3,289 | 24 | 3,313 | |||||||||
Difference between actual and expected return on plan assets | (5,311 | ) | — | (5,311 | ) | |||||||
Deferral of current actuarial gain | 6,574 | 855 | 7,429 | |||||||||
Amortization of previously deferred actuarial loss | 62 | 141 | 203 | |||||||||
Other | — | (67 | ) | (67 | ) | |||||||
Total adjustments to recognize the long-term nature of benefit costs | 1,325 | 929 | 2,254 | |||||||||
Net benefit costs | $ | 4,614 | $ | 953 | $ | 5,567 | ||||||
2006 | ||||||||||||
Post- | ||||||||||||
Pension | retirement | |||||||||||
benefits | benefits | Total | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Service costs | $ | 5,876 | $ | 355 | $ | 6,231 | ||||||
Interest costs | 4,265 | 403 | 4,668 | |||||||||
Actual return on plan assets | (13,616 | ) | — | (13,616 | ) | |||||||
Current actuarial (gain) loss | (1,220 | ) | 1,309 | 89 | ||||||||
Elements of net benefit cost adjustments to recognize the long-term nature and valuation allowance | (4,695 | ) | 2,067 | (2,628 | ) | |||||||
Difference between actual and expected return on plan assets | 8,388 | — | 8,388 | |||||||||
Deferral of current actuarial gain (loss) | 1,220 | (1,309 | ) | (89 | ) | |||||||
Amortization of previously deferred actuarial loss | (676 | ) | 135 | (541 | ) | |||||||
Other | — | (67 | ) | (67 | ) | |||||||
Total adjustments to recognize the long-term nature of benefit costs | 8,932 | (1,241 | ) | 7,691 | ||||||||
Net benefit costs | $ | 4,237 | $ | 826 | $ | 5,063 | ||||||
F-41
Table of Contents
Notes to Consolidated Financial Statements, Continued
18. | Pension plans and postretirement benefits (continued): |
2005 | ||||||||||||
Post- | ||||||||||||
Pension | retirement | |||||||||||
benefits | benefits | Total | ||||||||||
(in thousands of Canadian dollars) | ||||||||||||
Service costs | $ | 3,695 | $ | 247 | $ | 3,942 | ||||||
Interest costs | 3,458 | 342 | 3,800 | |||||||||
Actual return on plan assets | (9,271 | ) | — | (9,271 | ) | |||||||
Current actuarial loss | 18,072 | 1,737 | 19,809 | |||||||||
Elements of net benefit cost adjustments to recognize the long-term nature and valuation allowance | 15,954 | 2,326 | 18,280 | |||||||||
Difference between actual and expected return on plan assets | 4,740 | — | 4,740 | |||||||||
Deferral of current actuarial loss | (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 | ) | ||||||
Net benefit costs | $ | 2,683 | $ | 541 | $ | 3,224 | ||||||
As at December 31, 2007, defined contribution plan assets included shares of the parent company and a company under common control at a market value of $1.0 million ($1.1 million in 2006). | ||
The expense related to defined contribution pension plans amounts to $5.2 million for the year ended December 31, 2007 ($4.8 million in 2006 and $4.1 million in 2005). | ||
Also, the total cash amount paid or payable for employee future benefits for all plans, consisting of cash contributed by the Company to its funded pension plans, cash payment directly to beneficiaries for its unfunded other benefit plans and cash contributed to its defined contribution plans, totalled $9.8 million for the year ended December 31, 2007 ($7.5 million in 2006 and $5.7 million in 2005). |
F-42
Table of Contents
Notes to Consolidated Financial Statements, Continued
18. | Pension plans and postretirement benefits (continued): | |
The weighted average rates used in the measurement of the Company’s benefit obligations as at December 31, 2007, 2006 and 2005 and current periodic costs are as follows: |
2007 | 2006 | 2005 | ||||||||||
Benefit obligations: | ||||||||||||
Rates at end of year: | ||||||||||||
Discount rate | 5.50 | % | 5.00 | % | 5.00 | % | ||||||
Expected return on plan assets | 7.25 | % | 7.25 | % | 7.50 | % | ||||||
Rate of compensation increase | 3.75 | % | 3.50 | % | 3.50 | % | ||||||
Current periodic costs: | ||||||||||||
Rates at beginning of year: | ||||||||||||
Discount rate | 5.00 | % | 5.00 | % | 6.00 | % | ||||||
Expected return on plan assets | 7.25 | % | 7.50 | % | 7.50 | % | ||||||
Rate of compensation increase | 3.50 | % | 3.50 | % | 3.50 | % | ||||||
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligations was 8.6% at the end of 2007. The cost is expected to decrease gradually to 5% over the next eight years and remain at that level thereafter. A one-percentage point change in the assumed health care cost trend would have the following effects: |
Postretirement | ||||||||
benefits | ||||||||
Increase | Decrease | |||||||
Sensitivity analysis | 1% | 1% | ||||||
Effect on service and interest costs | $ | 1 | $ | (1 | ) | |||
Effect on benefit obligations | 17 | (15 | ) | |||||
F-43
Table of Contents
Notes to Consolidated Financial Statements, Continued
19. | Subsequent events: |
(a) | Share capital: | ||
In January and February 2008, the Company reduced the paid-up capital of its common shares by total cash distributions of $120.0 million, of which $73.8 million was affected to contributed surplus. | |||
(b) | Subordinated loan to parent company: | ||
On January 4, 2008, the Company contracted a subordinated loan of $415.0 million from Quebecor Média Inc., bearing interest at a rate of 10.5%, payable every six months on June 20 and December 20, and maturing on January 4, 2023. On the same day, the Company invested the total proceeds of $415.0 million into 415,000 preferred shares, Series B, of 9101-0835 Quebec Inc., a subsidiary of Quebecor Média Inc. These shares carry the right to receive an annual dividend of 10.85%, payable semi-annually. | |||
On January 4, 2008, CF Cable TV Inc., a wholly-owned subsidiary of the Company, contracted a subordinated loan of $170.0 million from Quebecor Média Inc., bearing interest at a rate of 10.5%, payable every six months on June 20 and December 20, and maturing on January 4, 2023. On the same day, CF Cable TV Inc. invested the total proceeds of $170.0 million into 170,000 preferred shares, Series B, of 9101-0835 Quebec Inc., a subsidiary of Quebecor Média Inc. These shares carry the right to receive an annual dividend of 10.85%, payable semi-annually. | |||
The above transactions were carried out for tax consolidation purposes of Quebecor Média Inc. and its subsidiaries. |
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States: | |
The Company’s consolidated financial statements are prepared in accordance with Canadian GAAP which differ in some respects from those applicable in the United States (“U.S.”). The following tables set forth the impact of material differences between Canadian and U.S. GAAP on the Company’s consolidated financial statements. |
F-44
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(a) | Consolidated Statements of Income |
2007 | 2006 | 2005 | |||||||||||
(in thousands of Canadian dollars) | |||||||||||||
Net income, as reported in consolidated statements of income per Canadian GAAP | $ | 325,692 | $ | 183,691 | $ | 102,691 | |||||||
Adjustments: | |||||||||||||
Push-down basis of accounting (i) | (5,249 | ) | (6,253 | ) | (7,096 | ) | |||||||
Development and pre-operating costs (iii) | 1,522 | (1,454 | ) | (795 | ) | ||||||||
Derivative instruments (iv) | 5,006 | (8,185 | ) | (1,058 | ) | ||||||||
Share-based payment (vii) | (1,900 | ) | (900 | ) | — | ||||||||
Income taxes (v) | (1,354 | ) | 1,866 | 4,961 | |||||||||
(1,975 | ) | (14,926 | ) | (3,988 | ) | ||||||||
Net income as adjusted per U.S. GAAP | $ | 323,717 | $ | 168,765 | $ | 98,703 | |||||||
(b) | Consolidated Statements of Comprehensive Income |
2007 | 2006 | 2005 | |||||||||||
(in thousands of Canadian dollars) | |||||||||||||
Comprehensive income as per Canadian GAAP | $ | 340,836 | $ | 183,691 | $ | 102,691 | |||||||
Adjustments to net income as per (a) above | (1,975 | ) | (14,926 | ) | (3,988 | ) | |||||||
Adjustments to other comprehensive income: | |||||||||||||
Pension and postretirement benefits (vi) | 2,254 | 153 | (61 | ) | |||||||||
Derivative instruments (iv) | 302 | 1,963 | (18,271 | ) | |||||||||
Income taxes (v) | (851 | ) | (1,704 | ) | 10,882 | ||||||||
1,705 | 412 | (7,450 | ) | ||||||||||
Comprehensive income as per U.S. GAAP | $ | 340,566 | $ | 169,177 | $ | 91,253 | |||||||
F-45
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(b) | Consolidated Statements of Comprehensive Income (continued) | ||
Accumulated other comprehensive loss as at December 31, 2007, 2006 and 2005 is as follows: |
2007 | 2006 | 2005 | |||||||||||
(in thousands of Canadian dollars) | |||||||||||||
Accumulated comprehensive loss as per Canadian GAAP | $ | (7,302 | ) | $ | — | $ | — | ||||||
Adjustments: | |||||||||||||
Pension and postretirement benefits (vi) | (2,239 | ) | (4,493 | ) | (153 | ) | |||||||
Derivative instruments (iv) | 302 | (31,624 | ) | (33,587 | ) | ||||||||
Income taxes (v) | 482 | 10,511 | 10,882 | ||||||||||
(1,455 | ) | (25,606 | ) | (22,858 | ) | ||||||||
Accumulated other comprehensive loss at end of year | $ | (8,757 | ) | $ | (25,606 | ) | $ | (22,858 | ) | ||||
(c) | Consolidated Shareholder’s Equity |
2007 | 2006 | ||||||||
(in thousands of Canadian dollars) | |||||||||
Shareholder’s equity based on Canadian GAAP | $ | 259,110 | $ | 249,581 | |||||
Cumulative adjustments: | |||||||||
Push-down basis of accounting (i) | 4,487,655 | 4,492,904 | |||||||
Goodwill impairment (ii) | (2,274,627 | ) | (2,274,627 | ) | |||||
Development and pre-operating costs (iii) | (2,624 | ) | (4,146 | ) | |||||
Accounting for derivative instruments and hedging activities (iv) | 4,952 | (47,108 | ) | ||||||
Share-based payment (vii) | (2,800 | ) | (900 | ) | |||||
Income taxes (v) | 6,426 | 17,926 | |||||||
Pension and postretirement benefits (vi) | (2,239 | ) | (4,493 | ) | |||||
Shareholder’s equity based on U.S. GAAP | $ | 2,475,853 | $ | 2,429,137 | |||||
F-46
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(i) | Push-down basis of accounting: | ||
The basis of accounting used in the preparation of this reconciliation of Canadian GAAP to U.S. GAAP reflects the push-down resulting from the acquisition of the Company and its subsidiaries on October 23, 2000 by Quebecor Media Inc. 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 $110.8 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 $41.5 million; | ||
(d) | Future income tax liability increased by $24.4 million; and | ||
(e) | The $4,631.1 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 $4,653.4 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 U.S. GAAP purposes has been increased by $16.9 million. |
(ii) | Goodwill impairment: | ||
The accounting requirements for goodwill under Canadian GAAP and U.S. 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 U.S. 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”. |
F-47
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(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 U.S. GAAP, these costs are expensed as incurred. | |||
(iv) | Accounting for derivative instruments and hedging activities: | ||
Prior to 2007, under Canadian GAAP, derivative financial instruments were accounted for on an accrual basis. Realized and unrealized gains and losses were deferred and recognized in income in the same period and in the same financial statement category as the income or expense arising from the corresponding hedged positions. Since January 1, 2007, standards for hedge accounting under Canadian GAAP are now similar to those under U.S. GAAP, as established by Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”. | |||
However, under Canadian GAAP, certain embedded derivatives, such as early settlement option included in some of the Company’s borrowing agreements, do not meet the criteria to be considered closely related to their host contracts and, therefore, must be recorded at their fair value. Under U.S. GAAP, these embedded derivatives are considered closely related to their host contract and do not have to be recorded at their fair value. Accordingly, measurement of ineffectiveness recorded in earnings for hedging relationships can differ from the measurement under Canadian GAAP. | |||
Further differences result from the different transition rules and timing of the adoption of the current standards in Canada and in the United States for derivative instruments and hedge accounting. | |||
(v) | Income taxes: | ||
These adjustments represent the tax impact of the U.S. GAAP adjustments. Furthermore, under Canadian GAAP, income taxes are measured using substantively enacted tax rates, while under U.S. GAAP measurement is based on enacted tax rates. |
F-48
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(v) | Income taxes (continued): | ||
Under U.S. GAAP, on January 1, 2007, the FASB issued interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance as to derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 had no impact on the Company’s opening retained deficit under U.S. GAAP. | |||
In December 2007, the Company and a subsidiary entered into tax consolidation transactions with a parent company by which tax losses were transferred between the parties. Under GAAP in Canada, these transactions were recorded in accordance with CICA Handbook 3840, Related Party Transactions. These transactions resulted in the recognition of a deferred credit of $5.7 million. Under U.S. GAAP, since these transactions related to asset transfers between a subsidiary and a parent company, the difference between the carrying value of the tax benefits transferred and the cash consideration received or paid is recognized in contributed surplus. | |||
(vi) | Pension and postretirement benefits: | ||
Under GAAP in the United States, Statement No. 158,Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans(FAS 158), was issued in 2006 and requires the recognition in the balance sheet of the over or under funded positions of defined benefit pension and other postretirement plans, along with a corresponding non-cash adjustment, which will be recorded in the accumulated other comprehensive loss. FAS158 was effective prospectively for fiscal years ended after December 15, 2006 and the amounts presented for prior periods have not been restated for this change. This change in accounting policy resulted in an adjustment of $3,160 recorded in accumulated other comprehensive loss and did not have an impact on the Company’s consolidated statement of operations. |
F-49
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(vi) | Pension and postretirement benefits (continued): | ||
Under GAAP in the United States, for 2005 and prior years, if the accumulated benefit obligation exceeded the fair value of a pension plan’s assets, the Company was required to recognize a minimum accrued liability equal to the unfunded accumulated benefit obligation, which was recorded in accumulated other comprehensive loss. The additional minimum liability concept from FAS 87 has been eliminated with the adoption of FAS158. | |||
Under GAAP in Canada, a company is not required to recognize the over or underfunded positions or to recognize an additional minimum liability. | |||
(vii) | Share-based payment: | ||
Under U.S. GAAP, the Company adopted the new standards of FASB No. 123(R), Share-Based Payment (SFAS123(R)). In accordance with SFAS 123(R), the liability related to stock-based awards that call for settlement in cash or other assets must be measured at its fair value based on the fair value of stock option awards, and shall be remeasured at the end of each reporting period through settlement. Under Canadian GAAP, the liability is measured and remeasured based on the intrinsic value of the stock option awards instead of the fair value. | |||
(viii) | Consolidated statements of cash flows: | ||
The adjustments to comply with U.S. GAAP, with respect to the consolidated statements of cash flows for the years ended December 31, 2007, 2006 and 2005 would have no effect on cash related to operations, cash related to investing activities and to financing activities. | |||
(ix) | Guaranteed debt: | ||
The consolidated information below has been presented in accordance with the requirements of the Securities and Exchange Commission for guarantor financial statements. |
F-50
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): |
(ix) | Guaranteed debt (continued): | ||
The Company’s Senior Notes due 2014 and 2015 described in note 10 are guaranteed by specific subsidiaries of the Company (the “Subsidiary Guarantors”). The accompanying condensed consolidated financial information as at December 31, 2007 and 2006 and for the years 2007, 2006 and 2005 has been prepared in accordance with U.S. 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 “Videotron Ltd.”. 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. and Le SuperClub Vidéotron Ltée, and its subsidiary, Groupe de Divertissement SuperClub Inc. | |||
The “Non-Subsidiary Guarantors” are SETTE inc. and Videotron US Inc. | |||
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 and Vidéotron (Régional) Ltée, a wholly-owned subsidiary of CF Cable TV Inc., which also became a guarantor of the senior notes of Videotron Ltd. |
F-51
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Income | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2007 |
Non- | Adjustments | |||||||||||||||||||
Videotron | Subsidiary | subsidiary | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Revenues | $ | 1,291,726 | $ | 256,651 | $ | 6,602 | $ | (1,779 | ) | $ | 1,553,200 | |||||||||
Direct costs and operating expenses | 729,005 | 181,435 | 4,150 | (1,779 | ) | 912,811 | ||||||||||||||
Amortization | 187,372 | 28,208 | 1,164 | (33 | ) | 216,711 | ||||||||||||||
Financial expenses | 52,277 | 9,769 | — | — | 62,046 | |||||||||||||||
Dividend income from related companies | — | (7,092 | ) | — | 7,092 | — | ||||||||||||||
Impairment of goodwill | — | 5,425 | — | — | 5,425 | |||||||||||||||
Income (loss) before the undernoted | 323,072 | 38,906 | 1,288 | (7,059 | ) | 356,207 | ||||||||||||||
Income taxes | 29,220 | 2,892 | 205 | — | 32,317 | |||||||||||||||
293,852 | 36,014 | 1,083 | (7,059 | ) | 323,890 | |||||||||||||||
Share in the results of a company subject to significant influence | 4,278 | 241 | — | (4,519 | ) | — | ||||||||||||||
Non-controlling interest | — | — | — | (173 | ) | (173 | ) | |||||||||||||
Net income (loss) | $ | 298,130 | $ | 36,255 | $ | 1,083 | $ | (11,751 | ) | $ | 323,717 | |||||||||
F-52
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | 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, 2007 |
Non- | Adjustments | |||||||||||||||||||
Videotron | Subsidiary | subsidiary- | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Cash flows related to operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 298,130 | $ | 36,255 | $ | 1,083 | $ | (11,751 | ) | $ | 323,717 | |||||||||
Adjustments for the following items: | ||||||||||||||||||||
Amortization of fixed assets | 185,368 | 28,031 | 1,164 | (33 | ) | 214,530 | ||||||||||||||
Amortization of other assets | 13,363 | 8,072 | — | — | 21,435 | |||||||||||||||
Amortization financing costs and debt premium or discount | (945 | ) | — | — | — | (945 | ) | |||||||||||||
Impairment of goodwill | — | 5,425 | — | — | 5,425 | |||||||||||||||
Future income taxes | 29,228 | 2,932 | 90 | — | 32,250 | |||||||||||||||
Other | 49,186 | 2,896 | 77 | 4,692 | 56,851 | |||||||||||||||
Net change in non-cash balances related to operations | (92,654 | ) | (6,065 | ) | (98 | ) | (1,917 | ) | (100,734 | ) | ||||||||||
481,676 | 77,546 | 2,316 | (9,009 | ) | 552,529 | |||||||||||||||
Cash flows related to investing activities: | ||||||||||||||||||||
Acquisition of fixed assets | (292,541 | ) | (36,419 | ) | (3,032 | ) | 1,917 | (330,075 | ) | |||||||||||
Acquisition of shares of a company under common control | (1,870,000 | ) | (125,000 | ) | — | — | (1,995,000 | ) | ||||||||||||
Net decrease in temporary investments | — | — | 987 | — | 987 | |||||||||||||||
Payment of tax deductions to a parent company | (12,763 | ) | (2,100 | ) | — | — | (14,863 | ) | ||||||||||||
Net decrease in investment in a subsidiary | 330,733 | — | — | (330,733 | ) | — | ||||||||||||||
Dividends | 4,000 | (4,000 | ) | — | — | — | ||||||||||||||
Advance from (to) an affiliated company | 65,000 | (65,000 | ) | — | — | — | ||||||||||||||
Other | 2,125 | (945 | ) | 1 | — | 1,181 | ||||||||||||||
(1,773,446 | ) | (233,464 | ) | (2,044 | ) | (328,816 | ) | (2,337,770 | ) | |||||||||||
Cash flows related to financing activities: | ||||||||||||||||||||
Net change in bank indebtedness | (8,489 | ) | — | — | (476 | ) | (8,965 | ) | ||||||||||||
Net borrowings under bank credit facility | 98,721 | — | — | — | 98,721 | |||||||||||||||
Settlement of derivative financial instruments | 35 | — | — | — | 35 | |||||||||||||||
Subordinated loan from parent company | 1,870,000 | 125,000 | — | — | 1,995,000 | |||||||||||||||
Repayment of subordinated loan to parent company | — | (25,969 | ) | — | 25,969 | — | ||||||||||||||
Reduction in paid-up capital | (299,550 | ) | (145,816 | ) | — | 145,816 | (299,550 | ) | ||||||||||||
Redemption of shares | (65,000 | ) | 65,000 | — | — | — | ||||||||||||||
Dividends | (7,092 | ) | (158,948 | ) | — | 166,040 | — | |||||||||||||
Advance (to) from an affiliated company | (296,855 | ) | 296,855 | — | — | — | ||||||||||||||
1,291,770 | 156,122 | — | 337,349 | 1,785,241 | ||||||||||||||||
Net change in cash and cash equivalents | — | 204 | 272 | (476 | ) | — | ||||||||||||||
Cash and cash equivalents, beginning of year | — | 110 | 285 | (395 | ) | — | ||||||||||||||
Cash and cash equivalents, end of year | $ | — | $ | 314 | $ | 557 | $ | (871 | ) | $ | — | |||||||||
F-53
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | 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, 2007 |
Non- | Adjustments | |||||||||||||||||||
Videotron | Subsidiary | subsidiary | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 493 | $ | 315 | $ | 583 | $ | (1,391 | ) | $ | — | |||||||||
Accounts receivable | 150,597 | 9,234 | 1,535 | — | 161,366 | |||||||||||||||
Amounts receivable from affiliated companies | 18,575 | 17,723 | 138 | (24,170 | ) | 12,266 | ||||||||||||||
Income taxes | 199 | 21 | — | — | 220 | |||||||||||||||
Inventories and prepaid expenses | 49,161 | 6,579 | 21 | — | 55,761 | |||||||||||||||
Future income taxes | 26,866 | 5,599 | 7 | — | 32,472 | |||||||||||||||
245,891 | 39,471 | 2,284 | (25,561 | ) | 262,085 | |||||||||||||||
Investments | 1,870,000 | 125,000 | — | — | 1,995,000 | |||||||||||||||
Fixed assets | 1,246,995 | 254,035 | 5,658 | (325 | ) | 1,506,363 | ||||||||||||||
Future income taxes | — | 2,970 | — | — | 2,970 | |||||||||||||||
Other assets | 59,577 | 7,383 | — | (59,844 | ) | 7,116 | ||||||||||||||
Goodwill | 1,903,756 | 440,117 | — | 233,711 | 2,577,584 | |||||||||||||||
$ | 5,326,219 | $ | 868,976 | $ | 7,942 | $ | 147,981 | $ | 6,351,118 | |||||||||||
Liabilities and Shareholder’s Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Bank indebtedness | $ | 10,869 | $ | 1 | $ | 26 | $ | (1,391 | ) | $ | 9,505 | |||||||||
Accounts payable and accrued liabilities | 490,727 | 31,755 | 653 | (126 | ) | 523,009 | ||||||||||||||
Amounts payable to affiliated companies | 71,951 | 8,924 | 649 | (24,041 | ) | 57,483 | ||||||||||||||
Deferred revenue | 113,510 | 38,302 | 116 | — | 151,928 | |||||||||||||||
Income taxes | 34 | (10 | ) | 95 | — | 119 | ||||||||||||||
687,091 | 78,972 | 1,539 | (25,558 | ) | 742,044 | |||||||||||||||
Long-term debt | 946,236 | — | — | — | 946,236 | |||||||||||||||
Subordinated loan to parent company | 1,870,000 | 125,000 | — | — | 1,995,000 | |||||||||||||||
Future income taxes | 139,857 | 48,429 | 435 | — | 188,721 | |||||||||||||||
Deferred revenue | 2,173 | 144 | — | — | 2,317 | |||||||||||||||
Non-controlling interest | — | — | — | 947 | 947 | |||||||||||||||
3,645,357 | 252,545 | 1,974 | (24,611 | ) | 3,875,265 | |||||||||||||||
Shareholder’s Equity: | ||||||||||||||||||||
Share capital | 46,175 | 232,817 | 25 | (232,840 | ) | 46,177 | ||||||||||||||
Contributed surplus | 4,461,660 | 792,495 | 488 | (76,500 | ) | 5,178,143 | ||||||||||||||
(Deficit) retained earnings | (2,819,634 | ) | (407,463 | ) | 5,455 | 481,932 | (2,739,710 | ) | ||||||||||||
Accumulated other comprehensive loss | (7,339 | ) | (1,418 | ) | — | — | (8,757 | ) | ||||||||||||
1,680,862 | 616,431 | 5,968 | 172,592 | 2,475,853 | ||||||||||||||||
$ | 5,326,219 | $ | 868,976 | $ | 7,942 | $ | 147,981 | $ | 6,351,118 | |||||||||||
F-54
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Income | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2006 |
Non- | Adjustments | |||||||||||||||||||
Videotron | Subsidiary | subsidiary | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Revenues | $ | 1,066,286 | $ | 241,527 | $ | 5,610 | $ | (1,158 | ) | $ | 1,312,265 | |||||||||
Direct costs and operating expenses | 631,230 | 169,000 | 4,163 | (1,158 | ) | 803,235 | ||||||||||||||
Amortization | 170,246 | 25,448 | 674 | (33 | ) | 196,335 | ||||||||||||||
Financial expenses | 67,965 | 19,806 | — | — | 87,771 | |||||||||||||||
Dividend income from related companies | — | (13,170 | ) | — | 13,170 | — | ||||||||||||||
Income (loss) before the undernoted | 196,845 | 40,443 | 773 | (13,137 | ) | 224,924 | ||||||||||||||
Income taxes | 51,350 | 4,492 | 231 | — | 56,073 | |||||||||||||||
145,495 | 35,951 | 542 | (13,137 | ) | 168,851 | |||||||||||||||
Share in the results of a company subject to significant influence | 11,417 | 119 | — | (11,536 | ) | — | ||||||||||||||
Non-controlling interest | — | — | — | (86 | ) | (86 | ) | |||||||||||||
Net income (loss) | $ | 156,912 | $ | 36,070 | $ | 542 | $ | (24,759 | ) | $ | 168,765 | |||||||||
F-55
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | 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, 2006 |
Non- | Adjustments | |||||||||||||||||||
Videotron | Subsidiary | subsidiary- | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Cash flows related to operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 156,912 | $ | 36,070 | $ | 542 | $ | (24,759 | ) | $ | 168,765 | |||||||||
Adjustments for the following items: | ||||||||||||||||||||
Amortization | 181,382 | 32,617 | 674 | (33 | ) | 214,640 | ||||||||||||||
Future income taxes | 51,997 | 4,482 | 33 | — | 56,512 | |||||||||||||||
Other | (14,427 | ) | 1,288 | 549 | 11,622 | (968 | ) | |||||||||||||
Net change in non-cash balances related to operations | (32,305 | ) | 28,593 | 95 | 2,509 | (1,108 | ) | |||||||||||||
343,559 | 103,050 | 1,893 | (10,661 | ) | 437,841 | |||||||||||||||
Cash flows related to investing activities: | ||||||||||||||||||||
Acquisition of fixed assets | (260,720 | ) | (37,665 | ) | (1,793 | ) | (2,451 | ) | (302,629 | ) | ||||||||||
Net decrease (increase ) in temporary investments | 40,000 | — | (491 | ) | — | 39,509 | ||||||||||||||
Dividends | 19,000 | (19,000 | ) | — | — | — | ||||||||||||||
Other | 514 | 283 | — | — | 797 | |||||||||||||||
(201,206 | ) | (56,382 | ) | (2,284 | ) | (2,451 | ) | (262,323 | ) | |||||||||||
Cash flows related to financing activities: | ||||||||||||||||||||
Net change in bank indebtedness | 18,865 | — | — | (395 | ) | 18,470 | ||||||||||||||
Net change in bank credit facility | 49,000 | — | — | — | 49,000 | |||||||||||||||
Settlement of derivative financial instruments | (938 | ) | — | — | — | (938 | ) | |||||||||||||
Issuance of shares | 111,536 | — | — | — | 111,536 | |||||||||||||||
Repayment of subordinated loan to parent company | (150,000 | ) | — | — | — | (150,000 | ) | |||||||||||||
Transfer of additional amount payable to parent company | (111,536 | ) | — | — | — | (111,536 | ) | |||||||||||||
Reduction in paid-up capital | (108,749 | ) | — | — | — | (108,749 | ) | |||||||||||||
Dividends | (23,170 | ) | — | — | 13,170 | (10,000 | ) | |||||||||||||
Advance from (to) an affiliated company | 47,094 | (47,036 | ) | — | (58 | ) | — | |||||||||||||
(167,898 | ) | (47,036 | ) | — | 12,717 | (202,217 | ) | |||||||||||||
Net change in cash and cash equivalents | (25,545 | ) | (368 | ) | (391 | ) | (395 | ) | (26,699 | ) | ||||||||||
Cash and cash equivalents, beginning of year | 25,545 | 478 | 676 | — | 26,699 | |||||||||||||||
Cash and cash equivalents, end of year | $ | — | $ | 110 | $ | 285 | $ | (395 | ) | $ | — | |||||||||
F-56
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | 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, 2006 |
Non- | Adjustments | |||||||||||||||||||
Videotron | Subsidiary | subsidiary | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 110 | $ | 285 | $ | (395 | ) | $ | — | |||||||||
Temporary investments | — | — | 987 | — | 987 | |||||||||||||||
Accounts receivable | 129,816 | 8,758 | 1,011 | — | 139,585 | |||||||||||||||
Amounts receivable from affiliated companies | 89,478 | 330,891 | 141 | (417,850 | ) | 2,660 | ||||||||||||||
Income taxes | 136 | 40 | 134 | — | 310 | |||||||||||||||
Inventories and prepaid expenses | 41,406 | 6,605 | 8 | — | 48,019 | |||||||||||||||
Future income taxes | 16,281 | 8,607 | 140 | — | 25,028 | |||||||||||||||
277,117 | 355,011 | 2,706 | (418,245 | ) | 216,589 | |||||||||||||||
Fixed assets | 1,148,150 | 245,547 | 6,192 | (358 | ) | 1,399,531 | ||||||||||||||
Future income taxes | — | 3,358 | — | — | 3,358 | |||||||||||||||
Other assets | 404,639 | 71,344 | — | (455,058 | ) | 20,925 | ||||||||||||||
Goodwill | 1,903,756 | 444,940 | — | 233,711 | 2,582,407 | |||||||||||||||
$ | 3,733,662 | $ | 1,120,200 | $ | 8,898 | $ | (639,950 | ) | $ | 4,222,810 | ||||||||||
Liabilities and Shareholder’s Equity | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Bank indebtedness | $ | 18,865 | $ | — | $ | — | $ | (395 | ) | $ | 18,470 | |||||||||
Accounts payable and accrued liabilities | 376,785 | 34,675 | 792 | (297 | ) | 411,955 | ||||||||||||||
Amounts payable to company under common control | 370,735 | 86,496 | 2,748 | (417,550 | ) | 42,429 | ||||||||||||||
Deferred revenue | 101,212 | 33,980 | 143 | — | 135,335 | |||||||||||||||
Income taxes | 45 | — | 36 | — | 81 | |||||||||||||||
867,642 | 155,151 | 3,719 | (418,242 | ) | 608,270 | |||||||||||||||
Long-term debt | 1,007,557 | 25,969 | — | (25,969 | ) | 1,007,557 | ||||||||||||||
Deferred revenue | 3,423 | 783 | — | — | 4,206 | |||||||||||||||
Future income taxes | 120,878 | 51,694 | 294 | — | 172,866 | |||||||||||||||
Non-controlling interest | — | — | — | 774 | 774 | |||||||||||||||
1,999,500 | 233,597 | 4,013 | (443,437 | ) | 1,793,673 | |||||||||||||||
Shareholder’s equity: | ||||||||||||||||||||
Share capital | 410,725 | 378,633 | 25 | (443,656 | ) | 345,727 | ||||||||||||||
Contributed surplus | 4,458,320 | 790,135 | 488 | (76,500 | ) | 5,172,443 | ||||||||||||||
(Deficit) retained earnings | (3,110,672 | ) | (280,770 | ) | 4,372 | 323,643 | (3,063,427 | ) | ||||||||||||
Accumulated other comprehensive loss | (24,211 | ) | (1,395 | ) | — | — | (25,606 | ) | ||||||||||||
1,734,162 | 886,603 | 4,885 | (196,513 | ) | 2,429,137 | |||||||||||||||
$ | 3,733,662 | $ | 1,120,200 | $ | 8,898 | $ | (639,950 | ) | $ | 4,222,810 | ||||||||||
F-57
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | Significant differences between generally accepted accounting principles (GAAP) in Canada and the United States (continued): | |
Consolidated Statement of Income | ||
In accordance with United States GAAP | ||
For the year ended December 31, 2005 |
Non- | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | subsidiary | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Revenues | $ | 855,709 | $ | 227,393 | $ | 4,886 | $ | (1,405 | ) | $ | 1,086,583 | |||||||||
Direct costs and operating expenses | 521,556 | 151,213 | 3,432 | (1,403 | ) | 674,798 | ||||||||||||||
Amortization | 154,333 | 22,593 | 587 | (98 | ) | 177,415 | ||||||||||||||
Financial expenses | 51,068 | 25,490 | — | (1,401 | ) | 75,157 | ||||||||||||||
Dividend income from related companies | — | (17,920 | ) | — | 17,920 | — | ||||||||||||||
Income (loss) before the undernoted | 128,752 | 46,017 | 867 | (16,423 | ) | 159,213 | ||||||||||||||
Income taxes | 50,154 | 9,764 | 221 | 269 | 60,408 | |||||||||||||||
78,598 | 36,253 | 646 | (16,692 | ) | 98,805 | |||||||||||||||
Share in the results of a company subject to significant influence | 15,146 | 142 | — | (15,288 | ) | — | ||||||||||||||
Non-controlling interest | — | — | — | (102 | ) | (102 | ) | |||||||||||||
Net income (loss) | $ | 93,744 | $ | 36,395 | $ | 646 | $ | (32,082 | ) | $ | 98,703 | |||||||||
F-58
Table of Contents
Notes to Consolidated Financial Statements, Continued
20. | 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 |
Non- | Adjustments | |||||||||||||||||||
Vidéotron | Subsidiary | subsidiary | and | |||||||||||||||||
Ltd. | Guarantors | Guarantors | eliminations | Consolidated | ||||||||||||||||
(in thousands of Canadian dollars) | ||||||||||||||||||||
Cash flows related to operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 93,744 | $ | 36,395 | $ | 646 | $ | (32,082 | ) | $ | 98,703 | |||||||||
Adjustments for the following items: | ||||||||||||||||||||
Amortization | 161,215 | 27,006 | 587 | (98 | ) | 188,710 | ||||||||||||||
Future income taxes | 47,619 | 9,454 | 155 | 269 | 57,497 | |||||||||||||||
Other | (42,909 | ) | 1,914 | 105 | 13,990 | (26,900 | ) | |||||||||||||
Net change in non-cash balances related to operations | 102,821 | (34,640 | ) | (814 | ) | — | 67,367 | |||||||||||||
362,490 | 40,129 | 679 | (17,921 | ) | 385,377 | |||||||||||||||
Cash flows related to investing activities: | ||||||||||||||||||||
Acquisition of fixed assets | (189,647 | ) | (29,019 | ) | (1,199 | ) | — | (219,865 | ) | |||||||||||
Payment of tax deductions to the parent company | (25,800 | ) | (9,400 | ) | — | — | (35,200 | ) | ||||||||||||
Net increase (decrease) in temporary investments | (20,000 | ) | — | 754 | — | (19,246 | ) | |||||||||||||
Dividends | 11,000 | (11,000 | ) | — | — | — | ||||||||||||||
Other | 357 | 805 | — | — | 1,162 | |||||||||||||||
(224,090 | ) | (48,614 | ) | (445 | ) | — | (273,149 | ) | ||||||||||||
Cash flows related to financing activities: | ||||||||||||||||||||
Repayment of long-term debt | — | (92,284 | ) | — | — | (92,284 | ) | |||||||||||||
Issuance of long-term debt, net of financing costs | 200,185 | — | — | — | 200,185 | |||||||||||||||
Settlement of derivative financial instruments | (3,588 | ) | (7,367 | ) | — | — | (10,955 | ) | ||||||||||||
Advance (to) from an affiliated company | (110,168 | ) | 110,168 | — | — | — | ||||||||||||||
Dividends | (227,921 | ) | — | — | 17,921 | (210,000 | ) | |||||||||||||
Reimbursement of advance to parent company | 40,893 | — | — | — | 40,893 | |||||||||||||||
Reduction in paid-up capital | (45,653 | ) | — | — | — | (45,653 | ) | |||||||||||||
Other | 497 | 177 | (800 | ) | — | (126 | ) | |||||||||||||
(145,755 | ) | 10,694 | (800 | ) | 17,921 | (117,940 | ) | |||||||||||||
Net change in cash and cash equivalents | (7,355 | ) | 2,209 | (566 | ) | — | (5,712 | ) | ||||||||||||
Cash and cash equivalents, beginning of year | 32,900 | (1,731 | ) | 1,242 | — | 32,411 | ||||||||||||||
Cash and cash equivalents, end of year | $ | 25,545 | $ | 478 | $ | 676 | $ | — | $ | 26,699 | ||||||||||
F-59