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**U.S.Securities and Exchange Commission**

**Washington,D.C. 20549**

** **

**FORM 40-F**

 

**o****        Registration statement pursuant to Section 12of the Securities Exchange Act of 1934**

 

**or**

 

**x****        Annual report pursuant to Section 13(a) or15(d) of the Securities Exchange Act of 1934**

 

| **For the fiscal year ended December 31,  2007** | ** ** | **Commission file number 1-14118** |
|-------------------------------------------------------|------------|------------------------------------|

 

**QUEBECORWORLD INC.**

(Exactname of Registrant as specified in its charter)

 

**N/A**

(Translationof Registrant’s name into English (if applicable))

 

**CANADA**

(Provinceor other jurisdiction of incorporation or organization)

 

**2572**

(PrimaryStandard Industrial Classification Code Number (if applicable))

 

**N/A**

(I.R.S.Employer Identification Number (if applicable))

 

**999 de Maisonneuve Blvd. West - Suite 1100,Montreal, Quebec, Canada, H3A 3L4**

**Tel:(514) 954-0101**

(Addressand telephone number of Registrant’s principal executive offices)

 

**QUEBECORWORLD (USA) INC.**

**291State Street, North Haven, CT 06473**

**Telephone:(203) 288-2468**

(Name,address (including zip code) and telephone number (including area code) ofagent for

servicein the United States)

 

Securitiesregistered or to be registered pursuant to Section 12(b) of the Act.

 

| **Subordinate voting shares** | ** ** | ** ** |
|-------------------------------|------------|------------|
| Title of  each class

   |       |       |

 

SecuritiesRegistered or to be registered pursuant to Section 12(g) of the Act

 

**N/A**

(Titleof Class)

 

Securities forwhich there is a reporting obligation pursuant to Section 15(d) ofthe Act.

 

 

(Titleof Class)

 

Forannual reports, indicate by check mark the information filed with this Form:

 

| x  Annual Information form |   | x Audited financial statements |
|----------------------------|--------|--------------------------------|

 

Indicate the number of outstanding shares of each ofthe issuer’s classes of capital or common stock as of the close of the periodcovered by the annual report.

 

|   | 85,584,924 Subordinate Voting shares Outstanding             |
|--------|--------------------------------------------------------------|
|   | 46,987,120 Multiple Voting Shares Outstanding                |
|   | 12,000,000 First Preferred Shares Series 3  Outstanding |
|   | 7,000,000 First Preferred Shares Series 5  Outstanding  |

 

Indicate by check mark whether the Registrant byfiling the information contained in this Form is also thereby furnishingthe information to the Commission pursuant to Rule 12g3-2(b) underthe Securities Exchange Act of 1934 (the “Exchange Act”).  If “Yes” is marked, indicate the filingnumber assigned to the Registrant in connection with such Rule.

 

Yes  o    82-        No  x

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes  x    No  o

 

 

 

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Materialincluded in this annual report on Form 40-F:

 

1.               TheAnnual Information Form for the year ended December 31, 2007 ofQuebecor World Inc. (the “Registrant”) dated October 17, 2008.

 

2.               Management’sDiscussion and Analysis of Financial Condition and Results of Operation of theRegistrant for the year ended December 31, 2007 (the “Management’sDiscussion and Analysis”) and the Audited Consolidated Financial Statements ofthe Registrant for the year ended December 31, 2007, as amended.

 

*************

 

**Disclosure Controls andProcedures**

 

As of December 31, 2007, an evaluation wascarried out under the supervision of and with the participation of management,including the President and Chief Executive Officer and Senior Vice Presidentand Chief Accounting Officer, of the effectiveness of the Registrant’sdisclosure controls and procedures as defined in Rule 13a-15(e) underthe Exchange Act and in Multilateral Instrument 52-109 under the CanadianSecurities Administrators Rules and Policies.  Based on that evaluation, the President andChief Executive Officer and the Senior Vice President and Chief AccountingOfficer concluded that as a result of material weaknesses in the Registrant’sinternal control over financial reporting discussed on pages 33 to 36 ofthe Management’s Discussion and Analysis included in this annual report on Form 40-F,the disclosure controls and procedures were not effective as of December 31,2007.

 

**Management’s Annual Reporton Internal Control over Financial Reporting**

 

The report of management on the Registrant’s internalcontrol over financial reporting is located under the heading “Management’sReport on Internal Control Over Financial Reporting” on pages 34 and 35 ofthe Management’s Discussion and Analysis included in this annual report on Form 40-Fand is incorporated herein by this reference.

 

**Attestation Report of theRegistered Public Accounting Firm**

 

The attestation report on the Registrant’s internalcontrol over financial reporting is located under the heading “Report ofIndependent Registered Public Accounting Firm” on pages 5 and 6 of theRegistrant’s Audited Consolidated Financial Statements for the year ended December 31,2007 included in this annual report on Form 40-F and is incorporatedherein by this reference.  Thisattestation report expresses an opinion that the Registrant did not maintaineffective internal control over financial reporting as of December 31,2007.

 

**Changes in InternalControls Over Financial Reporting**

 

Based on the evaluation described under the heading “DisclosureControls and Procedures” in this annual report on Form 40-F, theRegistrant identified a change that occurred during the period covered by thisannual report on Form 40-F that materially affected or is reasonablylikely to materially affect the Registrant’s internal control over financialreporting.  This change related to theimplementation of new application software (Taxware) for the plants in the U.S.and is described under the heading “Changes in Internal Control over FinancialReporting” on page 35.

 

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of the Management’s Discussion and Analysis includedin this annual report on Form 40-F and is incorporated herein by thisreference.

 

**Audit Committee**

 

The Registranthas a separately-designated standing audit committee established in accordancewith Section 3(a)(58)(A) of the Exchange Act.  The members of the Registrant’s auditcommittee are Messrs. Alain Rhéaume (Chairman), Douglas G. Bassett and AndréCaillé. 

 

**Audit Committee Financial Expert**

 

The Board ofDirectors of the Registrant has reviewed the definition of “audit committeefinancial expert” under paragraph 8(b) of General Instruction B to Form 40-Fand determined that the Registrant has at least one audit committee financialexpert. As of December 17, 2008 the name of the audit committee financialexpert of the Registrant is Mr. Alain Rhéaume. All members of the AuditCommittee are “*independent*”within the meaning of Section 303A(6) of the New York ExchangeStandards.

 

The Commissionhas indicated that the designation of Mr. Alain Rhéaume as the audit committeefinancial expert of the Registrant does not (i) make Mr. Alain Rhéaume an “expert”for any purpose, including without limitation for purposes of Section 11of the Securities Act of 1933, as amended, as a result of this designation; (ii) imposeany duties, obligations or liability on Mr. Alain Rhéaume that are greater thanthose imposed on him as a member of the audit committee and the Board ofDirectors in the absence of such designation; or (iii) affect the duties,obligations or liability of any other member of the audit committee or theBoard of Directors.

 

**Principal Accountant Fees andServices**

 

Fees payable to theRegistrant’s external auditor, KPMG LLP,for the years ended December 31, 2007 and December 31, 2006, totalled$12,216,000 and $13,630,000, respectively, as detailed in the following table:

 
| **FEES**              | ** ** | **FINANCIAL YEAR  ENDED  DECEMBER 31, 2007** | ** **     | **FINANCIAL YEAR   ENDED  DECEMBER 31, 2006** | ** ** |
|-----------------------|------------|---------------------------------------------------|----------------|----------------------------------------------------|------------|
| Audit  Fees(1)        |       | US$                                               | 7,637,000      |                                               | US$        | 11,370,000 |   |
| Audit-Related Fees(2) |       | US$                                               | 2,176,000      |                                               | US$        | 369,000 |   |
| Tax Fees(3)           |       | US$                                               | 2,125,000      |                                               | US$        | 1,212,000 |   |
| All other Fees(4)     |       | US$                                               | 278,000        |                                               | US$        | 679,000 |   |
| **TOTAL FEES:**       | ** ** | **US$**                                           | **12,216,000** | ** **                                         | **US$**    | **13,630,000** | ** ** |

 

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| (1)    | * * | *Audit Fees* consist of fees billed for the annual integrated audit and quarterly  reviews of our annual and quarterly consolidated financial statements or  services that are normally provided by the external auditors in connection  with statutory and regulatory filings or engagements. They also include fees  billed for other audit services, which are those services that only the  external auditors reasonably can provide, and include the provision of  comfort letters and consents, the consultation concerning financial  accounting and reporting of specific issues, the review of documents filed  with regulatory authorities. |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (2)    | * * | *Audit-related Fees* consist of fees billed for assurance and related services that  are traditionally performed by                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

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|   | * * | the external auditors, and include consultations  concerning financial accounting and reporting standards on proposed  transactions; due diligence or accounting work related to acquisitions; and  employee benefit plan audits.                                                                                                                                                                                                              |
|--------|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | * * |                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (3)    | * * | *Tax Fees* include fees billed for tax compliance services, including the  preparation of original and amended tax returns and claims for refund; tax  consultations, such as assistance and representation in connection with tax  audits and appeals, tax advice related to mergers and acquisitions, and  requests for rulings or technical advice from taxing authorities; tax  planning services; and consultation and planning services. |
|   | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (4)    | * * | *All Other Fees* include fees billed for advice with respect to our internal  controls over financial reporting and disclosure controls and procedures and  assistance provided to obtain grants and subsidies.                                                                                                                                                                                                                                |

 

**Pre-approval policies and procedures**

 

The Registrant’saudit committee has adopted a pre-approval policy pursuant to which theRegistrant may not engage the Registrant’s external auditor to carry outcertain non-audit services that are deemed inconsistent with the independenceof auditors under U.S. and Canadian applicable laws. The Audit Committee mustpre-approve all audit services as well as permitted non-audit services.  This Policy also provides that, subject tocertain limitations, the Chief Financial Officer of the Corporation andChairman of the Audit Committee may retain the Registrant’s external auditorsfor certain audit and non-audit services that have been pre-approved by theAudit Committee (the  ̈**Pre-Approved Services** ̈),provided, however, that the external auditors’ estimated fees for thePre-Approved Services may not exceed $150,000 when they are retained by theChief Financial Officer, and $250,000 when they are retained by the Chairman ofthe Audit Committee. All other projects must be submitted for approval to theAudit Committee. The Chief Financial Officer and Chairman of the AuditCommittee report to the Audit Committee, on a quarterly basis, on all projectsapproved under the *Pre-Approval Policy*.This Policy and the list of Pre-Approved Services are reviewed by the AuditCommittee on an annual basis.

 

For each ofthe years ended December 31, 2007 and 2006, none of the non-audit servicesdescribed above were approved by the Audit Committee pursuant to the “deminimis exception” to the pre-approval requirement for non-audit services.

 

**Off-Balance Sheet Arrangements**

 

The Registrantand its subsidiaries have certain arrangements and commitments that havefinancial implications. These arrangements are described in Note 25 to theRegistrant’s Audited Consolidated Financial Statements for the year ended December 31,2007 included in this annual report on Form 40-F. A discussion of theRegistrant’s off-balance sheet arrangements can also be found on page 27of the Management’s Discussion and Analysis for the year ended December 31,2007 included in this annual report on Form 40-F.

 

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**Tabular Disclosure ofContractual Obligations**

 

The following table sets forth the Registrant’s contractualobligations as at December 31, 2007:

 

**Contractual Obligations**

(in millions)

 
| ** **                                                  | ** ** | **Payment due by period** | ** ** |
|-------------------------------------------------------------|------------|---------------------------|------------|
| **Contractual Obligations**                                 | ** ** | **Total**                 | ** ** | **Less than   1 year** | ** ** | **1 to 3   years** | ** ** | **4 to 5   years** | ** ** | **More than   5 years** | ** ** |
|                                                        |       |                      |       |   |   |   |   |   |   |   |   |
| Long-term  debt                                             |       | $                         | 2,292.7    |   | $ | 1,016.6 |   | $ | 5.6 |   | $ | 6.1 |   | $ | 1,264.4 |   |
|                                                        |       |                      |       |   |   |   |   |   |   |   |   |
| Capital  leases                                             |       | 62.5                      |       | 7.1 |   | 15.6 |   | 18.3 |   | 21.5 |   |
|                                                        |       |                      |       |   |   |   |   |   |   |   |   |
| Interest  payments on long-term debt and capital leases (1) |       | 810.4                     |       | 150.6 |   | 214.7 |   | 211.9 |   | 233.2 |   |
|                                                        |       |                      |       |   |   |   |   |   |   |   |   |
| Operating  leases                                           |       | 339.2                     |       | 95.9 |   | 101.5 |   | 50.6 |   | 91.2 |   |
|                                                        |       |                      |       |   |   |   |   |   |   |   |   |
| Capital  asset purchase commitments                         |       | 29.1                      |       | 27.1 |   | 2.0 |   | — |   | — |   |
|                                                        |       |                      |       |   |   |   |   |   |   |   |   |
| Total  contractual cash obligations                         |       | $                         | 3,533.9    |   | $ | 1,297.3 |   | $ | 339.4 |   | $ | 286.9 |   | $ | 1,610.3 |   |

 

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(1) Interest payments were calculated using theinterest rate that would prevail should the debt be reimbursed as planned, andthe outstanding balance as at December 31, 2007.

 

For more information about the Registrant’scontractual obligations as at December 31, 2007, see pages 26 and 27of the Management’s Discussion and Analysis included in this annual report on Form 40-Fand incorporated by reference herein.

 

**Code of Ethics**

 

The Registrant has adopted a Code of Business Conduct,which is a code of ethics (as defined in paragraph 9(b) of GeneralInstruction B of Form 40-F) that applies to all of the Registrant’semployees, directors and officers, including the Registrant’s principalexecutive officer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions.  The text of the Code of Business Conduct ofthe Registrant is available on the Registrant’s website atwww.quebecorworld.com in Investors Center under Corporate Governance.

 

**Undertaking**

 

Registrant undertakes to make available, in person orby telephone, representatives to respond to inquiries made by the Commissionstaff, and to furnish promptly, when requested to do so by the Commissionstaff, information relating to: the securities registered pursuant to Form 40-F;the securities in relation to which the obligation to file an annual report on Form 40-Farises; or transactions in said securities

 

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**SIGNATURES**

 

Pursuant to the requirements of the Exchange Act, theRegistrant certifies that it meets all of the requirements for filing on Form 40-Fand has duly caused this annual report to be signed on its behalf by theundersigned, thereto duly authorized.

 

 
| Registrant: | QUEBECOR WORLD INC.         |
|-------------|-----------------------------|
|        |                        |
|        |                        |
| By:         | /s/ Marie-É. Chlumecky |
|        | Marie-É. Chlumecky     |
|        | Corporate Secretary         |
|        |                        |
|        |                        |
| Date        | December 15, 2008      |

 

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** **

**QUEBECOR WORLD INC.**

 

**ANNUAL INFORMATION FORM**

 

Forthe Year Ended

December 31,2007

 

October 17, 2008

 

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** **

**QUEBECOR WORLD INC.**

 

**TABLE OF CONTENTS**

** **
| ** **                                                      | **Page**                                                                     |
|-----------------------------------------------------------------|------------------------------------------------------------------------------|
| ** **                                                      | ** **                                                                   |
| **INTRODUCTORY NOTE**                                           | **1**                                                                        |
| ** **                                                      | ** **                                                                   |
| **ITEM 1 — INCORPORATION**                                 | **1**                                                                        |
| ** **                                                      | ** **                                                                   |
| 1.1                                                             | INCORPORATION OF QUEBECOR  WORLD INC.                                        | 1 |
| 1.2                                                             | SUBSIDIARIES                                                                 | 2 |
|                                                            |                                                                         |
| **ITEM 2 — RECENT  DEVELOPMENTS**                          | **2**                                                                        |
| ** **                                                      | ** **                                                                   |
| 2.1                                                             | CREDITOR PROTECTION AND  RESTRUCTURING                                       | 2 |
| 2.2                                                             | SALE OF OUR EUROPEAN  OPERATIONS                                             | 5 |
| 2.3                                                             | CREATION OF THE MARKETING  SOLUTIONS GROUP AND THE PUBLISHING SERVICES GROUP | 5 |
|                                                            |                                                                         |
| **ITEM  3 — NARRATIVE DESCRIPTION OF THE BUSINESS**        | **6**                                                                        |
| ** **                                                      | ** **                                                                   |
| 3.1                                                             | BUSINESS OVERVIEW                                                            | 6 |
|                                                            | 3.1.1                                                                        | Our Business | 6 |
|                                                            | 3.1.2                                                                        | Industry Overview | 7 |
| 3.2                                                             | DESCRIPTION OF SEGMENTS AND  PRINT SERVICES                                  | 7 |
|                                                            | 3.2.1                                                                        | Marketing Solutions  Group | 8 |
|                                                            | 3.2.2                                                                        | Publishing  Services Group | 8 |
|                                                            | 3.2.3                                                                        | Pre-Media and  Logistics Group | 9 |
| 3.3                                                             | MANUFACTURING  AND TECHNOLOGY                                                | 10 |
|                                                            | 3.3.1                                                                        | Description  of Manufacturing Processes and Equipment | 10 |
|                                                            | 3.3.2                                                                        | Technology | 11 |
| 3.4                                                             | SALES AND MARKETING                                                          | 11 |
| 3.5                                                             | PURCHASING AND  RAW MATERIALS                                                | 12 |
| 3.6                                                             | COMPETITIVE  ENVIRONMENT                                                     | 12 |
| 3.7                                                             | SEASONALITY  OF THE CORPORATION’S BUSINESS                              | 12 |
| 3.8                                                             | HUMAN RESOURCES                                                              | 12 |
| 3.9                                                             | ENVIRONMENTAL REGULATIONS                                                    | 12 |
|                                                            |                                                                         |   |
| **ITEM 4 — HIGHLIGHTS FOR THE LAST THREE FINANCIAL YEARS** | **13**                                                                       |
| ** **                                                      | ** **                                                                   |
| **ITEM 5 — OUR DIRECTORS  AND OFFICERS**                   | **14**                                                                       |
| ** **                                                      | ** **                                                                   |
| 5.1                                                             | OUR DIRECTORS                                                                | 14 |
| 5.2                                                             | RECORD OF  ATTENDANCE OF THE DIRECTORS                                       | 17 |
| 5.3                                                             | OUR EXECUTIVE  OFFICERS                                                      | 18 |
|                                                            |                                                                         |
| **ITEM 6 — AUDIT COMMITTEE DISCLOSURE**                    | **21**                                                                       |
| ** **                                                      | ** **                                                                   |
| 6.1                                                             | COMPOSITION  OF THE AUDIT COMMITTEE                                          | 21 |
| 6.2                                                             | EDUCATION  AND RELEVANT EXPERIENCE                                           | 22 |
| 6.3                                                             | PRE-APPROVAL  POLICIES AND PROCEDURES                                        | 22 |
| 6.4                                                             | EXTERNAL  AUDITOR SERVICE FEES                                               | 23 |
| 6.5                                                             | REPORT OF THE  AUDIT COMMITTEE                                               | 23 |
|                                                            |                                                                         |
| **ITEM  7 — LEGAL PROCEEDINGS**                            | **24**                                                                       |
| ** **                                                      | ** **                                                                   |
| **ITEM  8 — RISK FACTORS**                                 | **25**                                                                       |
| ** **                                                      | ** **                                                                   |
| **ITEM 9 — DESCRIPTION OF CERTAIN INDEBTEDNESS**           | **36**                                                                       |
| ** **                                                      | ** **                                                                   |
| 9.1                                                             | DIP CREDIT AGREEMENT                                                         | 36 |
| 9.2                                                             | CREDIT FACILITIES                                                            | 36 |
| 9.3                                                             | SENIOR  NOTES                                                                | 37 |

 

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|                                                                           | 9.3.1                                                               | Publicly  Traded Senior Notes and Debentures                                                                      | 37 |
|--------------------------------------------------------------------------------|---------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|----|
|                                                                           | 9.3.2                                                               | Private Notes                                                                                                     | 37 |
| 9.4                                                                            | LONG-TERM  EQUIPMENT FINANCING PROGRAM                              | 38                                                                                                                |
|                                                                           |                                                                |
| **ITEM 10 — DESCRIPTION OF CAPITAL STRUCTURE**                            | **38**                                                              |
| ** **                                                                     | ** **                                                          |
| 10.1                                                                           | GENERAL  DESCRIPTION OF CAPITAL STRUCTURE                           | 39                                                                                                                |
|                                                                           | 10.1.1                                                              | Subordinate  Voting Shares                                                                                        | 39 |
|                                                                           | 10.1.2                                                              | Multiple Voting  Shares                                                                                           | 39 |
|                                                                           | 10.1.3                                                              | Trust Agreement                                                                                                   | 39 |
|                                                                           | 10.1.4                                                              | Preferred Shares                                                                                                  | 41 |
|                                                                           |                                                                |                                                                                                              |
| 10.2                                                                           | DIVIDENDS                                                           | 42                                                                                                                |
| 10.3                                                                           | MARKET FOR OUR  SECURITIES                                          | 42                                                                                                                |
| 10.4                                                                           | RATINGS                                                             | 44                                                                                                                |
| ** **                                                                     | ** **                                                          |
| **ITEM 11 — INTEREST OF MANAGEMENT AND OTHERS IN  MATERIAL TRANSACTIONS** | **44**                                                              |
| ** **                                                                     | ** **                                                          |
| **ITEM  12 — MATERIAL CONTRACTS**                                         | **45**                                                              |
| ** **                                                                     | ** **                                                          |
| **ITEM 13 — INTERESTS OF EXPERTS**                                        | **45**                                                              |
| ** **                                                                     | ** **                                                          |
| **ITEM  14 — TRANSFER AGENT**                                             | **45**                                                              |
| ** **                                                                     | ** **                                                          |
| **ITEM 15 — ADDITIONAL DISCLOSURE**                                       | **45**                                                              |
| ** **                                                                     | ** **                                                          |
| 15.1                                                                           | VOTING  SECURITIES AND PRINCIPAL HOLDERS OF VOTING SECURITIES       | 46                                                                                                                |
| 15.2                                                                           | DIRECTORS                                                           | 46                                                                                                                |
| 15.3                                                                           | EXECUTIVE  COMPENSATION                                             | 46                                                                                                                |
|                                                                           | 15.3.1                                                              | Compensation  of Directors                                                                                        | 46 |
|                                                                           | 15.3.2                                                              | Compensation  of Executive Officers                                                                               | 46 |
|                                                                           | 15.3.3                                                              | Summary  Compensation Table                                                                                       | 47 |
|                                                                           | 15.3.4                                                              | Options Granted  in 2007                                                                                          | 48 |
|                                                                           | 15.3.5                                                              | Options  Exercised in 2007                                                                                        | 48 |
|                                                                           | 15.3.6                                                              | Pension Benefits                                                                                                  | 49 |
|                                                                           | 15.3.7                                                              | Employment  Agreements                                                                                            | 51 |
|                                                                           | 15.3.8                                                              | Composition  of the Human Resources and Compensation Committee                                                    | 51 |
|                                                                           | 15.3.9                                                              | Report on  Executive Compensation                                                                                 | 51 |
|                                                                           | 15.3.10                                                             | Performance Graph                                                                                                 | 55 |
| 15.4                                                                           | SECURITIES  AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS | 56                                                                                                                |
|                                                                           | 15.4.1                                                              | Securities  Authorized for Issuance under Equity-Based Compensation Plans                                         | 56 |
|                                                                           | 15.4.2                                                              | Principal  Terms of Quebecor World’s Security-Based Compensation Arrangements and Other  Required Disclosure | 56 |
| 15.5                                                                           | INDEBTEDNESS  OF DIRECTORS AND EXECUTIVE OFFICERS                   | 56                                                                                                                |
|                                                                           |                                                                |
| **ITEM 16 — STATEMENT OF CORPORATE GOVERNANCE PRACTICES**                 | **57**                                                              |
| ** **                                                                     | ** **                                                          |
| **ITEM 17 — FORWARD-LOOKING STATEMENTS**                                  | **57**                                                              |
| ** **                                                                     | ** **                                                          |
| **ITEM 18 — ADDITIONAL INFORMATION**                                      | **58**                                                              |
| ** **                                                                     | ** **                                                          |
| **SCHEDULE A — MANDATE OF THE AUDIT COMMITTEE**                           | **1**                                                               |
| ** **                                                                     | ** **                                                          |
| **SCHEDULE B — STATEMENT OF CORPORATE GOVERNANCE  PRACTICES**             | **1**                                                               |
| ** **                                                                     | ** **                                                          |
| **SCHEDULE C — CATEGORICAL STANDARDS OF INDEPENDENCE**                    | **1**                                                               |
| ** **                                                                     | ** **                                                          |
| **SCHEDULE D — MANDATE OF THE BOARD OF DIRECTORS**                        | **1**                                                               |

** **

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** **

**INTRODUCTORY NOTE**

** **

In this AnnualInformation Form, unless the context otherwise requires, the terms “we”, “us”,“our”, “Quebecor World” and the “Corporation” refer to Quebecor World Inc. on aconsolidated basis, including its partnerships, subsidiaries and divisions andtheir respective predecessors. Unless otherwise indicated, (i) allreferences to “dollars,” “Cdn$” and “$” are to Canadian dollars, and (ii) theinformation presented in this Annual Information Form is given as at September 30,2008.

 

**ITEM1 — INCORPORATION**

** **

**1.1**          INCORPORATION OF QUEBECOR WORLD INC.

** **

We were incorporated on February 23,1989 pursuant to the *Canada BusinessCorporations Act* under the name “Quebecor Printing Inc.” (“QuebecorPrinting”). On January 1, 1990, our predecessor, Quebecor Printing,Quebecor Printing Group Inc., Quebecor Printing (Canada) Inc., 166599 CanadaInc., Ronalds Printing Atlantic Limited and 148461 Canada Inc. amalgamatedunder the name “Quebecor Printing Inc.” pursuant to the *Canada Business Corporations Act*. Thiscorporate reorganization was undertaken in order to consolidate the assets ofthe printing sector of Quebecor Inc., our parent company, which, prior to suchreorganization, consisted of a number of divisions and subsidiaries. OurArticles were amended:

 

(a)           on December 7, 1990, in order to subdivide each outstandingshare into five shares;

(b)           on December 14, 1990, in order to create Series 1Preferred Shares;

(c)           on February 24, 1992, in order to delete privatecompany restrictions;

(d)           on April 10, 1992, in order to:

 

(i)            create three new classes of shares, namely SubordinateVoting Shares, Multiple Voting Shares and First Preferred Shares, issuable inseries,

(ii)           reclassify and change the 39,965,005 outstandingCommon Shares into 39,965,005 Multiple Voting Shares,

(iii)          reclassify and change the 5,360 outstanding Series 1Preferred Shares into 5,360 Series 1 First Preferred Shares, and

(iv)          cancel the unissued Preferred Shares and CommonShares;

 

(e)           on April 25, 1994, in order to split theSubordinate Voting Shares and the Multiple Voting Shares, so that eachshareholder would receive three shares for each two shares held;

(f)            on April 25, 1996, in order to permit theappointment of one or more directors during the course of the year;

(g)           on November 5, 1997, in order to create Series 2First Preferred Shares and Series 3 First Preferred Shares;

(h)           on April 25, 2000, in order to change our name to“Quebecor World Inc.”;

(i)            on February 21, 2001, in order to create Series 4First Preferred Shares; and

(j)            on August 10, 2001, in order to create Series 5First Preferred Shares.

 

In October 2008, wemoved our head office to 999 de Maisonneuve Boulevard West, Montreal, Quebec,Canada, H3A 3L4. Our telephone number at our head office is (514) 954-0101. Ourfax number is (514) 954-9624 and our web site is www.quebecorworld.com. Anyinformation or documents on our website are not, however, included in, norshall any of such information or documents be deemed to be incorporated byreference into, this Annual Information Form.

 

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**1.2**          SUBSIDIARIES

** **

**Corporate Structure**

** **

The following organizational chartshows our principal subsidiaries, along with their governing jurisdiction andour ownership interest in each such subsidiary. Subsidiaries whose total assetsand revenues represented (a) individually, less than 10% of ourconsolidated assets and revenues as at and for the financial year ended December 31,2007******and (b) inthe aggregate, less than 20% of our consolidated assets and revenues as at andfor the financial year ended December 31, 2007, have not been included. Wecompleted the sale of our European operations on June 26, 2008 (see Item2.2 of this Annual Information Form — Sale of ourEuropean Operations) and, consequently,our European holding company, Quebecor World European Holding S.A., is notpresented in the corporate chart below.

 

 

**ITEM2 — RECENT DEVELOPMENTS**

** **

**2.1**          CREDITOR PROTECTION AND RESTRUCTURING

** **

On January 21, 2008 (the “Filing Date”), weobtained an order (the “Initial Order”) from the Quebec Superior Court (the“Court”) granting creditor protection under the *Companies’Creditors Arrangement Act*(the “CCAA”) for ourselves and for53 U.S. subsidiaries (the “U.S. Subsidiaries” and, collectively with theCorporation, the “Applicants”). On the same date, the U.S. Subsidiaries filed apetition under Chapter 11 of the *U.S. Bankruptcy Code*(“Chapter 11”) in the U.S. Bankruptcy Court for the Southern District of NewYork (the “U.S. Bankruptcy Court”). The proceedings under the CCAA are referredto as the “Canadian Proceedings”, the proceedings under Chapter 11 arereferred to as the “U.S. Proceedings” and the Canadian Proceedings and the U.S.Proceedings are collectively referred to as the “Insolvency Proceedings”. OurLatin American subsidiaries are not subject to the Insolvency Proceedings andprior to their disposition, as discussed below in Item 2.2 of this AnnualInformation Form — Sale of our European Operations, nor were our Europeansubsidiaries. Pursuant to the Insolvency Proceedings, the Applicants areprovided with the authority to, among other things, continue operating theApplicants’ business (subject to court approval for certain activities), filewith the Court and submit to creditors a plan of compromise or arrangementunder the CCAA (the “Plan”) and operate an orderly restructuring of theApplicants’ business and financial affairs, in accordance with the terms of theInitial Order. Ernst & Young Inc. (the “Monitor”) has been appointedby the Court as Monitor in the Canadian Proceedings. Pursuant to the terms ofthe orders made in the Insolvency Proceedings, as amended, the Monitor wasappointed to monitor the business and financial affairs of the Applicants and,in connection with such role, the Initial Order imposes a number of duties andfunctions on the Monitor, including, but not limited to, assisting theApplicants in connection with their restructuring and reporting to the Court onthe state of the business and financial affairs of the Applicants and ondevelopments in the Insolvency Proceedings, as the Monitor 

 

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considers appropriate. Reference should be made to theInitial Order (available on Quebecor World’s website at www.quebecorworld.com)for a more complete description of the duties and functions of the Monitor.

 

Chapter 11 provides for all actions and proceedingsagainst the U.S. Subsidiaries to be stayed during the continuation of the U.S.Proceedings. The Initial Order also provides for a general stay and, pursuantto subsequent orders of the Court rendered on February 19, 2008, May 9,2008, July 18, 2008 and September 29, 2008respectively, this stay period was extended first to May 12, 2008 and thensubsequently to July 25, 2008, September 30, 2008 and December 14,2008 in Canada. The stay period is subject to further extensions as the Courtmay deem appropriate. The applicable stays generally preclude parties fromtaking any actions against the Applicants. The purpose of the stay period andthe Insolvency Proceedings is to provide the Applicants the opportunity tostabilize their operations and businesses and to develop a business plan, all witha view to proposing a final Plan. Any such Plan will be subject to approval byaffected creditors, as well as court approval.

 

As discussed in Note 16 to our Audited ConsolidatedFinancial Statements for the financial year ended December 31, 2007, webecame in default under our revolving bank facility, our equipment financingcredit facility and our North American securitization program on January 16,2008. On January 24, 2008, pursuant to the Insolvency Proceedings enteredinto by the Corporation, an amount of US$417.6 million, including fees, waspaid in order to terminate the North American securitization program. TheInsolvency Proceedings also triggered defaults under substantially all otherdebt obligations of the Applicants. Generally, the Insolvency Proceedings havestayed actions against the Applicants, including actions to collect pre-filingindebtedness or to exercise control over any of the Applicants’ property. As aresult of the stay, the Applicants have ceased making payments of interest and principalon substantially all of their pre-petition debt obligations (i.e. debtobligations that pre-date the Insolvency Proceedings). The orders granted inthe Insolvency Proceedings have provided the Applicants with the authority,among other things: (a) to pay outstanding and future employee wages,salaries and benefits; (b) to make rent payments under existingarrangements payable after the Filing Date; and (c) to honour obligations to customers.

 

The Applicants are in the process of developingcomprehensive business and financial plans, which will serve as a basis fordiscussions with stakeholders, with the advice and guidance of their financialadvisors and the Monitor. The Applicants presented their business plan to theAd Hoc Bondholder Group, the Bank Syndicate and the Official Committee ofUnsecured Creditors (collectively, the “Committees”) at the beginning of June 2008.An overview of the Applicants five-year business plan was presented as well asdetails related to each of the major business segments. The business plan thatwas presented will serve as a basis for discussions with the creditorconstituencies in anticipation of the formulation of a Plan or Plans ofreorganization  and, subject to receiptof necessary approvals from affected creditors, the Court and the U.S.Bankruptcy Court, the Applicants will implement one or more Plans. There can beno assurance, however, that a successful Plan or Plans of reorganization willbe proposed by the Applicants, supported by the Applicants’ creditors orconfirmed by the Court and the U.S. Bankruptcy Court, or that any such Plan orPlans will be consummated.

 

On September 29, 2008, the Court authorized us toconduct a claims procedure for the identification, resolution and barring ofclaims against us in Canada. The Canadian claims procedure contemplates thatany person with any claim against us of any kind or nature, with the exceptionof certain excluded claims, must file its claim with the Monitor on or prior toDecember 5, 2008.

 

Pursuant to orders entered by the U.S. BankruptcyCourt, the U.S. Subsidiaries filed their schedule of assets and liabilities anda statement of financial affairs on July 18, 2008. On September 29,2008, concurrently with the order granted by the Court with respect to the Canadianclaims procedure, the U.S. Bankruptcy Court authorized the U.S. Subsidiaries toconduct a claims procedure with December 5, 2008 as the bar date by whichall creditors of the U.S. Subsidiaries must file proofs of their respectiveclaims and interests against the U.S. Subsidiaries.

 

At this time, it is not possible to determine theextent of the claims that may be filed, whether or not such claims will bedisputed, or whether or not such claims will be subject to discharge in theInsolvency Proceedings. It is also not possible at this time to determinewhether to establish any additional liabilities in respect of claims. Once allclaims against the Applicants have been filed, the Applicants will review allclaims filed and begin the claims reconciliation process. In connection withthe review and reconciliation 

 

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process, the Applicants will also determine the additionalliabilities, if any, that should appropriately be established in respect ofsuch claims.

 

Another important step in our restructuring activitieshas been the sale of our European operations to a subsidiary of HomberghHoldings B.V. (“HHBV”), a Netherlands-based investment group. On June 17,2008, the Court and the U.S. Bankruptcy Court approved the proposed saletransaction, which closed on June 26, 2008. Under the terms of theagreement, the Corporation received €52.2 million in cash at closing and HHBVissued a €21.5 million five-year note bearing interest at 7% per year payableto Quebecor World. The sale was made substantially on an “as is, where is”basis (see Item 2.2 of this Annual Information Form — Sale of our EuropeanOperations).

 

Should the stay period and any subsequent extensions,if granted, not be sufficient to develop and present a Plan or should the Plannot be accepted by affected creditors and, in any such case, the Applicants losethe protection of the stay of proceedings, substantially all debt obligationsof the Applicants will then become due and payable immediately, creating animmediate liquidity crisis which would in all likelihood lead to theliquidation of the Applicants’ assets. Failure to implement a Plan and obtainsufficient exit financing within the time granted by the Court and the U.S.Bankruptcy Court will also result in substantially all of the Applicants’ debtobligations becoming due and payable immediately, which would in all likelihoodlead to the liquidation of the Applicants’ assets.

 

As detailed in Note 29 to our Audited ConsolidatedFinancial Statements for the financial year ended December 31, 2007, ourUK subsidiary was placed into administration on January 28, 2008.

 

On September 29, 2008, the Court granted an orderlifting the stay of proceedings for the sole purpose of permitting certain ofour noteholders to file a paulian action (namely, an action by whicha creditor who suffers prejudice through a juridical act made by itsdebtor in fraud of its rights seeks to obtain a declaration that the actmay not be set up against it) against, *inter alia*, us,contesting the opposability of security granted by Quebecor World and certainof our subsidiaries in September and October 2007 to the lendersunder our credit facility at such time. The order expressly provides that,immediately following the issuance and service of the paulian action, allfurther proceedings with respect to such paulian action be immediately stayeduntil further order of the Court.

 

Furthermore, on September 29, 2008, we wereauthorized by the Court to enter into a share purchase agreement providing forthe sale to Bandhu Industrial Resources Private Limited of our interest in TEJQuebecor Printing Limited (“TQPL”), which operates a printing facility locatedin Gurgaon, India. If completed, the transaction would also include a loansettlement agreement with respect to certain loans owing by TPQL to theCorporation and master release and indemnity agreement(s) between thepurchaser and TQPL concerning certain of our liabilities in relation to TQPLand the printing facility. It is currently estimated that the total netconsideration payable to us would be US$150,000. The transaction is not conditionalon obtaining any further approval of the Court.

 

**Contributing Factors**

** **

Quebecor World’s financial performance has suffered inthe past few years, especially with respect to our European operations, whichwere funded, in part, with cash flows generated by our North Americanoperations, as a result of a combination of factors, including declining pricesand sales volume, and temporary disturbances and inefficiencies caused by amajor retooling and restructuring of our printing operations initiated in 2004.The combination of significant capital investments and continued operatinglosses, principally incurred in connection with our European operations,resulted in increased financing needs. During the last quarter of 2007, it wasalso necessary for us to repurchase certain senior notes (see Item 9.3 of thisAnnual Information Form — SeniorNotes, and Note 16(c) toour Audited Consolidated Financial Statements for the financial year ended December 31,2007) in order to avoid breaching certain financial ratios, while also facingreduction in amounts available under our revolving bank facility.

 

More recent events further hindered our efforts toimprove our balance sheet and financial position. First, on November 20,2007, we announced the withdrawal of a refinancing plan previously announced onNovember 13, 2007 due to adverse financial market conditions. Second, on December 13,2007, we 

 

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announced that we would not be able to consummate apreviously announced transaction to sell/merge our European operations, whichotherwise would have resulted in proceeds being paid to us.

 

On December 31, 2007, we obtained a waiver fromour bank syndicate lenders and from the sponsors of our North Americansecuritization program, subject to the satisfaction of certain conditions andrefinancing milestones, including obtaining $125 million in new financing by January 15,2008. On January 16, 2008, we failed to satisfy the conditions and refinancingmilestones set by the bank syndicate lenders, which resulted in the Corporationand certain of our subsidiaries being in default of our obligations under ourrevolving bank facility, our equipment financing credit facility and our NorthAmerican securitization program (see Item 9 of this Annual Information Form —Description of Certain Indebtedness, and Note 16 to our Audited ConsolidatedFinancial Statementsfor the financial year ended December 31, 2007).

 

As a result of our unsuccessful efforts to obtain newfinancing, the inability at the time to conclude the proposed sale of ourEuropean operations and our operational demands, by mid-January 2008, wewere experiencing a severe lack of liquidity and concluded we no longer had theability to meet obligations which were falling due.

 

**2.2**          SALE OF OUR EUROPEAN OPERATIONS

** **

On June 26,2008 we announced the completion of the previously announced sale of ourEuropean operations to a subsidiary of HHBV, a Netherlands-based investmentgroup. The transaction is valued at approximately €135 million.

 

Upon closing of thetransaction, we received €52 million in net cash proceeds, less certaincustomary deductions and expenses permitted by our DIP Credit Agreement (asdefined in Item 4 ofthis Annual Information Form — Highlights for the LastThree Financial Years), which we used to partially reimburse indebtedness undersuch credit facility.****HHBV alsoassumed approximately €61 million of net debt, and it issued a€21.5 million five-year note bearing interest at 7% per year payable tous. The sale was made substantially on an “as is, where is” basis and was notsubject to the approval of either Quebecor World’s or HHBV’s shareholders. Theonly condition to closing was its approval by the Court and the U.S. BankruptcyCourt pursuant to the Insolvency Proceedings, which was obtained on June 17,2008.

 

At the time we soldour European operations, they consisted of 16 printing and related facilitiesemploying approximately 3,500 people in Austria, Belgium, Finland, France,Spain and Sweden producing magazines, catalogs, retail inserts, direct mailproducts, books and directories.

 

**2.3**          CREATION OF THE MARKETING SOLUTIONS GROUP AND THEPUBLISHING SERVICES GROUP

** **

On June 16,2008, we announced the merging of our U.S. Retail Insert, Catalog, SundayMagazine and Direct Mail divisions into a new integrated Marketing SolutionsGroup to better serve the marketing and advertising needs of our customers inmultiple markets including retail, direct marketing, Sunday magazine, agencyand financial services. The Marketing Solutions Group produces direct mailproducts, retail inserts, catalogs and Sunday Magazines in a coast-to-coastintegrated network of more than 20 facilities in the United States. We expectthat this operating and sales structure will allow us to improve ouroperational efficiency and enhance our integrated product offering to all ourcustomers.

 

Subsequently, on June 17,2008, we announced the integration of our U.S. Magazine, Book and DirectoryDivisions into the Publishing Services Group, as well as the merging of ourU.S. Pre-Media andLogistics divisions into a single operating structure. Thenew Publishing Services Group is intended to streamline our operations, improveservices, and better serve existing and new publishing customers.

 

We expect that this enhanced operating structure,comprising three U.S. divisions — Marketing Solutions Group, PublishingServices Group and Pre-Media and Logistics Group — instead of six, will resultin greater synergies, shared resources and faster decision-making with a focuson delivering complete value-added solutions to two principal customer bases,multi-channel marketers and publishers. Our two other business groups areCanada and Latin America.

 

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**ITEM3 — NARRATIVE DESCRIPTION OF THE BUSINESS**

** **

The description of our current business, including the number of ourfacilities, presses and equipment, contained in this Annual Information Form takesinto account and reflects the completion of the sale of our Europeanoperations, which occurred on June 26, 2008. For more information on thesale of our European operations, please refer to Item 2.2 of this AnnualInformation Form — Sale ofour European Operations.

 

**3.1**          BUSINESS OVERVIEW

** **

**3.1.1**       OurBusiness

** **

Weare a leader in providing high-value, complete market solutions, including pre-print,print and post-print services to leading retailers, branded goods companies,catalogers as well as to leading publishers of magazines, books, directoriesand other printed media. We are also one of the few commercial printers able toserve customers on a regional, national and international basis. We are aleader in most of the services that we offer in our principal geographicmarkets. Our market-leading positions have been established through acombination of building long-term partnerships with the world’s leading printmedia customers, investing in key strategic technologies and expandingoperations through acquisitions.

 

Wehave 99 printing and related facilities located in North America, Latin Americaand Asia. In the United States, we are the second largest commercial printerwith 76 facilities in 28 states, and we are a leader in the printing of books,magazines, directories, retail inserts, catalogs and direct mail. We are thesecond largest commercial printer in Canada with 15 facilities in fiveprovinces through which we offer a diversified mix of printed products andrelated value-added services to the Canadian market and internationally. We arealso the largest commercial printer in Latin America, with seven facilitiesoperating in Argentina, Brazil, Chile, Colombia, Mexico and Peru, and we haveone facility in India. We operate both rotogravure and web offset presses inour various facilities, which provide our customers long-run, short-run andmulti-versioning options as well as a variety of other value-added services,and which also enable us to print simultaneously for our customers in multiplefacilities reducing cycle time and transportation costs.

 

The table below summarizes thelocation of our printing and related facilities and the services offered bysuch facilities:

 
| **LOCATION**                                                                                                                                                                                                                                                                                                                   | ** ** | **# OF   FACILITIES** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                     |       |                            |       |
| **UNITED STATES**

(Arkansas,  California, Colorado, Connecticut, Florida, Georgia, Illinois, Iowa,  Kentucky, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada,  New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania,  Tennessee, Texas, Utah, Virginia, West Virginia and Wisconsin) |       | 76                              |       |
| ** **                                                                                                                                                                                                                                                                                                                     |       |                            |       |
| **CANADA**

(Alberta, British Columbia,  Nova Scotia, Ontario and Quebec)                                                                                                                                                                                                                                                      |       | 15                              |       |
| ** **                                                                                                                                                                                                                                                                                                                     |       |                            |       |
| **LATIN  AMERICA**

(Argentina, Brazil, Chile,  Colombia, Mexico and Peru)                                                                                                                                                                                                                                                     |       | 7                               |       |
| ** **                                                                                                                                                                                                                                                                                                                     |       |                            |       |
| **ASIA**

(India)                                                                                                                                                                                                                                                                                                              |       | 1                               |       |
| ** **                                                                                                                                                                                                                                                                                                                     |       |                            |       |
| TOTAL:                                                                                                                                                                                                                                                                                                                         |       | 99                              |       |

 

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Our primary print services groups in the United States are theMarketing Solutions Group and the Publishing Services Group. We also offer toour customers various services in our Pre-Media and Logistics Group. Ourcustomers include many of the largest publishers, retailers and catalogers inthe geographic areas in which we operate and for the services that we offer.Our Marketing Solutions Group integrates all our activities related to U.S.retail inserts, catalogs, Sunday magazines and direct mail. With respect toretail inserts, our customers include Sears, JC Penney, Kohl’s, Albertson’s,Comp USA, Wal-Mart, RONA and Petco. We print catalogs for customers such asWilliams-Sonoma, Blair Corporation, Bass Pro, Redcats and Victoria’s Secret.Our Publishing Services Group comprises our book, magazine and directory printservices. Our book publishing customers include Reader’s Digest Association,McGraw-Hill, Scholastic, Harlequin Enterprises, Thomas Nelson, Simon &Schuster and Imagitas, Inc. We print magazines for publishers including Time,Hearst, Hachette, Primedia, Wenner Media, Meister Media Worldwide, StamatsBusiness Media Amos Publishing, Reader’s Digest Association and Affinity GroupInc. Our directories customers include Dex Media, Yellow Book USA and Yellow Pages Group(Canada).

 

Our two other business groups are Canada and Latin America, which bothoffer a variety of print, pre-media and logistics servicesto marketers, retailers and publishers in their respective geographical areas.

 

**3.1.2**       IndustryOverview

** **

Commercial printing is a highly fragmented,capital-intensive industry. The North American and Latin American printingindustries are very competitive in most product categories and geographicregions. We believe that the ten largest competitors in the North Americancommercial printing market have less than 25% of the total share of each oftheir respective markets. In 2006, in the United States alone, there wereapproximately 30,700 commercial printers.

 

Commercial printers tend to compete withineach product category based on price, quality, range of services offered,distribution capabilities, customer service, availability of printing time onappropriate equipment and state-of-the-art technology. Small competitors aregenerally limited to servicing customers for a specific product category withina regional market. Larger and more diversified commercial printers with greatergeographic coverage, such as us, have the ability to serve national andinternational****customers across multiple printservice categories.

 

Webelieve that the trend towards consolidation will continue as larger commercialprinters displace medium-size printers and regional competitors. Industrytrends in Latin America, which are mirroring historical developments in NorthAmerica, indicate that this market may also undergo consolidation.

 

In addition, technological changes continueto increase the accessibility and quality of electronic alternatives totraditional delivery of printed documents through the increased use of theInternet and the electronic distribution of media content, documents and data.While the acceleration of consumer acceptance of such electronic media willprobably continue to increase, we believe that the value and role of printedmedia should continue to play a strong role in marketing, advertising andpublishing because, in our view, print media is an efficient and effectivevehicle to market and advertise products. We believe that in a multichannelmarketing strategy, print should continue to play a key and important role. Wefurther believe that a significant percentage of the purchases over theInternet are based upon a buying decision based upon a catalog or retailinsert, and that print plays a synergistic role with many of the newtechnologies.

 

**3.2**          DESCRIPTION OF SEGMENTS AND PRINT SERVICES

** **

Weoperate in the commercial print media segment of the printing industry and ourbusiness segments are located in two main geographical regions: North Americaand Latin America. In the United States, our print services are offered by three business groups: theMarketing Solutions Group, the Publishing Services Group and the Pre-Media andLogistics Group.

 

Our two other business groups are Canada andLatin America. The Canadian and Latin American business groups both offer thesame broad range of print services as our three U.S. business groups, such asretail inserts, magazines, catalogues, books, directories and, in the case ofCanada only, direct mail products, as well as before and after print servicessuch as complete pre-media solutions.

 

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**3.2.1**                     MarketingSolutions Group

** **

Our Marketing SolutionsGroup was created on June 16, 2008. Through our Marketing Solutions Group,we offer and provide print services related to retail inserts, catalogs, Sundaymagazines and direct mail (see Item 2.3 of this Annual Information Form — Creation of the Marketing Solutions Groupand the Publishing Services Group).

** **

**·**                  RetailInserts

** **

Our major retail insertcustomers include some of the largest retailers in North America and LatinAmerica, such as CVS (Consumer Value Stores), JC Penney, Kohl’s, Sears, RONA,Comp USA, Wal-Mart, Petco and Walgreens. We believe that we are the leadingretail insert printer in North America, where our unique coast-to-coastrotogravure and web offset network provides retailers with a dual-processoption for long-run and multi-versioned advertising campaigns.

 

**·**                  Catalogs

** **

We are one of the largestprinters of catalogs in North America. Our catalog customer base includesWilliams-Sonoma, Oriental Trading Company, Victoria’s Secret, IKEA, Cabellas,Bass Pro, Blair Corporation, Redcats and many others. We offer special catalogservices, such as list services, to help customers compile effective lists fordistribution, co-mailing, co-stitching and selective-binding capacity, as wellas providing ink-jet addressing and messaging to personalize messages for eachrecipient. These and other value-added services allow our customers to varycatalog content to meet their customers’ demographic and purchase patterns. Ourgeographic reach also allows us to offer our customers one-stop shopping forall of their catalog needs.

 

**·**                  SundayMagazines

** **

We believe that we are theindustry leader in the production of the major weekend newspaper magazines, *Parad**e*and*USA Weekend*, as well as locallyedited and distributed titles. These are four-color magazines inserted inmajor-market weekend newspapers. We also print comic books for leadingcompanies.

 

**·**                  DirectMail

** **

We are a North Americanindustry leader in direct mail production. Two of our facilities, located inAtlanta, GA and Effingham, IL, are direct mail mega-facilities that providecomplete direct mail production services from the data programming stagesthrough to bulk mailing. We can produce everything from traditional direct mailpackages to complex personalized in-line finished packages. Approximately 90%of the manufacturing (except for conventional envelopes) is done in-housethereby streamlining the production process and reducing cycle time andtransportation costs. Our sophisticated inkjet imaging technology allows us toapply variable messages in up to sixteen different locations on a singleprinted piece and in virtually any font or color with resolutions of up to 240dpi.

 

Furthermore, we have the capability to combineand co-ordinate all the pieces of multi-component marketing materials invirtually one pass through the press. By combining these features with ourhighly complex in-line imaging capability, we can provide clients with moretargeted and personalized marketing vehicles.

 

**3.2.2**                     PublishingServices Group

** **

Our Publishing ServicesGroup was created on June 17, 2008 and integrates our books, magazines anddirectories print services (see Item 2.3 of this Annual InformationForm — Creation of theMarketing Solutions Group and the Publishing Services Group).

 

**·**                  Books

** **

We are a North Americanindustry leader in book manufacturing. We print books for many of the world’sleading publishers, including McGraw-Hill, Scholastic, Harlequin Enterprises,Simon & Schuster, Thomas Nelson, Time-Warner, Reader’s DigestAssociation, Imagitas and Pearson Education. We are an industry leader in theapplication of new technologies for book production, including electronicpre-media,

 

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information networking anddigital printing. With facilities in North America and Latin America, we servemore than 750 book publishing customers internationally.

 

Our Latin American platform serves as a competitive alternative to Asiain the printing of books. It is also well positioned to service North Americanbook publishers in the printing of books for which time-to-market is not assignificant a factor.

 

In keeping with our full-service approach, we also provide on-demanddigital printing services for small quantities of books, brochures, technicaldocuments and similar products to be produced quickly and at a relatively lowcost.

 

In April 2006, weannounced that we were significantly enhancing service to our internationalbook customers through the implementation of our three-year strategicinvestment plan and through improved integration of our book platform. Thisinvestment plan forms part of our long-term strategic plan to meet the changingneeds of the publishing industry, and we believe that it will permit our U.S.book facilities to become more focused on specializing in specific productlines. This specialization, combined with new equipment, including two newwide-web MAN presses (Fairfield, PA) and the installation of newcomputer-to-plate systems and casing in equipment (Fairfield, PA andMartinsburg, WV), will permit these facilities to improve efficiencies andbetter serve our book customers. In the mass-market segment, we completed theinstallation of two Timson presses in July 2007. These new presses aredesigned to deliver faster set-up and greater throughput than other wide-webpresses in the market today. In the reference and educational book segment, inaddition to new, more efficient presses, we will be offering our customersimproved binding capacity with the installation of new state-of-the-art, highlyautomated bindery equipment.****We have alsoenhanced our capabilities in the rapidly growing market for digitally printedbooks and related products with the addition of new digital presses atfacilities in Dubuque, IA and Leominster, MA.

 

**·**                  Magazines

** **

We are one of the leadingprinters of consumer magazines in the United States. We print more than 1,000magazine titles, including industry leading titles such as *Ell**e* forHachette-Fillipachi Magazines US, *Cosmopolita**n* and *Good housekeeping*forHearst Corp., *Maxi**m* for Alpha Media Publishing, *Forbe*s for Forbes Inc., *ESP**N**Th*e *Magazin*e for Walt Disney Corp., *I**n**Touc**h**Weekl**y*for BauerPublishing USA, *Family Handyman*and*Weekly Reader* for Reader’s Digest Association and *Rolling Stone*, *US Weekly* and *Men’s Journal* for Wenner Media. We operate an internationalprint platform with operations in the United States, Canada and Latin America.As the industry leader in weekly publishing, we produce more than 15 magazinetitles for Time, Inc., including *Time**, Sports Illustrated, People, EntertainmentWeekly*, *Tim**e For Kids*as well as *Fortun**e,**Money**, Southern Living, Cooking Light, Coastal Living, SouthernAccents*and *Peopl**e*en Español.

** **

We have invested inpre-media and post-press technology to enhance our ability to service thismarket by providing publishers with before and after print services. Ourco-mailing and other logistics services help publishers reduce costs andimprove distribution. For the production of medium to long-run magazines, webelieve that we are at an advantage because our facilities haveselective-binding and ink-jet-imaging capabilities and can utilize our mailanalysis system.

 

**·**                  Directories

** **

We are the largestdirectory printer in Canada and one of the leading directory printers in the UnitedStates and Latin America. We print directories for some of the largestdirectory publishers in the world, including Dex Media, Yellow Book USA, RHDonnelley, Windstream and Frontier in the United States, the Yellow Pages Groupin Canada, as well as Telmex and Telefonica in Latin America.

 

**3.2.3**                     Pre-Mediaand Logistics Group

** **

We are a leader in thetransition from conventional pre-press to an all-digital workflow, providing acomplete spectrum of film and digital preparation services, from traditional creativeservices and colourseparation to state-of-the-art, all-digital pre-media, as well as digitalphotography and digital archiving. Such pre-media services include the colorelectronic pre-media system, which takes art work from concept to final product,and desktop publishing, giving the customer greater control over the finished

 

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product. These pre-media servicesare especially helpful to smaller customers, who may not have the capital toemploy such equipment or who may have to rely on third-party vendors, which mayresult in coordination and delay problems. Our specialized digital andpre-media facilities, which are strategically located close to and, in certaincases, onsite at, customers’ facilities, provide our customers high-quality,24-hour preparatory services linked directly to our various printingfacilities. In addition, our computer systems enable us to electronicallyexchange both images and textual material directly between us and our customers’business locations. We believe that our integrated pre-media operations provideus with competitive advantages over traditional prepress shops that are notable to provide the same level of integrated services. Our pre-media servicesbring together the full range of digital technologies and pre-media assetswithin our corporate group that allows us to focus on providing a morecomprehensive range of solutions to our customer base.

 

Other value-added services, including mail list, shipping anddistribution expertise, ink-jet personalizing, customer-targeted binding andcreative services, are increasingly demanded by our customers.

 

Quebecor World Logistics (“QWL”) provides logistics and mail listservices for both Quebecor World as well as third-party customers, managingdistribution and mailing services for catalogs, direct mail, magazine(subscriber copies and newsstand), newspaper inserts, books and bulk printedproducts. QWL uses scale to consolidate volume and a comprehensive menu ofelectronic tracking options to efficiently plan all deliveries. QWL providescustomized, flexible mailing strategies based on customers’ specific in-homedelivery requirements.

 

**3.3**                               MANUFACTURING AND TECHNOLOGY

** **

**3.3.1**                     Descriptionof Manufacturing Processes and Equipment

** **

We use principally two types of printing processes, rotogravure andoffset, which are the most commonly used commercial printing processes. Bothprocesses have undergone substantial technological advances over the pastdecade, resulting in significant improvements in both speed and print quality.

 

**·**                  Rotogravure

** **

The rotogravure process uses a copper-coatedprinting cylinder that is mechanically engraved using high-precision,computer-controlled and diamond-cutting heads. Although the engraving of theprinting cylinder is relatively expensive, the printing cylinder itself isextremely durable and cost-effective per long run. The rotogravure process hasan excellent reputation for the quality of its four-color reproductions onvarious grades of paper and the very high speed at which it is capable ofrunning. Rotogravure also provides the advantage of offering multiple cut-offsizes. With 65 rotogravure presses, we are one of the largest world-wideprinters using the rotogravure process.

 

Therotogravure process is well suited to long-run printing of retail inserts andcirculars, weekend newspaper magazines and other high-circulation magazines andcatalogs. We believe that our coast-to-coast network of rotogravure facilitiesin North America offers both the capacity and broad geographic presencerequired by large retailers and publishers. Our advanced ability in rotogravuredigital pre-media also ensures more efficient and accurate production of thesame insert simultaneously in multiple locations, thereby offering the customerthe efficiency and cost savings of manufacturing and distribution closer to itsend-use markets in reduced time frames.

 

**·**                  Offset

** **

In the offset process, an inked impression froma thin metal plate is first made on a rubber cylinder, after which it is offsetto paper. There are several types of offset printing processes: sheetfed andweb; and heatset and coldset. Sheetfed presses print on sheets of paper,whereas web presses print on rolls of paper. Short-run printing is generallybest served by sheetfed offset, whereas web offset is generally the bestprocess for longer runs.

 

Heatset web offset involves a press which usesan oven to instantly set or dry the oil-based inks. This permits high speed andbetter quality and is best suited for printing on glossier papers (coatedpaper). Heatset web offset is used to print retail inserts, magazines, catalogsand books. We operate 282 heatset web offset presses.

 

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Coldset web offset involves a press that doesnot use an oven to dry the ink, instead using oil-based inks that are absorbedinto the paper and dried by oxidation. Coldset web offset is used mainly toprint newspapers, books, directories and some retail inserts. We operate 39coldset web offset presses.

 

Wealso operate 60 sheetfed offset presses, which print books, promotionalmaterial, covers and direct-mail products.

 

**3.3.2**                     Technology

** **

We cooperate with large suppliers in the area ofresearch and development of new printing technologies, materials and processes.Our capital-improvement programs include adding, replacing and upgradingexisting equipment.

 

In the past several years,we have invested in faster, more efficient and higher quality presses. In July 2004,we announced, as part of our retooling program, our intention to purchaselatest generation web offset presses targeted for the magazine, catalog, retailand book platforms of our U.S. operations. This allowed us to further improveefficiency and meet the needs of both publishers and retailers. Since July 2004,we have installed 19 new presses, due mainly to our retooling program. Duringthis period, we permanently de-commissioned or sold over 70 presses andrelocated nearly 40** **presses,excluding the European operations.

 

Pre-media has continued to adapt to ever changingtechnology advancements and embrace web-enabled digital workflows as part ofour offerings to customers. The latest hardware and software solutions helpdrive the services upstream in the creative process and downstream to print andweb media options. We have deployed content management systems and services tobridge the information to multiple media channels. We have been an industryleader in bringing new on-line imaging services in conjunction with traditionalpre-media services and color management, which streamline the production of pages forprint. We have pioneered the digital engraving process for gravure and earlyadoption to computer-to-plate process for offset printing to optimize the colorquality and consistency on our presses. Migration to a complete PDF workflowsimplifies and standardizes the process. We also believe that we haveestablished one of the industry’s most efficient data communications (VPN)network, capable of transmitting customer files from our pre-media centers tomultiple print facility locations. Virtual Soft Proofing technology has allowedviewing of images and pages across the Internet that will ultimatelyimprove schedules and enable last-minute changes.

 

We have also upgraded our U.S. rotogravurenetwork with a view to improving efficiency and service to our magazine,catalog, retail insert and weekend newspaper magazine customers. We were one ofthe first commercial printers in North America to install short cut-off tabloidoffset presses. These presses print more pages at faster speeds and useless paper than do conventional tabloid presses. We have also invested in newand emerging digital and web-based technologies to improve services, reducecosts and expand our range of products.

 

We operate a NorthAmerican-wide telecommunications network, which enhances our ability to movedigital files between our facilities and customers quickly, share work amongfacilities, and expand distribution and printing operations.

 

**3.4**                               SALES AND MARKETING

** **

Oursales and marketing activities are highly integrated and reflect anincreasingly international approach to meeting customers’ needs that arecomplemented by product-specific sales efforts. Sales representatives arelocated in facilities or in regional offices throughout North America and LatinAmerica, generally close to their customers and prospects. Each salesrepresentative has the ability to sell into any facility in our network. Thisenables the customer to coordinate simultaneous printing throughout our networkthrough one sales representative. Some larger customers prefer to centralizethe purchase of printing services and, in this regard, our ability to providebroad geographical services is clearly an advantage over smaller regionalcompetitors.

 

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**3.5**                               PURCHASING AND RAW MATERIALS

** **

The principal raw materialsused in our products are paper and ink. In 2007, we spent approximately US$2.1 billion on raw materials. We exercise our purchasingpower to obtain pricing, terms, quality, quality control and service in linewith our status as one of the largest industry customers.

 

For most of our purchases,we negotiate with a limited number of suppliers to maximize our purchasingpower, but we do not rely on any single supplier. Purchasing activity at boththe local plant and corporate level is coordinated in order to increase andbenefit from economies of scale. Inventory-control operations are alsointegrated into our purchasing functions, which has resulted in improvements ininventory turnover. Inventories are also managed and tracked on a regionalbasis, increasing the utilization of existing inventories.

 

We take pride in offeringworld-wide procurement services to our customers. We believe that ourprocurement office, located in Fribourg, Switzerland, provides us with acompetitive advantage. By consolidating the activities formerly carried out atfour regional offices, we have been able to reduce administrative costs, standardizeprocurement and provide customers with assured supply at attractive prices.

 

**3.6**                               COMPETITIVE ENVIRONMENT

** **

Thecommercial printing business is highly competitive in most product categoriesand geographic segments. Industry analysts consider most of the industry’smarkets to be currently oversupplied, and competition is significant.Competition is largely based on price, quality, range of services offered,distribution capabilities, customer service, availability of printing time onappropriate equipment and state-of-the-art technology.

 

**3.7**                               SEASONALITY OF THE CORPORATION’S BUSINESS

** **

Operationsin the print business are seasonal, with the majority of our historicaloperating income during the past five financial years being realized in thesecond half of the financial year, primarily due to the higher number ofmagazine pages, new product launches and back-to-school, retail and holidaycatalog promotions.

 

**3.8**                               HUMAN RESOURCES

** **

As at June 30, 2008, we employed approximately****20,000****people in NorthAmerica, of whom approximately 5,900 are covered by 45 separate collective agreements. Nine collectiveagreements covering approximately 300 employees are currently in negotiation.Of these, two collective agreements covering approximately 130 employees expired in 2007, and five collective agreementscovering approximately 60 employees expired in 2006. In addition, twocollective agreements covering approximately 100employees will expire in2008 and are already in negotiation.These agreements are limited to single facilities and groups of employeeswithin these facilities.

 

We also employed approximately 3,000 people in Latin America as at June 30, 2008. Of thisnumber, the majority of our employees in Latin America are either governed byagreements that apply industry-wide or by a collective agreement.

 

**3.9**                               ENVIRONMENTAL REGULATIONS

** **

We are subject to various laws, regulations and government policiesrelating to the generation, storage, transportation, and disposal of solidwaste, to air and water releases of various substances into the environment,and to the protection of the environment in general. We believe we are incompliance with applicable laws and requirements in all material respects.

 

We are also subject to various laws and regulations, which allowregulatory authorities to compel (or seek reimbursement for) the cleanup ofenvironmental contamination at our own sites and at off-site facilities wherewaste is or has been disposed of. We have established a provision for expensesassociated with environmental remediation obligations, as well as otherenvironmental matters, when such amounts can

 

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be reasonably estimated. The amount of the provision is adjusted as newinformation is known. We believe the provision is adequate to cover thepotential costs associated with the remediation of environmental contaminationfound on-site and off-site as well as other environmental matters.

 

We expect to incur ongoing capital and operating costs to maintaincompliance with existing and future applicable environmental laws andrequirements, as well as to address equipment and process upgrades over thenext few years as part of an overall environmental compliance plan.Furthermore, we do not anticipate that maintaining compliance with existingenvironmental statutes will have a material adverse effect upon our competitiveor consolidated financial position.

 

We believe we have internal controlsand personnel dedicated to compliance with all applicable environmental lawsand that we provide for adequate monitoring and management of the environmentalrisk related to our operations. For the 2008 calendar year, we believethat there are no new environmental matters (environmental incident,promulgation of new environmental laws and regulations, soil and groundwatercontamination discovery, etc.) to be reported that could have a material impacton our operations.

 

**ITEM 4 – HIGHLIGHTS FOR THE LAST THREE FINANCIAL YEARS**

** **

Inlight of the Insolvency Proceedings, we are of the view that the most relevantand significant developments concerning Quebecor World are the InsolvencyProceedings, certain events leading up to the Insolvency Proceedings and eventsthat occurred subsequent thereto as described below. Quebecor World’s priorannual information forms provide detailed descriptions of other events anddevelopments concerning Quebecor World in prior periods.

 

·                                         On November 22, 2007, we entered into afactoring program for our accounts receivable in France. Under this program(the “Factoring Program”), we entered into agreements to sell up to €47.0 million (US$69.2million) of selected receivables with limited recourse. As at December 31, 2007,we had sold accounts receivable of €27.7 million (US$40.7 million) under theFactoring Program. As at December 31, 2007, the accounts receivablepledged totaled US$40.7 million. This Factoring Program was sold in connectionwith the sale of our European operations (see Item 2.2 of thisAnnual Information Form — Sale ofour European Operations).

 

·                                         On January 20,2008, we filed for Court protection under the CCAA and on  January 21, 2008, we obtained an order from the Quebec SuperiorCourt granting creditor protection under the CCAA for Quebecor World Inc. andfor 53 U.S. Subsidiaries. On the same date, the U.S. Subsidiaries filed apetition under Chapter 11 in the U.S. Bankruptcy Court. For more information onour filing for credit protection, please refer to Item 2.1 of thisAnnual Information Form — CreditorProtection and Restructuring.

 

·                                         On January 21, 2008, in connection withthe Insolvency Proceedings, we concluded a senior secured super prioritydebtor-in-possession credit agreement (the “DIP Credit Agreement”) with CreditSuisse and Morgan Stanley Senior Funding, Inc., as joint lead arrangersand initial lenders, and a syndicate of lenders named later. The DIP CreditAgreement provides for a US$1 billion credit facility made available toQuebecor World and Quebecor World (USA) Inc. The credit facility will expire inJuly 2009 unless we complete a plan of reorganization underChapter 11 or a plan of compromise or arrangement under the CCAA**prior thereto. The DIP Credit Agreement contains certainrestrictions, including the obligation to respect certain covenants andfinancial ratios, as well as certain events of default, all of which arecustomary for a debtor-in-possession credit agreement. The DIP Credit Agreementis fully secured by liens on substantially all of our North American assets andon certain of our assets located in Latin America (see Item 9.1 ofthis Annual Information Form — DIP Credit Agreement).

 

·                                         Our pre-petition revolving credit agreementhas been amended by amendments dated as of January 25, 2008, February 26,2008, March 27, 2008 and August 5, 2008, which were concluded inorder to facilitate the syndication of the credit facility and to provide uswith additional flexibility regarding reporting requirements and certain othercovenants contained in the DIP Credit Agreement.

 

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·                                         On January 28,2008, we also announced that Quebecor World PLC, our subsidiary based in Corby,United Kingdom, had been placed into administration. This facility hadexperienced economic difficulties mainly due to the overcapacity of the UKprinting industry, challenging market conditions and reduced demand forprinting in the United Kingdom. This decision was not related to our filing forcredit protection in the United States and Canada.

 

·                                         On March 1,2008, 3,975,663 of our 6.90% Series 5 Cumulative Redeemable FirstPreferred Shares (the “Series 5 Preferred Shares”) were converted into51,410,291 Subordinate Voting Shares in accordance with the rights, privileges,restrictions and conditions attaching to the Series 5 Preferred Shares(see Item 10.1.4 of this Annual Information Form — General Description of Capital Structure — Preferred Shares).

 

·                                         On June 1,2008, 517,184 of our Series 5 Preferred Shares were converted into6,799,353 Subordinate Voting Shares in accordance with the rights, privileges,restrictions and conditions attaching to the Series 5 Preferred Shares(see Item 10.1.4 of this Annual Information Form — General Description of Capital Structure — Preferred Shares).

 

·                                         On June 16 and 17, 2008, we announced themerging of our U.S. Retail Insert, Catalog, SundayMagazine and Direct Mail divisions into our Marketing Solutions Group, our U.S.Magazine, Book and Directory divisions into our Publishing Services Group andour U.S. Pre-Media and Logistics divisions into the Pre-Media and LogisticsGroup (see Item 2.3 of this Annual Information Form — Creation of the Marketing Solutions Group andthe Publishing Services Group).

 

·                                         On June 26, 2008, we announced the completion of the sale of ourEuropean operations toa subsidiary of HHBV (see Item 2.2 of this Annual Information Form — Sale of our European Operations).

 

·                                         Effective September 1, 2008, 744,124 of our issued and outstanding Series 5Preferred Shares were converted into 9,943,356****SubordinateVoting Shares in accordance with the rights, privileges,restrictions and conditions attaching to the Series 5 Preferred Shares  (see Item 10.1.4 of this Annual Information Form — General Description of Capital Structure — Preferred Shares).

 

·                                         On September 26, 2008, we received notices in respect of 66,601 ofour remaining issued and outstanding Series 5 Preferred Shares requestingconversion into our Subordinate Voting Shares as of December 1, 2008. Onor after November 27, 2008, we will announce the final conversion rateapplicable to the conversion of such 66,601 Series 5 Preferred Shares intoSubordinate Voting Shares scheduled to occur as of December 1, 2008 (see Item10.1.4 of this Annual Information Form — General Description of Capital Structure — Preferred Shares).

 

·                                         Finally,on September 29,2008, in the context of the Insolvency Proceedings, we were authorizedby the Court to enter into a share purchase agreement providing for the sale toBandhu Industrial Resources Private Limited of our interest in TEJ Quebecor PrintingLimited (“TQPL”), which operates a printing facility located in Gurgaon, India for an estimatedtotal net consideration of approximately US$150,000 (see Item 2.1 of this Annual Information Form — Creditor Protection and Restructuring).

 

**ITEM 5 —**OUR DIRECTORS ANDOFFICERS

** **

**5.1**                               OUR DIRECTORS

** **

Our Board of Directors is currentlycomposed of ten members. The term of office of each director expires upon theelection of his or her successor unless the director resigns from office or hisor her office becomes vacant by death, removal or other cause. The followingtable sets forth, as at September 30, 2008, the names, places of residenceand principal occupations of the directors, the year of their appointment, thecommittees on which each director serves as a member, as the case may be, thenumber of Subordinate Voting Shares held by each of them as well as thedirectorships they hold on other public companies.

 

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All the information in this Item hasbeen provided to us by the persons concerned.

 
| **Name and Place of  Residence**                    | ** ** | **Principal Occupation**                                                                                                                                                                                    | ** ** | **Director  Since** | ** ** | **Number of  Subordinate  Voting  Shares Held** | ** ** | **Other Directorships**                                                                                                                                                              |
|--------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                         | ** ** | ** **                                                                                                                                                                                                       | ** ** | ** **          | ** ** | ** **                                                | ** ** | ** **                                                                                                                                                                                |
| DOUGLAS G. BASSETT, O.C.,  O.,  ONT.(AC)(PC)  Ontario, Canada      |       | Chairman and President of Windward Investments (private investment  company)                                                                                                                                     |       | 2007                |       | —                                                    |       | ·  Rothmans Inc.

·  White Raven Capital Corporation                                                                                                                  |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| ANDRÉ CAILLÉ(HRCC)(PC)(EC)(RC)(IC)   Quebec, Canada |       | Corporate  Director                                                                                                                                                                                              |       | 2005                |       | —                                                    |       | ·  National  Bank of·  Canada·  Junex Inc.                                                                                                                  |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| MICHÈLE DESJARDINS(HRCC)(NCGC)(PC)(RC)(IC)  Quebec, Canada    |       | President,  Koby Consulting Inc. (management consultant firm)                                                                                                                                                    |       | 2007                |       | —                                                    |       | None.                                                                                                                                                                                     |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| JEAN LA  COUTURE(AC)(HRCC)(EC)(RC)(1)  Quebec, Canada              |       | President, Huis Clos ltée  (management and mediation firm)                                                                                                                                                  |       | 2007                |       | 1,000                                                     |       | ·    Quebecor Inc.

·  Innergex  Power Trust

·  Immunotec  Inc.                                                                                       |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| JACQUES MALLETTE(RC)  Quebec, Canada                               |       | President and Chief Executive Officer of Quebecor World Inc.                                                                                                                                                     |       | 2008                |       | —                                                    | (2)        | None.                                                                                                                                                                                     |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| THE  RIGHT HONOURABLE BRIAN  MULRONEY(EC)(1)  Quebec,  Canada      |       | Chairman of the Board of Quebecor World Inc. and Senior Partner of  Ogilvy Renault LLP (law firm)                                                                                                                |       | 1997                |       | —                                                    | (3)        | ·  Quebecor  Inc.

·  Archer-Daniels-Midland  Company

·  Barrick Gold Corporation

·  Cendant  Corporation

·  Trizec  Properties Inc. |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| JEAN NEVEU(NCGC)(RC)(1)  Quebec, Canada                            |       | Chairman of the Board of Quebecor Inc. (communications company) and  Chairman of the Board of TVA Group Inc. (television broadcasting company)                                                                   |       | 1989                |       | 3,896                                                     | (4)        | ·  Quebecor  Inc.

·  TVA Group  Inc.                                                                                                                                 |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| ÉRIK  PÉLADEAU(1)  Quebec,  Canada                       |       | Vice Chairman of the Board of Quebecor World Inc., Vice Chairman of  the Board of Quebecor Media Inc. (communications company) and Vice Chairman  of the Board of Quebecor Inc. (communications holding company) |       | 1989                |       | 504                                                       | (5)(6)     | ·  Quebecor  Inc.

·  Le Groupe Jean Coutu  (PJC) inc.                                                                                                                |
|                                                               |       |                                                                                                                                                                                                             |       |                |       |                                                      |       |                                                                                                                                                                                      |
| PIERRE KARL PÉLADEAU(EC)(1)  Quebec, Canada                   |       | President and Chief Executive Officer of Quebecor Inc. (communications  holding company), Vice Chairman of the Board and Chief Executive Officer of  Quebecor Media Inc. (communications company)                |       | 1989                |       | 25,976                                                    | (6)(7)     | ·  Quebecor  Inc.

·  TVA Group  Inc.                                                                                                                                 |

 

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| **Name and Place of  Residence**         | ** ** | **Principal Occupation**                                                                                                          | ** ** | **Director  Since** | ** ** | **Number of  Subordinate  Voting  Shares Held** | ** ** | **Other Directorships**                                                                         |
|---------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|
|                                                    |       |                                                                                                                                   |       |                |       |                                                      |       |                                                                                                 |
| ALAIN RHÉAUME(AC)(NCGC)(EC)(IC)(8)  Quebec, Canada |       | Lead Director of Quebecor World Inc. and Managing Partner of Trio  Capital (private investment firm specialized in telecommunications) |       | 1997                |       | —                                                    |       | ·  Boralex  Income Fund

·  Kangourou  Media Inc.

·  DiagnoCure  Inc. |

 

----

| (AC)   |   | Member  of our Audit Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (HRCC) |   | Member  of our Human Resources and Compensation Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (NCGC) |   | Member  of our Nominating and Corporate Governance Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (PC)   |   | Member  of our Pension Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (EC)   |   | Member of our Executive Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (RC)   |   | Member of our Restructuring Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (IC)   |   | Member of our Independent Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (1)    |   | Each of Messrs. La Couture, Mulroney, Neveu,  Érik Péladeau and Pierre Karl Péladeau is also a director of Quebecor Inc.  Between April 2  and June 12, 2008,  Quebecor Inc.’s directors, senior officers and certain of its current and  former employees were prohibited from trading in the securities of Quebecor  Inc. pursuant to a management cease trade order issued by the *Autorité des marchés financiers* in  connection with the delay in filing its 2007 annual financial statements,  first quarter 2008 interim financial statements and related management’s  discussion and analysis. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (2)    |   | Mr. Mallette holds  224,000 options to purchase Subordinate Voting Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (3)    |   | On October 31, 2001,  the Board granted The Right Honourable Brian Mulroney options to subscribe  for 50,000 Subordinate Voting Shares at an exercise price of $33.50 per  share. In addition, on February 3, 2003, the Board granted  Mr. Mulroney options to subscribe for 100,000 Subordinate Voting Shares  at an exercise price of US$23.746 per share. Mr. Mulroney also owns  1,000 Class A Multiple Voting Shares of Quebecor Inc.                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (4)    |   | Mr. Neveu also owns  65,614 Class B Subordinate Voting Shares of Quebecor Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (5)    |   | Érik Péladeau owns 140  Class B Subordinate Voting Shares of Quebecor Inc. and he controls Cie  de Publication Alpha inc., which holds 5,200****Class B  Subordinate Voting Shares of Quebecor Inc. On February 14, 2003, the  Human Resources and Compensation Committee of the Corporation granted  Mr. Péladeau options to subscribe for 100,000 Subordinate Voting Shares  at an exercise price of $33.648 per share.                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (6)    |   | A trust established for the  benefit of Érik Péladeau and Pierre Karl Péladeau has voting control of  Quebecor Inc., the Corporation’s controlling shareholder, with 17,508,964  Class A Multiple Voting Shares and 19,800 Class B Subordinate  Voting Shares of Quebecor Inc., representing 67.09% of all voting interests  in Quebecor Inc.                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (7)    |   | Pierre Karl Péladeau also  owns 3,200****Class A Multiple Voting  Shares and 25,000****Class B  Subordinate Voting Shares of Quebecor Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | Between December 22,  1998 and August 2, 2005, the Board of Directors of the Corporation  granted to Mr. Péladeau options to subscribe for a total of 1,862,708  Subordinate Voting Shares at exercise prices ranging from $24.444 to $32.91.                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (8)    |   | From May 1996 until February 2001,  Alain Rhéaume was Executive Vice President, Chief Financial Officer and  Treasurer of Microcell Telecommunications Inc., which, in January 2003,  effected a recapitalization plan approved by its creditors and obtained a  court order under the CCAA implementing such plan. At that time,  Mr. Rhéaume was Chief Operating Officer of a wholly-owned subsidiary of  Microcell Telecommunications Inc. Mr. Rhéaume no longer serves as a  director of Microcell Telecommunications Inc.                                                                                     |

 

Except as stated below, each of theaforementioned directors has, during the past five years, carried on his or hercurrent occupation or held other management positions with the same or otherassociated companies or firms, including affiliates and predecessors, indicatedopposite his or her name.

 

·                                         *JacquesMallette*.  Director, President and Chief Executive Officer. Mr. Mallette has served as our President and Chief ExecutiveOfficer since December 18, 2007. From October 2005 to December 2007,he served as our Executive Vice President and Chief Financial Officer. Mr. Mallettealso served as Executive Vice President and Chief Financial Officer of QuebecorInc., from 2003 until December 2007. He was Executive Vice President ofSun Media Corporation from  2003

 

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untilOctober 18, 2005, where he was also the Chief Financial Officer from 2003until January 2005. He was also the Executive Vice President and ChiefFinancial Officer of Quebecor Media Inc. from 2003 until September 30,2005. Mr. Mallette was a director and Executive Vice President of LeGroupe Videotron Ltd.  from April 2003until October 18, 2005, where he also served as Chief Financial Officerfrom April 2003 until January 2005. Prior to joining the Quebecorgroup of companies, Mr. Mallette was President and Chief Executive Officerof Cascades Boxboard Group Inc., where he started as Vice President and ChiefFinancial Officer in 1994.     Mr. Mallettehas been a member of the Canadian Institute of Chartered Accountants since 1982. Mr. Mallettehas been a director of Quebecor World Inc. since February 21, 2008.

 

·                                         *André Caillé*. Mr. Caillé previously served as the President and Chief ExecutiveOfficer of Hydro-Québec from 1996 until April 2005. He was then appointedChairman of the Board of Hydro-Québec and served in that capacity until September 14,2005. Mr. Caillé also served as President and Chief Executive Officer ofGaz Métropolitain from 1987 until 1996. Mr. Caillé also served as Chairmanof the World Energy Council from September 2004 to November 2007 andas a director of National Bank of Canada since November 2005. Mr. Cailléhas been a director of Quebecor World since December 2005 and serves asthe Chairman of our Human Resources and Compensation Committee, Chairman of ourRestructuring Committee and as a member of our Pension Committee. Mr. Cailléwas elected as a director of Junex Inc., a junior oil and gas explorationcompany, in June 2008.

 

·                                         *Alain Rhéaume*. Mr. Rhéaume is the founder andmanaging partner of Trio Capital. He was Executive Vice President and President ofFido at Rogers Wireless Inc., from November 2004 until June 2005. Hewas President and Chief Operating Officer of Microcell Solutions Inc. from May 2003until November 2004 and President and Chief Executive Officer of MicrocellPCS from February 2001 until April 2003. He has been a director ofQuebecor World since 1997. Mr. Rhéaume has served as lead director ofQuebecor World since February 2006. He serves as the Chairman of ourNominating and Corporate Governance Committee and as a member of our AuditCommittee.

** **

**5.2**                               RECORD OF ATTENDANCE OF THE DIRECTORS

** **

The followingtables set forth the record of attendance of the directors of the Corporationand the number of meetings of the Board and its Committees held during the yearended December 31, 2007.

 
| ** **                                                 | ** ** | **NUMBER OF MEETINGS ATTENDED/  NUMBER OF MEETINGS HELD (1)** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
| **DIRECTORS**                                              | ** ** | **BOARD**                                                                                        | ** ** | **COMMITTEES** | ** ** |
| Douglas G. Bassett                                         |       | 13/14                                                                                            |       | 15/15 |   |
| André Caillé                                     |       | 16/18                                                                                            |       | 17/17 |   |
| Michèle Desjardins                                    |       | 14/14                                                                                            |       | 7/7 |   |
| Jean La  Couture                                           |       | 3/4                                                                                              |       | — |   |
| The Right Honourable Brian Mulroney, P.C., C.C., LL.D. (2) |       | 17/17                                                                                            |       | — |   |
| Jean Neveu                                                 |       | 18/18                                                                                            |       | 5/6 |   |
| Érik Péladeau(2)                                 |       | 13/17                                                                                            |       | — |   |
| Pierre Karl Péladeau(2)                               |       | 15/17                                                                                            |       | — |   |
| Alain Rhéaume                                         |       | 18/18                                                                                            |       | 21/21 |   |
| **OVERALL ATTENDANCE RATE:**                               | ** ** | **92.7%**                                                                                        | ** ** | **98.5%** | ** ** |

 

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(1) Sincebecoming a director or a member of the relevant Committee(s).

 

(2) Thenon-independent directors did not attend one of the Board meetings held in2007, which was intended to be a meeting of independent Board members only.

 

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**SUMMARY OF BOARD OF DIRECTORS AND COMMITTEE MEETINGS HELD IN 2007**

 

| Board of Directors                            |   | 18     |   |
|-----------------------------------------------|--------|--------|--------|
| Executive Committee                           |   | — |   |
| Audit Committee                               |   | 13     |   |
| Human Resources and Compensation Committee    |   | 9      |   |
| Pension Committee                             |   | 4      |   |
| Nominating and Corporate Governance Committee |   | 4      |   |

 

**5.3**                               OUR EXECUTIVE OFFICERS

 
| **Name and Place of Residence** | ** ** | **Position with Quebecor  World**                               | ** ** | **Number of  Subordinate Voting  Shares Held** | ** ** | **Number of Options  to Purchase  Subordinate Voting  Shares Held** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                          | ** ** | ** **                                                                | ** ** | ** **                                                    | ** ** | ** **                                                                                   | ** ** |
| JACQUES MALLETTE

Quebec (Canada)                   |       | Director, President and Chief  Executive Officer                          |       | —                                                        |       | 224,000                                                                                      |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| JEREMY ROBERTS

Quebec (Canada)                     |       | Chief Financial Officer                                                   |       | 2,577                                                         |       | 30,384                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| GUY TRAHAN

Buenos Aires (Argentina)                |       | President, Latin America                                                  |       | —                                                        |       | 173,528                                                                                      |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| DAVID BLAIR

Ontario (Canada)                       |       | Senior Vice President,  Operations, Technology and Continuous Improvement |       | 6,484                                                         |       | 201,572                                                                                      |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| MICHÈLE BOLDUC

Quebec (Canada)                |       | Senior Vice President, Legal  Affairs and General Counsel                 |       | 3,046                                                         |       | 10,000                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| LOUISE DESJARDINS

Quebec (Canada)                  |       | Senior Vice President,  Taxation                                          |       | —                                                        |       | 22,000                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| WILLIAM J.  GLASS

Quebec (Canada)                  |       | Senior Vice President, Business Development and Strategy                  |       | —                                                        |       | 65,000                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| MARIO SAUCIER

Quebec (Canada)                      |       | Senior Vice President, Special  Projects                                  |       | 38                                                            |       | 15,000                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| BEN SCHWARTZ

Quebec (Canada)                       |       | Senior Vice President, People  and Leadership                             |       | —                                                        |       | —                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| MARIO D’ARIENZO

Quebec (Canada)               |       | Vice President, Real Estate                                               |       | 1,127                                                         |       | —                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| DIANE DUBÉ 

Quebec (Canada)                   |       | Vice President, Corporate  Controller                                     |       | 1,963                                                         |       | 15,779                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| JOSEPH  PANNUNZIO 

Quebec  (Canada)                |       | Vice President, Information Technology                                    |       | —                                                        |       | 13,000                                                                                       |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| ROLAND RIBOTTI 

Quebec (Canada)                    |       | Vice President, Corporate  Finance and Treasurer                          |       | —                                                        |       | 8,000                                                                                        |       |
|                                                |       |                                                                      |       |                                                          |       |                                                                                         |       |
| TONY ROSS 

Quebec (Canada)                         |       | Vice President, Communications                                            |       | 2,834                                                         |       | 8,148                                                                                        |       |

 

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| **Name and Place of Residence** | ** ** | **Position with Quebecor  World** | ** ** | **Number of  Subordinate Voting  Shares Held** | ** ** | **Number of Options  to Purchase  Subordinate Voting  Shares Held** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                          | ** ** | ** **                                  | ** ** | ** **                                                    | ** ** | ** **                                                                                   | ** ** |
| MARIE-ÉLIZABETH CHLUMECKY 

Quebec (Canada)    |       | Corporate Secretary                         |       | —                                                        |       | —                                                                                       |       |
|                                                |       |                                        |       |                                                          |       |                                                                                         |       |
| LUCIE DESJARDINS 

Quebec (Canada)                  |       | Assistant Corporate Secretary               |       | —                                                        |       | —                                                                                       |       |
|                                                |       |                                        |       |                                                          |       |                                                                                         |       |
| STEVEN GALEZOWSKI 

Quebec (Canada)                 |       | Assistant Treasurer                         |       | 2,054                                                         |       | —                                                                                       |       |

 

All of our officers haveheld the positions and principal occupations indicated above or otheroccupations within the Quebecor Group of companies for the past five years,except as otherwise indicated below:

 

·                                         *Jacques Mallette*.  Director,President and Chief Executive Officer. Mr. Mallette has served as our President, Chief Executive Officerand Chief Financial Officer since December 18, 2007. From October 2005to December 2007, he served as our Executive Vice President and ChiefFinancial Officer. Mr. Mallette also served as Executive Vice Presidentand Chief Financial Officer of Quebecor Inc., from 2003 until December 2007.He was Executive Vice President of Sun Media Corporation from 2003 until October 18,2005, where he was also the Chief Financial Officer from 2003 until January 2005.He was also the Executive Vice President and Chief Financial Officer ofQuebecor Media Inc. from 2003 until September 30, 2005. Mr. Mallettewas a director and Executive Vice President of Le Groupe Videotron Ltd.  from April 2003 until October 18,2005, where he also served as Chief Financial Officer from April 2003until January 2005. Prior to joining the Quebecor group of companies, Mr. Mallettewas President and Chief Executive Officer of Cascades Boxboard Group Inc.,where he started as Vice President and Chief Financial Officer in 1994. Mr. Mallettehas been a member of the Canadian Institute of Chartered Accountants since 1982. Mr. Mallettehas been a director of Quebecor World Inc. since February 21, 2008.

* *

·                                         *JeremyRoberts*. Chief Financial Officer. Mr. Roberts was appointed our ChiefFinancial Officer on July 28, 2008. From May 10, 2006 to July 2008,he served as our Senior Vice President, Corporate Finance and Treasurer. Priorto that, he served as Vice President, Corporate Finance and Treasurer since April 2004.Mr. Roberts has held several positions with Quebecor World since 1997,including Vice President, Investor Relations and Treasurer, Director, CorporateFinance and Investor Relations and Assistant Treasurer.

 

·                                         *Guy Trahan*. President ofQuebecor World Latin America. Mr. Trahan has served as President ofQuebecor World Latin America since July 1997. Mr. Trahan wasPresident - Eastern and Specialty Groups and Executive Vice President - Canadaof Quebecor Printing Inc. since 1993 and President - Eastern Canada andMexico of Quebecor Printing Inc. since 1988. From 1985 to 1988, he was VicePresident and General Manager of Gazette Canadian Printing and Southam Murray,a division of Southam Printing Ltd., and Vice President, Sales and Marketing ofUniboard Canada since 1982.

 

·                                         *DavidBlair*. Senior Vice President, Operations, Technology and ContinuousImprovement. Mr. Blair has served as our Senior Vice President,Operations, Technology and Continuous Improvement since November 6, 2006and, before that, he served as Senior Vice President, Manufacturing,Environment and Technology. From June 2001 until April 2002, he wasour Vice President, Manufacturing, Technologies and Environment and from January 1999until June 2001, he was our Vice President, Manufacturing.

* *

·                                         *Michèle Bolduc*. Senior Vice President, Legal Affairs andGeneral Counsel. Ms. Bolduc has served as our Senior Vice President, LegalAffairs and General Counsel since January 17, 2008. From November 2004to January 2008, she served as our Vice President, Legal Affairs. From January 2000until November 2004, she was Vice President and General Counsel,Operations at BCE 

 

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Emergis Inc. (electroniccommerce company). From 1993 until 2000, she was Assistant General Counsel atBell Canada.

 

·                                         *Louise Desjardins*. Senior Vice President, Taxation. Ms. Desjardinshas served as our Senior Vice President, Taxation since February 22, 2007.Prior to that appointment, she served as Vice President, Taxation since May 3,2004. From March 2000 until April 2004, she served as Director,Taxation of Abitibi-Consolidated Inc. and, from August 1995 until February 2000,as Director, Taxation of St-Lawrence Cement Inc. Ms. Desjardins has alsoserved as a councillor for the City of Rosemère since November 6, 2005.

 

·                                         *WilliamJ. Glass.* Senior Vice President, Business Development andStrategy. Mr. Glass has served as our Senior Vice President, BusinessDevelopment and Strategy since August 18, 2006. Prior to joining QuebecorWorld, Mr. Glass was Vice President of Business Development of SunChemical Corporation since April 2002. From August 2001 until April 2002,he was Director of Sales and Marketing of Fisher Scientific Inc., Lab EquipmentDivision. From February 2000 to August 2001, he was Director of Salesfor Investmart Inc.

 

·                                         *Mario Saucier*. Senior Vice President, Special Projects. Mr. Saucierhas served as our Senior Vice President, Special Projects since July 29,2008. From December 2005 to July 2008, he served as our Senior VicePresident and Chief Accounting Officer. Prior to joining Quebecor World, he wasVice President Strategy & Performance of Total Transit System, adivision of Bombardier Transportation. From August 2003 until September 2004,he also served as Vice President, Finance and Administration in that same division.From April 2001 to August 2003, Mr. Saucier was Vice President,SAP Implementation for Bombardier Transportation. Prior to that, he was theFinancial Controller of Bombardier Transportation, where he played severalroles internationally. Mr. Saucier has been a member of the CanadianInstitute of Chartered Accountants since 1991.

 

·                                         *Ben Schwartz*. Senior VicePresident, People and Leadership. Mr. Schwartz has served as our SeniorVice President, People and Leadership since October 22, 2007. Prior to joiningQuebecor World, he was Vice President Corporate Human Resources and GlobalRewards of Molson Coors Brewing Company in Denver, Colorado since 2005. In 2004and 2005, he was Vice President Human Resources (Corporate) of Molson Inc. andMolson Coors Brewing Company, in Montreal, Quebec, Canada. From 2002 until2004, Mr. Schwartz was Corporate Vice President Global Compensation andBenefits of Molson Inc. He was Corporate Director Human Resources of Pratt &Whitney Canada from 1996 until 2002, and Director Human Resources of CAEElectronics Ltd. from 1993 until 1996.

 

·                                         *MarioD’Arienzo.* Vice President, Real Estate. Mr. D’Arienzo hasserved as our Vice President, Real Estate since January 2007. Prior to joining Quebecor World, Mr. D’Arienzowas Executive Vice President of Magil Laurentian Realty Corporation and heldvarious management and executive positions during his years of service since1995. From 1989 to 1995, he held several accounting positions with TrizecProperties Inc.

 

·                                         *Diane Dubé*. Vice President,Corporate Controller.**Ms. Dubé has served as our VicePresident, Corporate Controller since February 22, 2007 and before thatshe served as Corporate Controller since June 2003. From February 2001until June 2003, she was our Assistant Vice President, CorporateController. From February 1998 until February 2001, Ms. Dubé wasour Director Financial Accounting and Systems and, from May 1991 until February 1998,she held several positions in our Accounting Department.

 

·                                         *Joseph Pannunzio*. Vice President, Information Technology. Mr. Pannunziohas served as our Vice President, Information Technology, since May 2005. Prior to joining Quebecor World, Mr. Pannunziowas Vice President of Technology Management at Videotron Telecom Ltd. from August 2000to May 2005. He was Director of Technology at National Bank Financial from1997 to 2000. Mr. Pannunzio began his Information Technology career at the Montreal Exchange in1980, where he held various senior management positions and became Director ofTechnology Operations in 1983.

 

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·                                         *Roland Ribotti*. Vice President, Corporate Finance andTreasurer. Mr. Ribotti was appointed our Vice President, Corporate Financeand Treasurer on July 28, 2008. From February 22, 2007 to July 2008,he served as our Vice President, Investor Relations and Assistant Treasurer.Prior to that, he served as Senior Director, Investor Relations and AssistantTreasurer since March 6, 2006. From January 2005 until March 2006,he served as our Assistant Treasurer. From May 2003 until January 2005,he was Director - Investor Relations of Bell Canada Enterprises. From August 1999until May 2003, Mr. Ribotti was first a Director and then a SeniorDirector at CDP Capital Communications, a subsidiary of the *Caisse de Dépôt et Placement du Québec*,specializing in private placement investments. From May 1991 until August 1999,he held several financial positions in the Treasury and Mergers andAcquisitions groups for Bell Canada.

 

·                                         *Tony Ross*. Vice President,Communications. Mr. Ross has served as our Vice President, Communicationssince February 22, 2007. Prior to that, he served as Director,Communications since August 2000. From 1997 until August 2000, Mr. Ross was Executive Producerat the Canadian Broadcasting Corporation.

 

·                                         *Marie-Élizabeth Chlumecky*. Corporate Secretary. Ms. Chlumeckyhas served as our Corporate Secretary since December 3, 2007. From August 2004to December 2007, she served as our Assistant Corporate Secretary. From May 2001until August 2004, she was Legal Counsel with Quebecor Media Inc. Prior tothat, she held positions as Legal Counsel with Transat A.T. Inc., SecretariatManager of BCE Inc. and Legal Counsel with Fednav Limited and AssistantCorporate Secretary to its various subsidiaries. Ms. Chlumecky has been amember of the *Barreau du Québec*since 1978.

 

·                                         *Lucie Desjardins*. AssistantCorporate Secretary. Lucie Desjardins joined the Corporation as our AssistantCorporate Secretary in April 2008. Beforejoining the Corporation, Ms. Desjardins was, since November 2006,Assistant Corporate Secretary and Senior Legal Counsel of IAMGold Corporation,an international natural resource company. From 2002 to 2006, she served asCorporate Secretary and Senior Legal Counsel of Cambior Inc., also aninternational natural resource company. Prior thereto, Ms. Desjardinsspecialized in business law, in particular securities law, with major Montreallaw firms in Montreal, Quebec, including Desjardins Ducharme Stein Monast from2000 to 2002 and Lavery, de Billy from 1997 to 2000.

 

·                                         *StevenGalezowski.* Assistant Treasurer. Mr. Galezowski has servedas our Assistant Treasurer since October 2005. From December 2002until October 2005, he was Managing Director of Galezowski AssociatesInc., an advisory firm specializing in mid-market private equity and mergersand acquisitions transactions. Prior to that, he held several financialmanagement positions, over a twenty-year period, at *Caisse de dépôt et placement du Québec*, BCE Inc., Royal Bankof Canada, Olympia & York and KPMG LLP.

 

**ITEM6 — AUDIT COMMITTEE DISCLOSURE**

** **

Multilateral Instrument 52-110 — *Audit Committees* (including Form 52-110F1 — *Audit Committee Information Required in an AIF*) (“MI52-110”), requires issuers to disclose in their annual information formscertain information with respect to the existence, charter, composition, andeducation and experience of the members of their audit committees, as well asall fees paid to external auditors.

 

The mandate of our audit committee (the“Audit Committee”) is attached as Schedule “A” to this Annual Information Form andis also accessible on our website at www.quebecorworld.com,under the “Investors” Tab.

 

**6.1**                               COMPOSITION OFTHE AUDIT COMMITTEE

** **

Our Board of Directors believes that thecomposition of the Audit Committee reflects a high level of financial literacyand expertise. Messrs. Jean La Couture (Chairman), Douglas G. Bassett andAlain Rhéaume are the current members of our Audit Committee, each of whom isindependent within the 

 

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meaning of MI 52-110 and applicable U.S.securities laws and regulations as well as being financially literate withinthe meaning of MI 52-110.

 

**6.2**                               EDUCATION ANDRELEVANT EXPERIENCE

** **

The education and experience of each of themembers of the Audit Committee that is relevant to the performance by suchmembers of their responsibilities on such Committee is described below.

 

**Jean LaCouture** (Chairman) — Mr. La Couture is a Fellow of the *Ordre des comptables agréés du Québec*. He headed LeGroupe Mallette (an accounting firm) before becoming President and ChiefExecutive Officer of The Guarantee Company of**North America. In 1995, he created Huis Clos ltée, which specializesin**management and mediation aswell as in civil and commercial negotiations. He serves as a member of the board ofdirectors and of the audit committee of a number of public companies, includingQuebecor Inc.

 

**Douglas G. Bassett** — Mr. Bassett has served asChairman and President of Windward Investments (a private investment company)since 2000. Previously, he was Vice-Chairman of CTV Inc. from 1998 to 2000, andPresident and Chief Executive Officer of Baton Broadcasting Inc. from 1990until 1996. The University of New Brunswick awarded Mr. Bassett anhonorary degree of Doctor of Laws, *honori*s*caus*a in 1988. He has been adirector of Quebecor World since May 2007 and serves as the Chairman ofour Pension Committee and a member of our Audit Committee. Mr. Bassett isalso a director of Rothmans Inc. and White Raven Capital Corporation.

 

**Alain Rhéaume** — Mr. Rhéaume has adegree in Business Administration from Université Laval. He has served asmanaging partner of Trio Capital since January 2006. He served as ChiefFinancial Officer of Microcell Telecommunications Inc. from 1996 until hisappointment as President and Chief Executive Officer of Microcell PCS in February 2001.Between 1992 and 1996, Mr. Rhéaume was the Deputy Minister of Finance ofthe Province of Quebec. Mr. Rhéaume has served on the board of directorsand audit committee of a number of public companies, some of which areregistrants with the U.S. Securities and Exchange Commission and are requiredto reconcile their financial statements between Canadian and U.S. generallyaccepted accounting principles.

 

**6.3**                               PRE-APPROVALPOLICIES AND PROCEDURES

** **

MI 52-110 requires us to disclose whetherour Audit Committee has adopted specific policies and procedures for theengagement of non-audit services and to prepare a summary of these policies andprocedures. The Mandate of the Audit Committee provides that it is suchCommittee’s responsibility to:

 

(a)                                  approve the appointment and, if appropriate,the termination (both subject to shareholder approval) of the external auditorsand monitor their qualifications, performance and independence;

 

(b)                                 pre-approve and oversee the disclosure of allaudit services provided by the external auditors to us or any of oursubsidiaries, determining which non-audit services the external auditors areprohibited from providing; and pre-approve and oversee the disclosure ofpermitted non-audit services to be performed by the external auditors, thewhole in accordance with applicable laws and regulations; and

 

(c)                                  approve the basis and amount of the externalauditors’ fees for both audit and certain permitted non-audit services.

 

The Audit Committee has adopted a *Pre-Approval Policy*pursuant to which wemay not engage our external auditors to carry out certain non-audit services thatare deemed inconsistent with the independence of auditors under applicable lawsand regulations. This Policy also provides that, subject to certainlimitations, the Chief Financial Officer of the Corporation and Chairman of theAudit Committee may retain our external auditors for certain audit andnon-audit services that have been pre-approved by the Audit Committee (the ̈Pre-Approved Services ̈), provided, however, that the external auditors’estimated fees for the Pre-Approved Services may not exceed $150,000 when theyare retained by the Chief Financial Officer, and $250,000 when they areretained by the Chairman of the Audit Committee. All

 

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other projects must be submitted for approvalto the Audit Committee. The Chief Financial Officer and Chairman of the AuditCommittee report to the Audit Committee, on a quarterly basis, on all projectsapproved under the *Pre-Approval Policy*.This Policy and the list of Pre-Approved Services are reviewed by the AuditCommittee on an annual basis.

 

**6.4**                               EXTERNALAUDITOR SERVICE FEES

** **

In addition toperforming the audit of our consolidated financial statements, KPMG LLP providedus with other services and they billed us the following fees for each of ourtwo most recently completed financial years as summarized in the followingtable:

 
| **FEES**              | ** ** | **FINANCIAL YEAR ENDED  DECEMBER 31, 2007** | ** **     | **FINANCIAL YEAR ENDED  DECEMBER 31, 2006** | ** ** |
|-----------------------|------------|-----------------------------------------------------------------|----------------|-----------------------------------------------------------------|------------|
| Audit Fees(1)         |       | US$                                                             | 7,637,000      |                                                            | US$        | 11,370,000 |   |
| Audit-Related Fees(2) |       | US$                                                             | 2,176,000      |                                                            | US$        | 369,000 |   |
| Tax Fees(3)           |       | US$                                                             | 2,125,000      |                                                            | US$        | 1,212,000 |   |
| All other Fees(4)     |       | US$                                                             | 278,000        |                                                            | US$        | 679,000 |   |
| **TOTAL FEES:**       | ** ** | **US$**                                                         | **12,216,000** | ** **                                                      | **US$**    | **13,630,000** | ** ** |

 

----

| (1)      | * * | *Audit Fees* consist of fees billed for the annual integrated audit  and quarterly reviews of our annual and quarterly consolidated financial  statements or services that are normally provided by the external auditors in  connection with statutory and regulatory filings or engagements. They also  include fees billed for other audit services, which are those services that  only the external auditors reasonably can provide, and include the provision  of comfort letters and consents, the consultation concerning financial accounting  and reporting of specific issues, the review of documents filed with  regulatory authorities. |
|----------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (2)      | * * | *Audit-related Fees* consist of fees billed for assurance and related services  that are traditionally performed by the external auditors, and include  consultations concerning financial accounting and reporting standards on  proposed transactions; due diligence or accounting work related to  acquisitions; and employee benefit plan audits.                                                                                                                                                                                                                                                                                                 |
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (3)      | * * | *Tax Fees* include fees billed for tax  compliance services, including the preparation of original and amended tax  returns and claims for refund; tax consultations, such as assistance and  representation in connection with tax audits and appeals, tax advice related  to mergers and acquisitions, and requests for rulings or technical advice  from taxing authorities; tax planning services; and consultation and planning  services.                                                                                                                                                                                                       |
| * * | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (4)      | * * | *All Other Fees* include fees billed for advice with respect to our  internal controls over financial reporting and disclosure controls and  procedures and assistance provided to obtain grants and subsidies.                                                                                                                                                                                                                                                                                                                                                                                                                                       |

 

**6.5**                               REPORT OF THEAUDIT COMMITTEE

** **

The AuditCommittee oversees the integrity of the accounting and financial reportingprocess and systems of internal control through discussions with ourmanagement, the external auditors and the internal auditors. The AuditCommittee is responsible for reviewing annual and quarterly financialstatements, annual and quarterly Management’s Discussion and Analysis,financial and earnings press releases and certain other disclosure and offeringdocuments, prior to their approval by the Board of Directors and theirdisclosure and filing with the applicable regulatory authorities. The AuditCommittee is also responsible for reviewing the compliance of managementcertification of financial reports in accordance with applicable legislation.The Audit Committee reviews its processes on a regular basis and uses theexpertise of external advisors when necessary or advisable. The Audit Committeeholds *in camera* sessions after each regularmeeting and more often, if it deems it necessary.

 

The AuditCommittee has: (i) reviewed and discussed the audited financial statementsfor the year ended December 31, 2007 with our management; (ii) discussedwith the independent external auditors the matters requiring discussion underprofessional auditing guidelines and standards in both Canada and the UnitedStates; (iii) received the written disclosures from the independentexternal auditors recommended by the Canadian Institute of CharteredAccountants and the Independence Standards Board in the United States 

 

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and; (iv) discussedwith the external auditors their independence. In considering the independenceof our external auditors, the Audit Committee took into consideration theamount and nature of the fees paid to the external auditors for non-auditservices as described above.

 

During thecourse of the financial year ended December 31, 2007, our managementproceeded with the documentation, testing and evaluation of our system ofinternal controls over financial reporting in response to the requirements setforth in Item 404 of the *Sarbanes Oxley-Act of 2002*and related regulations. Management and our external auditors kept the AuditCommittee apprised of the progress of the documentation, testing and evaluationthrough periodic updates and the Audit Committee provided advice to our managementduring the progress.

 

Based on thesereviews and discussions, the Audit Committee recommended to our Board ofDirectors that the audited financial statements comprised of balance sheets asat December 31, 2007 and 2006 and statements of income, comprehensiveincome, shareholders’ equity and cash flow for each of the years in thethree-year period ended December 31, 2007 be included in our AnnualReport.

 

**Submitted by the AuditCommittee of the Board of Directors:**

** **

·                  Jean La Couture(Chairman)(1)

 

·                  DouglasG. Bassett

 

·                  AlainRhéaume

 

----

| (1) |   | Mr. La Couture did not participate  in any of the Audit Committee meetings held in 2007 since he became a member  of the Board of Directors on December 10, 2007. For the year 2007, the  Chairman of the Audit Committee was Robert Coallier, who resigned on  November 12, 2007. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Theabove report of the Audit Committee shall not be deemed to be incorporated byreference by any general statement incorporating by reference this AnnualInformation Form in any filing under applicable Canadian andU.S. securities legislation, except to the extent that we specificallyincorporate this information by reference, and it shall not otherwise be deemedfiled under such applicable securities legislation.

 

**ITEM7 — LEGAL PROCEEDINGS**

** **

In the normal course ofbusiness, we are involved in various legal proceedings and claims. In theopinion of our management and that of our subsidiaries, the outcome of theselegal proceedings and claims is not expected to have a material adverse effecton our business, financial condition or results of operations.

 

However, we arecurrently subject to the Insolvency Proceedings (see Item 2.1 of thisAnnual Information Form — CreditorProtection and Restructuring)

 

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**ITEM8 — RISK FACTORS**

** **

*We urge all current and potentialinvestors to carefully consider the risks described below, the otherinformation contained in this Annual Information Form and otherinformation and documents filed by us with the appropriate securitiesregulatory authorities before making any investment decision with respect toany of our securities. The risks and uncertainties described below are not theonly ones we may face. Additional risks and uncertainties that we are unawareof, or that we currently deem to be immaterial, may also become importantfactors that affect us. If any of the following risks actually occurs, ourbusiness, cash flow, financial condition and/or results of operations could bematerially adversely affected.*

 

**PRIMARY RISK FACTORS**

** **

***We and many of our subsidiariesare currently subject to creditor protection and restructuring proceedings inboth Canada and the United States.******It is unlikely that our existingMultiple Voting Shares, Subordinate Voting Shares and Preferred Shares willhave any material value in a restructuring plan of arrangement, and there isalso a risk such shares could be cancelled. If we fail to implement a plan ofarrangement and obtain sufficient exit financing within the time granted by theCourts, substantially all of our debt obligations will become due and payableimmediately, or subject to immediate acceleration, which would in alllikelihood lead to the liquidation of our assets.***

*** ***

On January 21, 2008 (the “Filing Date”), weobtained an order (the “Initial Order”) from the Quebec Superior Court (the“Court”) granting creditor protection under the *Companies’Creditors Arrangement Act*(the “CCAA”) for ourselves and for53 of our U.S. Subsidiaries (collectively, the “Applicants”). On the samedate, those same U.S. Subsidiaries filed a petition under Chapter 11 of the *U.S. Bankruptcy Code* (“Chapter 11”) in the U.S. BankruptcyCourt for the Southern District of New York (the “U.S. Bankruptcy Court”). Theproceedings under the CCAA are hereinafter referred to as the “CanadianProceedings”, the proceedings under Chapter 11 are hereinafter referred toas the “U.S. Proceedings” and the Canadian Proceedings and the U.S. Proceedingsare hereinafter collectively referred to as the “Insolvency Proceedings”. OurLatin American subsidiaries are not subject to the Insolvency Proceedings.

 

Pursuant to the Initial Order, the Applicants areprovided with the authority to, among other things, file with the Court andsubmit to their creditors a plan of compromise or arrangement under the CCAAand operate an orderly restructuring of their business and financial affairs,in accordance with the terms of the Initial Order. Ernst & Young Inc.(the “Monitor”) has been appointed by the Court as Monitor in the CanadianProceedings. Pursuant to the terms of the Initial Order, the Monitor wasappointed to monitor the business and financial affairs of the Applicants and,in connection with such role, the Initial Order imposes a number of duties andfunctions on the Monitor, including, but not limited to, assisting theApplicants in connection with their restructuring and reporting to the Court onthe state of the business and financial affairs of the Applicants and ondevelopments in the Insolvency Proceedings, as the Monitor considersappropriate.

 

The U.S. Bankruptcy Code provides for all actions andproceedings against the U.S. Subsidiaries to be stayed during the continuationof the U.S. Proceedings. The Initial Order also provides for a general stayand, pursuant to subsequent orders of the Court rendered on February 19,2008, May 9, 2008, July 18, 2008 and September 29,2008 respectively, this stay period was extended first to May 12,2008 and then subsequently to July 25, 2008, September 30, 2008and December 14, 2008 in Canada. The stay period is subject to furtherextensions as the Court may deem appropriate. The applicable stays generallypreclude parties from taking any actions against the Applicants. The purpose ofthe stay period and of the Insolvency Proceedings is to provide the Applicantsthe opportunity to stabilize their operations and businesses and to develop abusiness plan, all with a view to proposing a final plan of reorganization,compromise or arrangement. Any such plan will be subject to approval byaffected creditors, as well as Court approval.

 

In light of the InsolvencyProceedings, it is unlikely that our existing Multiple Voting Shares,Subordinate Voting Shares and Preferred Shares will have any material value in,and following the approval of, a restructuring plan of arrangement, and thereis a risk such shares could be cancelled. There is also a risk that if we failto successfully implement a plan of arrangement and obtain sufficient exitfinancing within the time granted by the Court, substantially all of our debtobligations will become due and payable

 

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immediately, or subject toimmediate acceleration, which would in all likelihood lead to the liquidationof the Applicants’ assets.

 

****Our ability to manage our business is restricted during theInsolvency Proceedings and all steps or actions in connection therewith may, incertain circumstances, require the approval of *********our DIP lenders, the Monitor, the********Official Committee of Unsecured Creditors********and*********/or the Courts.****

 

Our DIP Credit Agreement provides for various restrictions on, amongother things, our ability to incur additional debt, secure such debt, makeinvestments, dispose of our assets (including pursuant to sale and leasebacktransactions and sales of receivables under securitization programs) and makecapital expenditures. Each of these transactions would require the consent ofour DIP lenders if they exceed certain thresholds set forth in theDIP Credit Agreement, and may, in certain cases, require the consent ofthe Monitor, the Official Committee of Unsecured Creditors and/or the Courts.

 

*The above Primary RiskFactors relating to us and the Insolvency Proceedings should be borne in mindby you when you read each of the additional risk factors set forth below.*

* *

**Other Risk Factors**

** **

**Risks Relating to Our Business**

** **

***Our revenue issubject to cyclical and seasonal variations and prices of, and demand for, ourprinting services may fluctuate significantly based on factors outside of ourcontrol.***

*** ***

The business in which we operate is sensitive togeneral economic cycles and may be adversely affected by the cyclical nature ofthe markets we serve, as well as by local, regional, national and globaleconomic conditions. Our business operations are seasonal, with the majority ofour historical operating income during the past five financial years beingrecognized in the third and fourth quarters of the financial year, primarily asa result of the higher number of magazine pages, new product launches andback-to-school, retail and holiday catalog promotions. Within any year, this seasonalitycould adversely affect our cash flows and results of operations.

 

We are unable to predict market conditions and onlyhave a limited ability to affect changes in market conditions for printingservices. Pricing and demand for printing services have fluctuatedsignificantly in the past and each has declined significantly in recent years.Prices and demand for printing services may continue to decline from currentlevels. Further increases in the supply of printing services or decreases indemand could cause prices to continue to decline, and prolonged periods of lowprices, weak demand and/or excess supply could have a material adverse effecton our business growth, results of operations and liquidity.

 

***We operate in ahighly competitive industry.***

*** ***

The industry in which we operate is highlycompetitive. Competition is largely based on price, quality, range of servicesoffered, distribution capabilities, customer service, availability of printingtime on appropriate equipment and state-of-the-art technology. We compete forcommercial business not only with large national printers, but also withsmaller regional printers. In certain circumstances, due primarily to factorssuch as freight rates and customer preference for local services, printers withbetter access to certain regions of a given country may have a competitiveadvantage in such regions. Since 2001, the printing industry has experienced areduction in demand for printed materials and excess capacity. Some of theindustries that we service have been subject to consolidation efforts, leadingto a smaller number of potential customers. Furthermore, if our smallercustomers are consolidated with larger companies utilizing other printingcompanies, we could lose our customers to competing printing companies.Primarily as a result of this excess capacity and customer consolidation, therehave been, and may continue to be, downward pricing pressures and increasedcompetition in the printing industry. Any failure on our part to competeeffectively in the markets we serve could have a material adverse effect on theresults of our operations, financial condition or cash flows and could requirechanges to the way we conduct our business or reassess strategic alternativesinvolving our operations.

 

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***We will berequired to make capital expenditures to maintain our facilities and may berequired to make significant capital expenditures to remain technologically andeconomically competitive, which may significantly increase our costs or disruptour operations.***

*** ***

Because production technologies continue to evolve,we must make capital expenditures to maintain our facilities and may berequired to make significant capital expenditures to remain technologically andeconomically competitive. We may therefore be required to invest significantcapital in improving production technologies. If we cannot obtain adequatecapital or do not respond adequately to the need to integrate changingtechnologies in a timely manner, our operating results, financial condition orcash flows may be adversely affected.

 

The installation of new technology and equipmentmay also cause temporary disruption of operations and losses from operationalinefficiencies. The impact on operational efficiency is affected by the lengthof the period of remediation.

 

***A significantportion of our revenues is derived from long-term contracts with importantcustomers, which may not be renewed on similar terms and conditions or may notbe renewed at all. The failure to renew or be awarded such contracts couldsignificantly adversely affect our operating results, financial condition andcash flows.***

*** ***

We derive a significant portion of our revenuesfrom long-term contracts with important customers. If we are unable to renewsuch contracts on similar terms and conditions, or at all, or if we are notawarded new long-term contracts with important customers in the future, ouroperating results, financial condition and cash flows may be adverselyaffected.

 

***We may beadversely affected by increases in our operating costs, including the cost andavailability of raw materials and******labour******-related costs.***

*** ***

We use paper and ink as our primary raw materials.The price of such raw materials has been volatile over time and may causesignificant fluctuations in our net sales and cost of sales. Although we useour purchasing power as one of the major buyers in the printing industry to obtainfavorable prices, terms, quality control and service, we may nonethelessexperience increases in the costs of our raw materials in the future, as pricesin the overall paper and ink markets are beyond our control. In general, wehave been able to pass along increases in the cost of paper and ink to many ofour customers. If we are unable to continue to pass any price increases on toour customers, future increases in the price of paper and ink would adverselyaffect our margins and profits.

 

Due to the significance of paper in our business,we are dependent upon the availability of paper. In periods of high demand,certain paper grades have been in short supply, including grades used in ourbusiness. In addition, during periods of tight supply, many paper producersallocate shipments of paper based upon historical purchase levels of customers.Although we generally have not experienced significant difficulty in obtainingadequate quantities of paper, unforeseen developments in the overall papermarkets could result in a decrease in the supply of paper and could causeeither or both of our revenues or profits to decline.

 

Labor represents a significant component of ourcost structure. Increases in wages, salaries and benefits, such as medical,dental, pension and other post-retirement benefits, may impact our financialperformance. Changes in interest rates, investment returns or the regulatoryenvironment may impact the amounts we are required to contribute to the pensionplans that we sponsor and may affect the solvency of our pension plans.

 

***The demand forour products and services may be adversely affected by technological changes.***

*** ***

Technological changes continue to increase theaccessibility and quality of electronic alternatives to traditional delivery ofprinted documents through the online distribution and hosting of media contentand the electronic distribution of documents and data. The acceleration ofconsumer acceptance of such electronic media, as an alternative to printmaterials, may decrease the demand for our printed products or result inreduced pricing for our printing services.

 

*** ***

 

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*** ***

***We may beadversely affected by strikes and other labor protests.***

*** ***

As at June 30, 2008, we had 45 separatecollective bargaining agreements in North America. Furthermore, nine collective agreements covering approximately 300 employees arecurrently in negotiation. Of these, two collective agreements coveringapproximately 130 employees expired in 2007 and fivecollective agreements covering approximately 60 employees expired in 2006. Inaddition, two collective agreements covering approximately 100 employees will expire in 2008 and are already in negotiation.

** **

As at June 30, 2008, we employed approximately20,000 people in North America, of which approximately 5,900****or approximately 29% are unionized. As at June 30,2008, 68 of our plants and related facilities in North America werenon-unionized.

 

As at June 30, 2008, we also employedapproximately 3,000 people in Latin America, the majority of which are eithergoverned by agreements that apply industry-wide or by a collective agreement.

 

While relations with our employees have been stableto date and there has not been any material disruption in operations resultingfrom labor disputes, we cannot be certain that we will be able to maintain aproductive and efficient labor environment. We cannot predict the outcome ofany future negotiations relating to the renewal of the collective bargainingagreements, nor can we assure with certainty that work stoppages, strikes orother forms of labor protests pending the outcome of any future negotiationswill not occur. Any strikes or other forms of labor protests in the futurecould materially disrupt our operations and result in a material adverse impacton our financial condition, operating results and cash flows, which could forceus to reassess our strategic alternatives involving certain of our operations.

 

***We may beadversely affected by interest rates, foreign exchange rates and commodityprices.***

*** ***

We are exposed to market risks associated withfluctuations in foreign currency exchange rates, interest rates and commodityprices. Because a portion of our operations are outside the United States,significant revenues and expenses will be denominated in local currencies.Although operating in local currencies may limit the impact of currency ratefluctuations on the operating results of our non-U.S. subsidiaries and businessunits, fluctuations in such rates may affect the translation of these resultsinto our financial statements. Since the commencement of the InsolvencyProceedings, we are no longer party to any derivative financial instruments,such as foreign exchange forward contracts, cross-currency swaps, interest rateswap agreements and commodity swap agreements. Consequently, we are now fullyexposed to the market risks associated with movements in foreign currencyexchange rates, interest rates and commodity prices.

 

***There are risksassociated with our operations outside the United States and Canada.***

*** ***

We have significant operations outside the UnitedStates and Canada. Revenues from our operations outside the United States andCanada accounted for approximately 23% of our revenuesfor the year ended December 31, 2007, although we anticipate that thisfigure will decline in the financial year ending December 31, 2008 inlight of the sale of our European operations completed on June 26, 2008(see Item 2.2 of this Annual Information Form — Sale of our European Operations). As a result, weare subject to the risks inherent in conducting business outside the UnitedStates and Canada, including the impact of economic and political instabilityand being subject to different legal and regulatory regimes that may precludeor make more costly certain initiatives or the implementation of certainelements of our business strategy.

 

***Increases infuel and other energy costs may have a negative impact on our financialresults.***

*** ***

Fuel and other energy costs represent a significantportion of our overall costs. We may not be able to pass along a substantialportion of the rise in the price of fuel and other energy costs directly to ourcustomers. In that instance, increases in fuel and other energy costs,particularly resulting from increased natural gas prices, could adversely affectoperating costs or customer demand and thereby negatively impact our operatingresults, financial condition or cash flows.

 

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*** ***

***Our printing and other facilities aresubject to environmental laws and regulations, which may subject us to materialliability or require us to incur material costs.***

*** ***

Weuse various materials in our operations that contain constituents consideredhazardous or toxic under environmental laws and regulations. In addition, ouroperations are subject to a variety of environmental laws and regulationsrelating to, among other things, air emissions, wastewater discharges and thegeneration, handling, storage, transportation and disposal of solid waste.Further, we are subject to laws and regulations designed to reduce theprobability of spills and leaks; however, in the event of a release, we arealso subject to environmental regulation requiring an appropriate response tosuch an event. Permits are required for the operation of certain of ourbusinesses, and these permits are subject to renewal, modification and, in somecircumstances, revocation.

 

Ouroperations generate wastes that are disposed of off-site. Under certainenvironmental laws, we may be liable for cleanup costs and damages relating tocontamination at these off-site disposal locations, or at our existing orformer facilities, whether or not we knew of, or were responsible for, thepresence of such contamination. The remediation costs and other costs requiredto clean up or treat contaminated sites can be substantial. Contamination onand from our current or former locations may subject us to liability to thirdparties or governmental authorities for injuries to persons, property ornatural resources and may adversely affect our ability to sell or rent ourproperties or to borrow money using such properties as collateral.

 

Weexpect to incur ongoing capital and operating costs to maintain compliance withenvironmental laws, including monitoring our facilities for environmentalconditions. We take reserves on our financial statements to cover potentialenvironmental remediation and compliance costs as we consider appropriate.However, there can be no assurance that the liabilities for which we have takenreserves are the only environmental liabilities relating to our current andformer locations, that material environmental conditions not known to us do notexist, that future laws or regulations will not impose material environmentalliability on us, or cause us to incur significant capital and operatingexpenditures, or that our actual environmental liabilities will not exceed ourreserves. In addition, failure to comply with any environmental regulations oran increase in regulations could adversely affect our operating results andfinancial condition.

 

***We may be required to take additionalgoodwill impairment charges and additional write-downs of the value of ourlong-lived assets.***

*** ***

Wecompleted our annual goodwill impairment testing in the third quarter of 2007.Taking into account financial information such as the announced sale of ourEuropean operations to Roto Smeets de Boer NV (which, subsequently, was notconsummated), management determined that the carrying value of goodwill for ourEuropean reporting unit was not recoverable and that the resulting impairmentof such goodwill amounted to its entire carrying value of US$166.0 million at September 30,2007.

 

Inthe fourth quarter of 2007, our unsuccessful efforts to obtain new financingand our inability to conclude the proposed sale of our European operations toRoto Smeets de Boer NV combined with a decline in the Corporation’s stock pricetriggered a requirement for a goodwill impairment test related to theCorporation’s reporting units. As a result, we concluded that the goodwill wasimpaired and a total impairment charge of US$1,832.9 million was recorded forthe North American and Latin America reporting units.

 

Duringthe year ended December 31, 2007, we recorded a US$256.1 millionimpairment charge on long-lived assets in North America, Europe and LatinAmerica principally applied to machinery and equipment. In North America, thischarge was a result of impairment tests being triggered because of theretooling plan and the relocation of existing presses into fewer, but largerand more efficient facilities. In Europe, the impairment test was triggered as aresult of the proposed sale/merger of Quebecor World Europe with Roto Smeets DeBoer NV, which, subsequently, was not consummated.

 

Theseries of events that led to the Insolvency Proceedings and the events sincethen also triggered impairment tests for the Corporation’s property, plant andequipment, and goodwill. Following the completion of impairment tests onspecific units in North America and Europe, the Corporation concluded that somelong-lived assets were impaired and recorded an impairment charge of $16.7million on certain machinery and equipment during the six-month period ended June 30,2008.

 

Wemay, however, be required to take additional goodwill impairment charges andadditional write-downs on the value of our long-lived assets. Among otherfactors, the trading price of our listed securities may trigger additionalgoodwill impairment charges and additional asset write-downs. Our management 

 

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concludedthat for the year ended December 31, 2007, we did not maintain effectiveprocess and controls over the determination of the impairment of our long-termassets and that this constituted a material weakness in our internal control.In the event we are required to take additional goodwill impairment charges oradditional asset write-downs, our financial results and operations as well asthe trading prices of our various outstanding securities could be adverselyaffected.

 

***We could be adversely affected by healthand safety requirements.***

*** ***

Weare subject to requirements of Canadian, U.S. and other foreign occupationalhealth and safety laws and regulations at the federal, state, provincial andlocal levels. These requirements are complex, constantly changing and havetended to become more stringent over time. It is possible that theserequirements may change or liabilities may arise in the future in a manner thatcould have a material adverse effect on our financial condition or results ofoperations. We cannot assure you that we have been or that we will be at alltimes in complete compliance with all such requirements or that we will notincur material costs or liabilities in connection with those requirements inthe future.

 

***Changes in postal rates and postalregulations may adversely impact demand for our products and services.***

*** ***

Postalcosts are a significant component of many of our customers’ cost structures andpostal rate changes can influence the number of pieces that our customers arewilling to mail. Any resulting decline in print volumes mailed could have anadverse effect on our business.

 

***We are controlled by Quebecor Inc.***

*** ***

QuebecorInc., directly and through a wholly-owned subsidiary, currently holds 75.23%****of the voting interests in Quebecor World. As a result,Quebecor Inc. is able to exercise significant influence over our business andaffairs and has the power to determine many matters requiring shareholderapproval, including the election of directors and the approval of significantcorporate transactions. The interests of Quebecor Inc. may conflict with theinterests of other holders of our equity and debt securities.However, theCourt has exempted us from the requirement to hold an annual meeting ofshareholders until such time as we emerge from the Insolvency Proceedings. Inaddition, any fundamental transaction or proposed change to our organizationaldocuments would require Court approval. Consequently, even though Quebecor Inc.currently holds 75.23% of the Corporation’s outstanding voting interests, it isunlikely that Quebecor Inc. will be able to exercise its votes during theInsolvency Proceedings in order to change the composition of the Board ofDirectors or cause fundamental changes in the affairs and organizationaldocuments of the Corporation.

 

***We have identified material weaknesses inour internal control over financial reporting and concluded that such controlswere not effective as of December 31, 2007, and that our disclosurecontrols and procedures were not effective as of the same date. If we fail tomaintain effective internal control over financial reporting, we may not beable to accurately report our financial results. We are subject to additionalreporting requirements under applicable Canadian securities laws and theSarbanes-Oxley Act in the United States. We can provide no assurance that wewill at all times in the future be able to report that our internal control iseffective.***

*** ***

Asan SEC registrant, we are required to comply with Section 404 of theSarbanes-Oxley Act, and we have to obtain an annual attestation from ourindependent auditors regarding our internal control over financial reportingand management’s assessment of internal control over financial reporting, aswell as with the corresponding applicable Canadian securities laws. In anygiven year, we cannot be certain as to the timing of completion of our internalcontrol evaluation, testing and remediation actions or of their impact on ouroperations. Upon completion of this process, we may identify controldeficiencies of varying degrees of severity under applicable SEC and PublicCompany Accounting Oversight Board rules and regulations that remainunremediated. As a public company, we are required to report, among otherthings, control deficiencies that constitute material weaknesses or changes ininternal control that, or that are reasonably likely to, materially affectinternal control over financial reporting. A “material weakness” is asignificant deficiency or combination of significant deficiencies that resultsin more than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected. If we fail tocomply with the requirements of Section 404 or report a material weakness,we 

 

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mightbe subject to regulatory sanction and investors may lose confidence in ourfinancial statements, which may be inaccurate if we fail to remedy suchmaterial weakness.

 

Wedisclosed in Section 5.5 — Controls and procedures of our annualManagement’s Discussion and Analysis for the financial year ended December 31,2007 that our system of internal control over financial reporting was noteffective as of such date and therefore that our disclosure controls andprocedures were also not effective as of such date. More specifically, we didnot maintain effective processes and controls related to (a) impairment oflong-lived assets and goodwill, (b) controls over the accounting for andreporting of complex and non-routine transactions, and (c) period-endcontrols and procedures. In order to remedy the said weaknesses, we have undertakento reinforce our processes, as described in Section 5.5 — Controls andprocedures of our Management’s Discussion and Analysis for the financial yearended December 31, 2007.

 

Inaddition, as disclosed in Section 7 of our interim Management’s Discussionand Analysis for the three-month period ending June 30, 2008 — Controlsand procedures, we continue to make progress in executing the remediation planswe have established in order to further improve our internal control in generaland also address the said weaknesses. The failure to do so within a reasonable time frame could adverselyimpact the accuracy of the reports and filings we make with the SEC and theCanadian securities regulatory authorities.

 

***We are dependent on the experience andindustry knowledge of our executive officers and other key employees to executeour business plans. If we were to experience any turnover in leadership, ourbusiness, results from operations and financial condition could be materiallyadversely affected.***

*** ***

Weare dependent on the experience and industry knowledge of our executiveofficers and other key employees to execute our business plans. If we were toexperience any turnover in leadership, our business, results from operationsand financial condition could be materially adversely affected. Additionally,we may be unable to attract and retain additional qualified executives asneeded in the future.

 

***Acquisitions have contributed togrowth in the industry in which we operate and will continue to do so, makingus vulnerable to financing risks and the challenges of integrating newoperations into our own.***

*** ***

Dueto fragmentation in the commercial printing industry, growth in the industry inwhich we operate will continue to depend, in part, upon acquisitions, and we mayconsider making strategic or opportunistic acquisitions in the future. Wecannot assure you that future acquisition opportunities will exist onacceptable terms, that any newly acquired companies will be successfullyintegrated into our operations or that we will fully realize the intendedresults of any acquisitions. We may incur additional long-term indebtedness inorder to finance all or a portion of the consideration to be paid in futureacquisitions. We cannot assure you that we will be able to obtain any suchfinancing upon acceptable terms. While we continuously evaluate opportunitiesto make strategic or opportunistic acquisitions, we have no present commitmentsor agreements with respect to any material acquisitions.

 

**Risks Relating to our Various Outstanding Securities**

** **

***Our indebtedness and significantinterest payment obligations could adversely affect our financial condition andprevent us from fulfilling our obligations under our various outstanding notes,debentures and other debt securities.***

*** ***

Weand our consolidated subsidiaries have indebtedness and, as a result,significant interest payment obligations. As of December 31, 2007, we andour consolidated subsidiaries had a total indebtedness of   US$2,890.9million. OurDIP lenders and the Court could permit us or our consolidated subsidiaries toincur or guarantee additional indebtedness, including secured indebtedness incertain circumstances. To the extent we incur additional indebtedness, therisks discussed below will increase.

 

Ourdegree of leverage could have significant consequences, including thefollowing:

 

·                  make it more difficult forus to satisfy our obligations with respect to our notes;

 

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·                  increase our vulnerabilityto general adverse economic and industry conditions;

 

·                  require us to dedicate asubstantial portion of our cash flows from operations to making interest andprincipal payments on our indebtedness;

 

·                  limit our ability to fundcapital expenditures, working capital and other general corporate purposes;

 

·                  limit our flexibility inplanning for, or reacting to, changes in our businesses and the industry inwhich we operate, including cyclical downturns in our industry;

 

·                  place us at a competitivedisadvantage compared to our competitors that have less debt; and

 

·                  limit our ability to borrowadditional funds on commercially reasonable terms, if at all.

 

***Some of our financing agreements containfinancial and other covenants that, if breached by us, may require us toredeem, repay, repurchase or refinance our existing debt obligations prior totheir scheduled maturity. Our ability to refinance such obligations may berestricted due to prevailing conditions in the capital markets, availableliquidity and other factors.***

*** ***

Weare party to a number of financing agreements, including our DIP Credit Agreement, our creditfacility, the indentures governing our various senior notes, convertible notes,senior debentures and other pre-petition debt instruments, which agreements,indentures and instruments contain financial and other covenants. If we were tobreach such financial or other covenants contained in our financing agreements,we may, subject to the stay under the Insolvency Proceedings, be required toredeem, repay, repurchase or refinance our existing debt obligations prior totheir scheduled maturity and our ability to do so may be restricted or limitedby the prevailing conditions in the capital markets, available liquidity andother factors. If we are unable to refinance any of our debt obligations insuch circumstances, our ability to make capital expenditures and our financialcondition and cash flows could be adversely impacted.

 

Inaddition, from time to time, new accounting rules, pronouncements and interpretationsare enacted or promulgated which may require us, depending on the nature ofsuch new accounting rules, pronouncements and interpretations, to reclassify orrestate certain elements of our financial statements or to calculate in adifferent manner some of the financial ratios set forth in our financingagreements and other debt instruments, which may in turn cause us to be inbreach of the financial or other covenants contained in our financingagreements and other debt instruments.

 

***Our various unsecured notes, debentures andother debt securities are effectively subordinated to our partially securedpre-petition debt and the fully secured indebtedness under our DIP CreditAgreement.***

*** ***

Ourvarious unsecured notes, debentures and other debt instruments, including ourunsecured pre-petition credit facilities (excluding the portion of such creditfacilities that is secured in the manner set forth below), and the guaranteesof such notes, debentures and other debt instruments and credit facilities willbe effectively subordinated to any secured indebtedness that we may incur tothe extent of the assets securing such indebtedness. In the event of abankruptcy or similar proceeding with respect to us, the assets which serve ascollateral for any of our secured indebtedness will be available to satisfy theobligations under the secured indebtedness before any payments are made on ourunsecured notes, debentures and other debt instruments and credit facilities.As of June 30, 2008, we had an aggregate of US$3,407.6million of debt outstanding and no senior secureddebt except as set forth below.

 

Interms of pre-petition secured debt, we have granted liens on certain of ourNorth American assets as partial security for our indebtedness under asyndicated credit facility made available to us by a bank syndicate led byRoyal Bank of Canada and an equipment financing provided to us by SociétéGénérale (Canada). These liens secure such indebtedness up to a maximumaggregate amount of US$170 million and have not been primed by our DIPlenders. In addition, as at December 31, 2007, we had US$62.5 million ofcapital leases and US$462.5 million of accounts receivable under oursecuritization and factoring programs.

 

OurDIP Credit Agreement is fullyguaranteed and secured by all personal and real property of Quebecor WorldInc., Quebecor World (USA) Inc., all of our material subsidiaries located inNorth America (including the Applicants) and certain material subsidiarieslocated in Latin America.

 

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Allof our other debt instruments are subordinated to the secured debt describedabove.

 

***We depend on the cash flows from our subsidiariesthat are not guarantors of our various notes, debentures and other debtsecurities to meet our obligations, and our debtholders’ right to receivepayment on their relevant debt securities will be structurally subordinate tothe obligations of these non-guarantor subsidiaries.***

*** ***

Notall of our subsidiaries have guaranteed our various notes, debentures and otherdebt securities. These non-guarantor subsidiaries are separate and distinctlegal entities and have no obligation to pay any amounts due pursuant to ourdebt securities or the guarantees of such debt securities or to provide theissuer or the guarantors of such debt securities with funds for theirrespective payment obligations. Our cash flows and our ability to service ourindebtedness depends principally on the earnings of our non-guarantorsubsidiaries and on the distribution of earnings, loans or other payments to usby these subsidiaries. In addition, the ability of these non-guarantorsubsidiaries to make any dividend, distribution, loan or other payment to theissuer or a guarantor of our debt securities could be subject to statutory orcontractual restrictions. Payments to the issuer or a guarantor by thesenon-guarantor subsidiaries will also be contingent upon their earnings andtheir business considerations. Because we depend principally on the cash flowsof these non-guarantor subsidiaries to meet our obligations, these types ofrestrictions may impair our ability to make scheduled interest and principalpayments on our various outstanding debt securities.

 

Furthermore,in the event of any bankruptcy, liquidation or reorganization of anon-guarantor subsidiary, holders of our debt securities will not have anyclaim as a creditor against such subsidiary. As a result, the guarantees of ourvarious notes, debentures and other debt securities will be effectivelysubordinated to all of the liabilities of our subsidiaries other than suchsubsidiaries that either issued or guaranteed the debt securities in question.The creditors (including trade creditors) of those non-guarantor subsidiarieswill have the right to be paid before payment on the guarantees to the holdersof our various notes, debentures and other debt securities from any assetsreceived or held by those subsidiaries. In the event of bankruptcy, liquidationor dissolution of a subsidiary, following payment by the subsidiary of itsliabilities, the subsidiary may not have sufficient assets to make payments tous.

 

***We may not be able to finance a change ofcontrol offer required by the indentures governing our various notes,debentures and other debt securities because we may not have sufficient fundsat the time of the change of control.***

*** ***

Ifwe were to experience a change of control (as defined under each of therelevant indentures governing our various notes, debentures and other debtsecurities), we would, under certain of the indentures, be required to make anoffer to purchase all of the notes, debentures or other debt securities issuedthereunder then outstanding at a specified premium to the principal amount(often 101%) plus accrued and unpaid interest, if any, to the date of purchase.However, we may not have sufficient funds at the time of the change of controlto make the required repurchase of the notes, debentures or other debtsecurities.

 

***Canadian and U.S. bankruptcy and insolvencylaws may impair the trustee’s ability to enforce remedies under our variousoutstanding notes, debentures and other debt securities and the guarantees ofsuch securities.***

*** ***

Therights of the trustee who represents the holders of our debt securities toenforce remedies could be delayed by the restructuring provisions of applicableCanadian and U.S. federal bankruptcy, insolvency and other restructuringlegislation, including the *Bankruptcy andInsolvency Act*(Canada) and the CCAA. A restructuring proposal, if accepted by the requisitemajorities of each affected class of creditors, and if approved by the Court,would be binding on all creditors within each affected class, including thosecreditors that did not vote to accept the proposal. Moreover, this legislation,in certain instances, permits the insolvent debtor to retain possession andadministration of its property, subject to court oversight, even though it maybe in default under the applicable debt instrument, during the period that thestay against proceedings remains in place. See the Primary Risk Factor above: “We and many of our subsidiaries are currentlysubject to Insolvency Proceedings in both Canada and the United States. Itis unlikely that our existing multiple voting shares and subordinate votingshares will have any material value in a restructuring plan of arrangement, andthere is also a risk such shares could be cancelled. If we fail to implement aplan of arrangement and obtain sufficient exit financing within the timegranted by the Court, 

 

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substantiallyall of our debt obligations will become due and payable immediately, or subjectto immediate acceleration, creating an immediate liquidity crisis, which wouldin all likelihood lead to the liquidation of our assets.”

 

Moreover,we may not make any payments under our various debt securities during anyproceedings in bankruptcy, insolvency or other restructuring, including theInsolvency Proceedings, and holders of our debt securities may not becompensated for any delays in payment of principal, interest and costs, if any,including the fees and disbursements of the trustee.

 

***Applicable statutes may allow courts, underspecific circumstances, to void the guarantees of our various notes, debenturesand other debt securities.***

*** ***

Ourcreditors could challenge the guarantees of our various notes, debentures andother debt securities provided by us or certain of our subsidiaries asfraudulent transfers, conveyances or preferences or on other grounds underapplicable U.S. federal or state law or applicable Canadian federal orprovincial law. The entering into of the guarantees could be found to be afraudulent transfer, conveyance or preference and declared void if a court wereto determine that the guarantor:

 

·                  delivered the guaranteewith the intent to hinder, delay or defraud its existing or future creditors orthe guarantor did not receive fair consideration for the delivery of theguarantee; or

 

·                  the relevant guarantor didnot receive fair consideration or reasonably equivalent value in exchange forthe guarantee, and

 

·                                            was insolventat the time it delivered the guarantee or was rendered insolvent by the givingof the guarantee; or

 

·                                            was engaged ina business or transaction for which such guarantor’s remaining assetsconstituted unreasonably small capital; or

 

·                                            intended toincur, or believed it could incur, debts beyond its ability to pay such debtsas they come due.

 

Inaddition, any payment by that guarantor pursuant to its guarantee could bevoided and required to be returned to the guarantor, or to a fund for thebenefit of the creditors of the guarantor.

 

Themeasures of insolvency for purposes of these fraudulent transfer laws will varydepending upon the law applied in any proceeding to determine whether afraudulent transfer has occurred. Generally, however, a guarantor would beconsidered insolvent if:

 

·                  the sum of its debts,including contingent liabilities, was greater than the fair saleable value ofall of its assets; or

 

·                  the present fair saleablevalue of its assets was less than the amount that would be required to pay itsprobable liability on its existing debts, including contingent liabilities, asthey became absolute and mature; or

 

·                  it could not pay its debtsas they became due.

 

Ingeneral, the terms of the guarantees of our various notes, debentures and otherdebt securities provided by us or certain of our subsidiaries will limit theliability of such guarantor(s) to the maximum amount it (they) can paywithout the guarantee being deemed a fraudulent transfer. On the basis ofhistorical financial information, recent operating history and other factors,we believe that each guarantor of our debt securities, after giving effect toits guarantee of the relevant debt securities, will not be insolvent, will nothave unreasonably small capital for the business in which it is engaged andwill not have incurred debts beyond its ability to pay such debts as theymature. We cannot provide any assurance, however, as to what standard a courtwould apply in making these determinations or that a court would agree with ourconclusions with regard to these issues.

 

Tothe extent a court voids a guarantee as a fraudulent transfer, preference orconveyance or holds it unenforceable for any other reason, holders of ourguaranteed debt securities would cease to have any direct claim against theguarantor which delivered that guarantee.

 

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***Thereis a risk that the Toronto Stock Exchange may seek to de-list our currentlylisted Subordinate Voting Shares, Series 3 Preferred Shares and Series 5Preferred Shares.***

*** ***

Our SubordinateVoting Shares, Series 3 Preferred Shares and Series 5 PreferredShares are currently listed on the TSX, and our Subordinate Voting Shares aretraded and quoted on the OTC Bulletin Board. We are required to satisfycontinued listing requirements pursuant to the TSX rules in order for theSubordinate Voting Shares, Series 3 Preferred Shares and Series 5Preferred Shares to remain eligible for such listing. The OTC Bulletin Board isa quotation medium for subscribing members and not a stock exchange or alisting service. Investors are advised that Quebecor World has not taken anysteps to have our securities traded on the OTC Bulletin Board and that there isno relationship, whether contractual or otherwise, between an issuer whosesecurities are traded on the OTC Bulletin Board and the latter, and that theOTC Bulletin Board exercises no regulatory oversight over Quebecor World.

 

On January 16,2008, the TSX announced that it was reviewing the securities of Quebecor Worldwith respect to meeting the requirements for continued listing and thatQuebecor World was being granted 30 days in which to regain compliance withthese requirements, pursuant to the TSX’s Remedial Review Process. However,following the publication of the Court’s Initial Order under the InsolvencyProceedings on January 21, 2008, Quebecor World was informed that theTSX’s review of the listing of its Subordinate Voting Shares, Series 3Preferred Shares and Series 5 Preferred Shares had been stayed until February 20,2008 or such later date as the Court may order, pursuant to the Initial Order.There can be no assurance, however, that the TSX will continue to take theposition that, in light of the ongoing Insolvency Proceedings, it should notseek to de-list our Subordinate Voting Shares, Series 3 Preferred Sharesand Series 5 Preferred Shares in the event one or more of our listedseries or classes of securities fails to comply with the TSX’s listingrequirements.

 

If we fail to meetany of the TSX’s continued listing requirements and the TSX attempts to enforcecompliance with such requirements, our Subordinate Voting Shares, Series 3Preferred Shares and/or Series 5 Preferred Shares may bede-listed from the TSX. In such event, there can be no assurance that tradingin our currently listed securities will continue (through the OTC BulletinBoard or otherwise). Any de-listing of our Subordinate Voting Shares, Series 3Preferred Shares and/or Series 5 Preferred Shares mayadversely affect a holder’s ability to dispose of, or to obtain quotations asto the market value of, such securities.

 

***An active trading market for our debtsecurities may not develop.***

*** ***

Ourvarious notes, debentures and other debt securities are not listed on anynational securities exchange, and we do not intend to have such debt securitieslisted on a national securities exchange, although some of our debt securitieshave been rendered eligible for trading in the Private Offerings, Resale andTrading through Automatic Linkages, or PORTALSM, Market. The market-makersof our various notes, debentures and other debt securities that are eligiblefor trading on the PORTALSM Market may cease their market-making at any time without notice.Accordingly, we cannot provide any assurance with respect to the liquidity ofthe market for such debt securities or the prices at which investors may beable to sell our debt securities. In addition, the market for non-investment gradedebt has historically been subject to disruptions that caused volatility inprices. It is possible that the market for our various notes, debentures andother debt securities will be subject to disruptions. Any such disruptions mayhave a negative effect on the ability of investors to sell such debt securitiesregardless of our prospects and financial performance.

 

***U.S. investors in our securities may havedifficulties enforcing certain civil liabilities.***

*** ***

QuebecorWorld is governed by the laws of Canada and a number of our subsidiaries aregoverned by the laws of a jurisdiction outside of the United States. Moreover,our controlling persons and a majority of our directors and officers areresidents of Canada or other jurisdictions outside of the United States and allor a substantial portion of their assets and a significant portion of ourassets are located outside of the United States. As a result, it may bedifficult for our securityholders to effect service of process upon us or suchpersons within the United States or to enforce, against us or them in theUnited States, judgments of courts of the United States predicated upon thecivil liability provisions of U.S. federal or state securities laws or otherlaws of the United States. There is doubt as to the enforceability in certainjurisdictions outside the United States of liabilities predicated solely uponU.S. federal or state securities laws against 

 

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us,our controlling persons, directors and officers who are not residents of theUnited States, in original actions or in actions for enforcements of judgmentsof U.S. courts.

 

**ITEM9 — DESCRIPTION OF CERTAIN INDEBTEDNESS**

** **

In light of theInsolvency Proceedings, our only current source of financing is our DIP CreditAgreement described below in Item 9.1 — DIP Credit Agreement. However, we andcertain of our subsidiaries remain debtors under our credit facilities(described below in Item 9.2— Credit Facilities), our various series ofoutstanding senior notes and debentures (described below in Item 9.3 — SeniorNotes) and our long-term equipment financing program (described below in Item9.4 — Long-Term Equipment Financing Program).

 

**9.1**                               DIPCREDIT AGREEMENT

** **

TheDIP Credit Agreement of Quebecor World and Quebecor World (USA), referred tocollectively as the “DIP Borrowers” for the purposes of this Item 9.1, providesfor US$1 billion credit facilities that mature in July 2009 unless wecomplete a plan of reorganization under Chapter 11 or a plan of compromiseor arrangement under the CCAA prior thereto. The credit facilities consist of aterm loan facility of US$600 million and a revolving credit facility of US$400 millionmade available to each of the DIP Borrowers. Under the DIP CreditAgreement, the availability of the funds is determined by a formula based on a percentage of eligible assetsavailable as security.

 

Approximately US$418 million, including fees, ofthe proceeds of the term loan facility were used to repay amounts owing underour North American securitization program, which we terminated on January 24,2008, with the balance of the credit facilities to be used for working capitaland other general corporate purposes and to pay fees and expenses in connectionwith the Insolvency Proceedings.

 

The credit facilities are fully guaranteed and securedby Quebecor Printing Holding Company (“QPHC”), the DIP Borrowers and all of ourmaterial subsidiaries located in North America and certain of our materialsubsidiaries located in Latin America (QPHC, the DIP Borrowers and all suchmaterial subsidiaries being collectively referred to as the “DIP Loan Parties”for the purposes of this Item 9.1).

 

The DIP Credit Agreement contains restrictivecovenants and financial ratios as well as events of default that are customaryfor a debtor-in-possession credit agreement, including the non-payment ofprincipal, interest or other amounts owing thereunder, the making by the DIPLoan Parties of any materially incorrect or misleading representation orwarranty, the breach by a DIP Loan Party of any other term, covenant oragreement contained in the DIP Credit Agreement, a default by a DIP Loan Partyin respect of any other indebtedness of at least US$10,000,000, the renderingof a final judgment or order against a DIP Loan Party in excess ofUS$10,000,000, the invalidity or unenforceability of any provision of anydocument relating to the DIP Credit Agreement, certain defaults under the *Employee Retirement Income Security Act of 1974* (ERISA) ofthe United States of America, certain defaults relating to the Chapter 11or the CCAA proceedings, a change of control of either of the DIP Borrowers,the bankruptcy of any DIP Loan Party (other than the DIP Borrowers and theother entities that have filed for protection under Chapter 11 or theCCAA) and the existence of certain claims against the DIP Loan Parties thatrank prior to or *pari passu*with the lienssecuring the DIP Credit Agreement.

 

**9.2**                               CREDITFACILITIES

** **

The creditagreement of Quebecor World and Quebecor World (USA) (referred to collectivelyas the “Borrowers” for the purposes of this Item 9.2), as amended, provides forUS$750,000,000 revolving credit facilities that mature in January 2009.Such credit facilities contain certain restrictive covenants and financialratios as well as customary events of default, including the non-payment ofprincipal, interest, fees or other amounts owing thereunder, the making by theBorrowers or by certain direct and indirect subsidiaries of Quebecor World(USA), (collectively the “Loan Parties” for the purposes of this Item 9.2) ofany materially incorrect or misleading representation or warranty, the breachby a Borrower of any other term, covenant, condition or agreement contained inthe credit agreement, the bankruptcy of a Borrower or any Restricted Entity (assuch term is defined in the credit agreement), certain defaults under the *Employe*e *Retiremen*t*Incom*e *Securit*y *Ac*t *o*f *197*4(ERISA) of the United States of America, the rendering of a final judgment ororder against a Borrower or any Restricted Entity in excess of US$25,000,000,the invalidity or unenforceability of any material provision of the documentsrelating to the credit facilities, a 

 

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default by a LoanParty or any Restricted Entity in respect of any indebtedness in excess ofUS$25,000,000, the failure by a Borrower, any Restricted Entity or theiraffiliates to obtain or maintain environmental permits necessary for theoperation of their business and the occurrence of any event or circumstancewhich has a material adverse effect on Quebecor World or any Restricted Entityor a material impairment in the ability of a Borrower to perform itsobligations under the documents relating to the credit facilities or in thevalidity or enforceability of such documents.

 

In light of thecontinuing Insolvency Proceedings, these pre-petition revolving creditfacilities are no longer a relevant source of financing for the Corporation,although we and certain of our subsidiaries remain debtors thereunder.

 

**9.3**                               SENIORNOTES

** **

We have issued and outstanding various seriesof senior notes and debentures as described below.

 

**9.3.1**                     Publicly Traded Senior Notes and Debentures

** **

OnAugust 5, 1997, Quebecor World Capital Corporation (“Quebecor Capital”)issued US$150 million in aggregate principal amount of 6.50% GuaranteedDebentures due 2027, of which US$146,787,000 were tendered and repurchased attheir par value on August 1, 2004 pursuant to their terms and US$3,213,000remains outstanding.

 

OnNovember 3, 2003 Quebecor Capital issued US$200 million in aggregateprincipal amount of 4.875% Senior Notesdue November 15, 2008 and US$400 million in aggregate principal amount of6.125% of Senior Notes due November 15, 2013. All of these debentures andnotes are unsecured and are unconditionally guaranteed by Quebecor World.Quebecor Capital has advanced the proceeds of these debentures and notes toQuebecor World (USA), which has issued to Quebecor Capital notes with paymentterms substantially the same as the payment terms of the debentures and thenotes. Interest on the debentures and the notes is payable semi-annually inarrears. The Senior Notes are redeemable, at the option of Quebecor Capital, atany time at the applicable redemption price set forth in the indenture dated November 3,2003. The indentures under which the debentures and notes were issued containrestrictive covenants and events of default customary of publicly tradedinvestment-grade debt, including limitations on liens, sale and leasebacktransactions, mergers, consolidations and sales of assets.

 

**9.3.2**                     Private Notes

** **

On July 12, 2000, Quebecor Capitalissued US$175 million in aggregate principal amount of 8.42% Series ASenior Notes due July 15, 2010 and US$75 million in aggregate principalamount of 8.52% Series B Senior Notes due 2012. On September 12,2000, Quebecor Capital issued US$91 million in aggregate principal amount of8.54% of Series C Senior Notes due 2015 and US$30 million in aggregateprincipal amount of 8.69% Series D Senior Notes due 2020. All of thesenotes are unsecured and are unconditionally guaranteed by Quebecor World andQuebecor World (USA). Interest on each series of notes is payable semi-annuallyin arrears. Each of the foregoing series of notes is redeemable, at the optionof Quebecor Capital, at any time at the redemption prices set forth in theirrespective note purchase agreements, provided that in the event of partialredemption, Quebecor Capital may not redeem less than 10% of the aggregateprincipal amount then outstanding of the redeemable notes issued under such purchaseagreement. Each series of the Senior Notes described in this paragraph may beredeemed by Quebecor Capital, in whole or in part, at a price equal to100% of their principal amount plus accrued and unpaid interest plus a“make-whole” premium. Thenote purchase agreements contain certain restrictive covenants and events ofdefault, including limitations on debt, liens, sale and leaseback transactions,mergers, consolidations and sales of assets.

 

On December 28, 2006, Quebecor World(USA) purchased a total of US$36 million aggregate principal amount of the8.54% senior notes due 2015, a total of US$15 million aggregate principalamount of the 8.52% senior notes due 2012 and a total of US$3.5 million of the8.42% senior notes due 2010 under cash tender offers.

 

In addition, on October 29, 2007,we repurchased all of our outstanding 8.42% Senior Notes, Series A, due July 15,2010, 8.52% Senior Notes, Series B, due July 15, 2012, 8.54% SeniorNotes, Series C, due 

 

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September 15,2015 and 8.69% Senior Notes, Series D, due September 15, 2020 at aredemption price of 100% of the outstanding principal amount of the Notes, plusthe accrued and unpaid interest on such notes to the redemption date plus theapplicable make-whole amount for an aggregate amount of US$376.3 million, whichamount included both accrued interest and the make-whole amount.

 

On March 6, 2006, our wholly-ownedindirect subsidiary, Quebecor World Capital ULC, issued US$450 million inaggregate principal amount of 8.75% Senior Notes due March 15, 2016 under anindenture entered into on the same date with, among others, CitibankN.A., as trustee (the “First 2006 Senior Notes Indenture”). These privatelyplaced Senior Notes are unsecuredand unconditionally guaranteed by Quebecor World, Quebecor World (USA) Inc. andQuebecor World Capital LLC. At any time and from time to time, prior to March 15,2009, Quebecor World Capital ULC may redeem up to a maximum of 35% of theaggregate principal amount of these Senior Notes at the applicable redemptionprice set forth in the First 2006 Senior Notes Indenturewith the net cash proceeds from certain equity offerings. In addition, prior toMarch 15, 2011, QuebecorWorld Capital ULC may redeem some or all of these new SeniorNotes at a price equal to 100% of the principal amount plus accrued and unpaidinterest plus a “make-whole” premium. After March 15, 2011, Quebecor World Capital ULC mayredeem the Senior Notes, in whole or in part, at the redemption pricesspecified in the First 2006 Senior Notes Indenture. The First 2006 Senior Notes Indenture contains restrictive covenants and events ofdefault customary to such privately issued debt, including limitations onliens, sale and leaseback transactions, mergers, consolidations and sales ofassets. Wilmington Trust Company has succeeded to Citibank, N.A. as trusteeunder the First 2006 Senior Notes Indenture.

 

On December 18, 2006, we issued US$400million in aggregate principal amount of 9.75% Senior Notes due January 15,2015 under an indenture entered into on the same date with, among others, Wilmington TrustCompany, as trustee(the “Second 2006 Senior Notes Indenture”). These privately placed Senior Notes are unsecured and unconditionallyguaranteed by Quebecor World (USA) Inc., Quebecor World Capital LLC andQuebecor World Capital ULC. We may redeem, at our option, 35% of these SeniorNotes on or prior to January 15, 2010 at the applicable redemption price set forth in theSecond 2006 Senior Notes Indenture with the net cash proceedsof certain equity offerings. In addition, prior to January 15, 2011, we may redeem these Senior Notes at aprice equal to 100% of the principal amount plus accrued and unpaid interestplus a “make-whole” premium. After January 15, 2011,we may redeem some or all of the Senior Notes at the redemption pricesspecified in the Second 2006 Senior Notes Indenture. The Second 2006 Senior NotesIndenture contains restrictivecovenants and events of default customary to such privately issued debt,including limitations on liens, sale and leaseback transactions, mergers,consolidations and sales of assets.

 

**9.4**                               LONG-TERMEQUIPMENT FINANCING PROGRAM

** **

On January 16, 2006, we concluded an agreementwith Société Générale for the Canadian dollar equivalent of a €136 million($160 million) long-term committed credit facility relating to purchases of MANRoland presses as part of our North American retooling program. In October 2007,this facility was partially secured by a lien on assets in an amount of US$34million.

 

This credit agreement contains certain restrictivecovenants and financial ratios as well as customary events of default,including the non-payment of principal, interest, fees or other payments, themaking by the loan parties of any materially incorrect or misleadingrepresentation or warranty, the breach by a borrower of any other term,covenant, condition or agreement contained in the credit agreement, therendering of a final judgment or order against a borrower or the guarantor inexcess of US$25,000,000 and default under the senior loan agreement (creditfacilities) referred to in Item 9.2 of this Annual Information Form — Credit Facilities.

 

In light of the continuing Insolvency Proceedings,this facility is no longer a relevant source of financing for us although weand certain of our subsidiaries remain debtors thereunder.

 

**ITEM10 — DESCRIPTION OF CAPITAL STRUCTURE**

** **

Our authorized sharecapital consists of an unlimited number of Subordinate Voting Shares (the“Subordinate Voting Shares”), an unlimited number of Multiple Voting Shares(the “Multiple Voting 

 

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Shares”) and anunlimited number of First Preferred Shares issuable in series (the “PreferredShares”), all without par value.

 

**10.1**                        GENERAL DESCRIPTION OF CAPITAL STRUCTURE

** **

**10.1.1**              SubordinateVoting Shares

** **

Our Subordinate VotingShares carry one (1) vote per share. They are entitled to receive dividendsin such amounts and payable at such time as the directors determine, subjectalways to the rights of the holders of any Preferred Shares. OurSubordinate Voting Shares are restricted shares (within the meaning of therelevant Canadian regulations respecting securities) in that they do not carryequal voting rights to those attached to the Multiple Voting Shares. In theaggregate, all of the voting rights associated with the Subordinate VotingShares represented, as at September 30, 2008, 24.6%of the voting rights attached to all of our issued and outstanding votingsecurities.

 

**10.1.2**              MultipleVoting Shares

** **

Our Multiple VotingShares carry ten (10) votes per share. They are entitled to receivedividends in such amounts and they are payable at such time as the directorsdetermine, subject always to the rights of the holders of any Preferred Shares.They are convertible at any time into Subordinate Voting Shares on aone-for-one basis. They are not publicly traded.

 

**10.1.3**              TrustAgreement

** **

Our Articles do not contain any rights or provisionsapplicable to holders of our Subordinate Voting Shares where a take-over bid ismade for the Multiple Voting Shares. Furthermore, under applicable law, anoffer to purchase Multiple Voting Shares would not necessarily require that anoffer be made to purchase Subordinate Voting Shares. However, our significantshareholder, Quebecor Inc., has provided undertakings in favour of the holdersof Subordinate Voting Shares in certain circumstances where a take-over bid ismade for the Multiple Voting Shares. In fact, in compliance with the rules ofThe Toronto Stock Exchange (“TSX”), Quebecor Inc. entered into an agreement(the “Trust Agreement”) with Computershare Trust Company of Canada (the“Trustee”), 4032667 Canada Inc. (a corporation wholly-owned by Quebecor Inc.)and the Corporation, pursuant to which Quebecor Inc. has undertaken not tosell, directly or indirectly, any Multiple Voting Shares owned by it pursuantto a take-over bid, as defined by applicable securities legislation, undercircumstances where such securities legislation would have required that thesame offer be made to holders of Subordinate Voting Shares, as if such holderswere holders of Multiple Voting Shares. Under current rules, this would includea sale of Multiple Voting Shares by Quebecor Inc. at a price per share inexcess of 115% of the market price of the Subordinate Voting Shares asdetermined under such legislation (generally the twenty-day average tradingprice of such shares prior to a bid). This undertaking does not apply if: (a) suchsale is made pursuant to an offer to purchase Multiple Voting Shares made toall holders of Multiple Voting Shares and an offer with terms at least asfavourable as the terms of the offer to purchase Multiple Voting Shares is madeconcurrently to all holders to purchase Subordinate Voting Shares at a priceper share at least as high as the highest price per share paid in connectionwith the take-over bid for the Multiple Voting Shares, which offer has no conditionattached other than the right not to take up and pay for the Subordinate VotingShares tendered if no shares are purchased pursuant to the offer for MultipleVoting Shares, or (b) there is a concurrent unconditional offer, of whichall its terms are at least as favourable to purchase all of the SubordinateVoting Shares at a price per share at least as high as the highest price pershare paid in connection with the take-over bid for the Multiple Voting Shares.

 

The Trust Agreement permits, subject to compliancewith applicable securities legislation, certain indirect sales resulting fromthe acquisition of shares of a corporation which, directly or indirectly,controls Quebecor World, or controls or is controlled by Quebecor Inc. where (i) thetransferor and transferee are each members of the “Péladeau Family” (exceptthat any indirect sale within the “Péladeau Family”, other than to descendantsin direct line, will not be permitted), and (ii) no such transferee is aparty to any arrangement under which any other person would participate in theownership of, or have control or direction over more than 10% of the votes or50% of the equity of such corporation, Quebecor Inc. or the Corporation. Theterm “Péladeau Family” means collectively (i) any descendants, born or tobe born, of the late Pierre Péladeau, founder of Quebecor Inc., (ii) anyexisting or future trust primarily for one or 

 

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several descendants, born or to be born, of the latePierre Péladeau and their existing or future spouses in fact or in law, and (iii) anyand all existing or future corporations where at least 90% of the votesattached to all outstanding Voting Shares and at least 50% of all outstandingequity shares are controlled, directly or indirectly, by any one or more of theforegoing.

 

Under the Trust Agreement, a take-over bid forQuebecor Inc. is not deemed to be a take-over bid for Multiple Voting Sharesfor purposes of the Trust Agreement, if the total assets of Quebecor World, asa result of the consolidation of the assets of Quebecor World in the books ofQuebecor Inc., are not greater than 80% of the total assets of Quebecor Inc. ona consolidated basis. The foregoing shall not be construed to limit any rightsof the holders of Subordinate Voting Shares under applicable securitieslegislation. As at December 31, 2007,****the totalassets of the Corporation represented approximately 35% of theconsolidated total assets of Quebecor Inc.

 

Under the Trust Agreement, any disposition of MultipleVoting Shares (including a transfer to a pledge as security) or of securitiesconvertible into Multiple Voting Shares by a holder of Multiple Voting Sharesparty to the agreement or any person or company which it controls (a“Disposition”) is conditional upon the transferee becoming a party to anagreement on substantially similar terms and conditions as are contained in theTrust Agreement. The conversion of Multiple Voting Shares into SubordinateVoting Shares, whether or not such Subordinate Voting Shares are subsequentlysold, shall not constitute a Disposition for purposes of the Trust Agreement.

 

The Trust Agreement provides that if a person orcompany carries out a sale (including an indirect sale) in respect of anyMultiple Voting Shares in contravention of the Trust Agreement and, followingsuch sale, such Multiple Voting Shares are still owned by Quebecor Inc.,Quebecor Inc. shall neither from the time such sale becomes effective northereafter: (a) dispose of any of such Multiple Voting Shares or convertthem into Subordinate Voting Shares, in either case without the prior writtenconsent of the Trustee; or (b) exercise any voting rights attaching tosuch Multiple Voting Shares except in accordance with the written instructionsof the Trustee. The Trustee may attach conditions to any consent the Trusteegives in exercising its rights and shall exercise such rights (i) in thebest interest of the holders of the Subordinate Voting Shares, other thanQuebecor Inc. and holders who, in the opinion of the Trustee, participateddirectly or indirectly in the transaction that triggered the operation of thisprovision (ii) in accordance with the *Canada BusinessCorporations Act* and the applicable securities legislation.Notwithstanding a sale of shares of Quebecor Inc. which constitutes an indirectsale of Multiple Voting Shares in contravention of the Trust Agreement,Quebecor Inc. shall have no liability under the Trust Agreement in respect ofsuch sale, provided that Quebecor Inc. is in compliance with all otherprovisions of the Trust Agreement including, without limitation, the foregoingprovision.

 

The Trust Agreement contains provisions for theauthorization of action by the Trustee to enforce the rights thereunder onbehalf of the holders of the Subordinate Voting Shares. The obligation of theTrustee to take such action will be conditional on Quebecor World, a holder ofMultiple Voting Shares alleged to be in default or holders of the SubordinateVoting Shares providing such funds and indemnity as the Trustee may require. Noholder of Subordinate Voting Shares will have the right, other than through theTrustee, to institute any action or proceeding or to exercise any other remedyto enforce any rights arising under the Trust Agreement unless the Trusteefails to act on a request authorized by holders of not less than 10% of thethen outstanding Subordinate Voting Shares within thirty (30) days afterprovision of reasonable funds and indemnity to the Trustee.

 

The Trust Agreement provides that it may not beamended, and no provision thereof may be waived, except with the approval of: (a) theholders of Multiple Voting Shares who are party to the Agreement; and (b) atleast two-thirds of the votes cast by the holders of Subordinate Voting Sharespresent or represented at a meeting duly called for the purpose of consideringsuch amendment or waiver, which two-thirds majority shall include a simplemajority of the votes cast by holders of Subordinate Voting Shares, excludingthe holders of Multiple Voting Shares party to the Agreement and theiraffiliates and any persons who have an agreement to purchase Multiple VotingShares on terms which would constitute a sale for purposes of the TrustAgreement other than as permitted thereby, prior to giving effect to suchamendment or waiver.

 

No provision of theTrust Agreement shall limit the right of any holder of Subordinate Voting Sharesunder applicable securities legislation.

 

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The Trust Agreement maybe found on the Canadian Securities Administrators’ website at www.sedar.com.

 

**10.1.4**              PreferredShares

** **

Thenumber of Preferred Shares in each series and the related characteristics,rights and privileges are to be determined by the Board of Directors prior toeach issue. All the Preferred Shares are generally non-voting and theyparticipate in priority to the Subordinate Voting Shares and Multiple VotingShares in the event of liquidation, dissolution, winding-up or otherdistribution of our assets. Each series of Preferred Shares ranks *pari passu* with every other series of ourPreferred Shares.

 

**·**                  Series 2Preferred Shares

** **

TheSeries 2 Cumulative Redeemable First Preferred Shares (the “Series 2Preferred Shares”) were converted into Series 3 Cumulative RedeemableFirst Preferred Shares (the “Series 3 Preferred Shares”) in December 2002.

 

**·**                  Series 3Preferred Shares

** **

Holdersof the Series 3 Preferred Shares were entitled to a fixed cash dividend of6.152% per annum for the five-year period that commenced on December 1,2002 and that ended on November 30, 2007 and 6.130% per annum for thefive-year period commencing on December 1, 2007. On December 1, 2007 and at every fifthanniversary thereafter, our Series 3 Preferred Shares may be convertedinto Series 2 Preferred Shares under certain conditions. Thesepreferred shares were also redeemable, in whole or in part, at theCorporation’s option, on December 1, 2007.

 

On November 19, 2007, we announced that noneof our 12,000,000 issued and outstanding Series 3 Preferred Shares wouldbe converted into Series 2 Preferred Shares. Starting December 1,2007 and until November 31, 2012, holders of Series 3 PreferredShares will be entitled to receive quarterly fixed dividends at an annual rateof 6.13% subject to being declared by our Board of Directors and as permittedby applicable law.

 

**·**                  Series 4Preferred Shares

** **

On April 18, 2006, we redeemed, in accordancewith the rights, privileges, restrictions and conditions attaching thereto, all8,000,000 of our then issued and outstanding Series 4 Cumulative Redeemable First Preferred Shares (the “Series 4Preferred Shares”) at theapplicable redemption price of Cdn$25.00 per share for an aggregate redemptionprice of Cdn$200 million. At the sametime, we also paid all accrued and unpaid dividends on the Series 4Preferred Shares up to April 18, 2006.

 

**·**                  Series 5Preferred Shares

** **

Our Series 5Cumulative Redeemable First Preferred Shares (the “Series 5 PreferredShares”) are entitled to a fixed cumulative preferential cash dividend ofCdn$1.725 per share per annum, payable quarterly, if declared. On and after December 1,2007, the Series 5 Preferred Shares are redeemable at our option at aprice of Cdn$25.00 per share, or with regulatory approval, the Series 5Preferred Shares may be converted into SubordinateVoting Shares by us. On andafter March 1, 2008, these Series 5 Preferred Shares may be convertedat the option of the holder into Subordinate Voting Shares, subject to our right prior to the conversion date toredeem for cash or find substitute purchasers for such Series 5 PreferredShares.

 

Effective March 1,2008, 3,975,663 of our Series 5 Preferred Shares were converted into51,410,291 Subordinate Voting Shares that were listed on the TSX. Effective June 1,2008, 517,184 of our Series 5 Preferred Shares were converted into6,799,353 Subordinate Voting Shares that were listed on the TSX. Effective September 1,2008, 744,124 of our remaining issued and outstanding Series 5 PreferredShares were converted into 9,943,356****Subordinate Voting Shares that were also listed on theTSX.

 

On September 26, 2008, we received notices in respect of 66,601 ofour remaining issued and outstanding Series 5 Preferred Shares requestingconversion into our Subordinate Voting Shares as of December 1, 2008. Onor after November 27, 2008, we will announce the final conversion rateapplicable 

 

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to the conversion of such 66,601 Series 5 Preferred Shares intoSubordinate Voting Shares scheduled to occur as of December 1, 2008.

 

**10.2**                        DIVIDENDS

** **

Between October 23,1992 and 1998, we declared and paid semi-annual dividends, and between 1998 and2007, quarterly dividends. The following table presents the annual dividendsthat we have declared and paid on all of our shares since January 1, 2005:

 
| **Period/Date** | ** ** | **Multiple Voting  Shares and   Subordinate   Voting Shares** | ** ** | **Series 2  Preferred   Shares** | ** ** | **Series 3  Preferred   Shares** | ** ** | **Series 4  Preferred   Shares** | ** ** | **Series 5  Preferred   Shares** | ** ** |
|-----------------|------------|----------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| 2005            |       | Cdn$0.56                                                                               |       | N/A                                        |       | Cdn$1.5380                                 |       | Cdn$1.6875                                 |       | Cdn$1.7250                                 |       |
| 2006            |       | Cdn$0.30                                                                               |       | N/A                                        |       | Cdn$1.5380                                 |       | Cdn$0.485590                               |       | Cdn$1.7250                                 |       |
| 2007            |       | N/A                                                                                    |       | N/A                                        |       | Cdn$0.769                                  |       | N/A                                        |       | Cdn$0.8625                                 |       |

 

On January 18,2006, our Board of Directors, in light of our capital spending at such time,approved a reduction of the quarterly dividend, if, and when declared, on ourSubordinate Voting Shares and our Multiple Voting Shares, from Cdn$0.14 pershare to Cdn$0.10 per share, which reduction was applied as of and from thequarterly dividend declared on our Subordinate Voting Shares and our Multiple Voting Shares on January 18, 2006, which was paid on March 1,2006.

 

On November 7,2006, concurrently with the release of our results for the third quarter of2006, we announced that our Board of Directors had suspended the declaration ofdividends on our Subordinate Voting Shares and Multiple Voting Shares.

 

On November 26,2007, our Board of Directors also suspended dividend payments on our Series 3Preferred Shares and Series 5 Preferred Shares.

 

In light of thecontinuing Insolvency Proceedings, the Corporation has no current intention ofdeclaring dividends on any of its outstanding shares for the foreseeablefuture.

 

**10.3**                        MARKET FOR OUR SECURITIES

** **

Our Subordinate VotingShares and our Preferred Shares are listed and posted for trading on the TSX.Our Subordinate Voting Shares were also listed and traded on the NYSE up until January 23,2008, when the NYSE suspended trading in the Subordinate Voting Shares due to adetermination by NYSE that such shares were no longer suitable for continuedlisting and trading on such exchange. The Subordinate Voting Shares wereremoved from listing and registration on the NYSE at the opening of business onMarch 13, 2008.

 

The following tables setforth the market price range and trading volumes of our listed shares for eachmonth of the most recently completed financial year. The high and low pricesreflect the highest and lowest prices at which a board lot trade was executedin a trading session during the month and the closing sale price for eachrelevant month.

 

**TSX - SUBORDINATE VOTING SHARES **

**Symbol: “IQW.TO”**

 
| **2007**   | ** ** | **High  (Cdn$ )** | ** ** | **Low   (Cdn$ )** | ** ** | **Closing Price at  the end of the   month (Cdn$ )** | ** ** | **Trading Volume** | ** ** |
|------------|------------|------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** ** | ** ** | ** **             | ** ** | ** **                  | ** ** | ** **                                                                                   | ** ** | ** **              | ** ** |
| January    |       | 16.05                  |       | 12.91                       |       | 15.77                                                                                        |       | 16,118,345              |       |
| February   |       | 17.25                  |       | 15.12                       |       | 15.50                                                                                        |       | 8,881,079               |       |
| March      |       | 15.80                  |       | 13.76                       |       | 14.54                                                                                        |       | 7,195,284               |       |
| April      |       | 15.85                  |       | 14.32                       |       | 15.04                                                                                        |       | 6,806,495               |       |
| May        |       | 15.50                  |       | 13.05                       |       | 13.05                                                                                        |       | 9,152,061               |       |
| June       |       | 13.58                  |       | 12.50                       |       | 13.03                                                                                        |       | 6,595,001               |       |
| July       |       | 13.82                  |       | 12.05                       |       | 12.26                                                                                        |       | 6,403,556               |       |
| August     |       | 12.69                  |       | 9.01                        |       | 9.42                                                                                         |       | 9,133,985               |       |
| September  |       | 9.97                   |       | 8.79                        |       | 9.63                                                                                         |       | 4,247,727               |       |
| October    |       | 9.98                   |       | 8.44                        |       | 9.20                                                                                         |       | 5,531,777               |       |
| November   |       | 9.29                   |       | 1.89                        |       | 2.23                                                                                         |       | 40,057,456              |       |
| December   |       | 2.59                   |       | 1.18                        |       | 1.77                                                                                         |       | 38,054,005              |       |

 

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**NYSE - SUBORDINATE VOTING SHARES**

**Symbol: “IQW”**

 
| **2007**   | ** ** | **High   (US$ )** | ** ** | **Low   (US$ )** | ** ** | **Closing Price at   the end of the   month (US$ )** | ** ** | **Trading Volume** | ** ** |
|------------|------------|-----------------------------|------------|----------------------------|------------|---------------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** ** | ** ** | ** **                  | ** ** | ** **                 | ** ** | ** **                                                                                        | ** ** | ** **              | ** ** |
| January    |       | 13.58                       |       | 11.01                      |       | 13.37                                                                                             |       | 1,714,400               |       |
| February   |       | 14.79                       |       | 12.93                      |       | 13.23                                                                                             |       | 1,225,400               |       |
| March      |       | 13.46                       |       | 11.90                      |       | 12.72                                                                                             |       | 1,420,300               |       |
| April      |       | 14.05                       |       | 12.46                      |       | 13.73                                                                                             |       | 1,460,900               |       |
| May        |       | 14.11                       |       | 12.20                      |       | 12.27                                                                                             |       | 1,506,900               |       |
| June       |       | 12.78                       |       | 11.70                      |       | 12.15                                                                                             |       | 2,018,760               |       |
| July       |       | 13.24                       |       | 11.37                      |       | 11.56                                                                                             |       | 1,900,600               |       |
| August     |       | 12.03                       |       | 8.53                       |       | 9.16                                                                                              |       | 4,579,600               |       |
| September  |       | 10.04                       |       | 8.73                       |       | 9.69                                                                                              |       | 1,705,600               |       |
| October    |       | 10.05                       |       | 8.66                       |       | 9.73                                                                                              |       | 1,992,900               |       |
| November   |       | 9.80                        |       | 1.90                       |       | 2.25                                                                                              |       | 11,708,498              |       |
| December   |       | 2.74                        |       | 1.17                       |       | 1.80                                                                                              |       | 8,912,210               |       |

 

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**TSX - SERIES 3 PREFERRED SHARES**

**Symbol:“IQW-PD.TO”**

 
| **2007**   | ** ** | **High   (Cdn$ )** | ** ** | **Low   (Cdn$ )** | ** ** | **Closing Price at  the end of the   month (Cdn$ )** | ** ** | **Trading Volume** | ** ** |
|------------|------------|------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** ** | ** ** | ** **                   | ** ** | ** **                  | ** ** | ** **                                                                                   | ** ** | ** **              | ** ** |
| January    |       | 17.64                        |       | 15.11                       |       | 17.44                                                                                        |       | 562,605                 |       |
| February   |       | 18.35                        |       | 16.80                       |       | 16.92                                                                                        |       | 279,669                 |       |
| March      |       | 17.15                        |       | 16.00                       |       | 16.75                                                                                        |       | 340,955                 |       |
| April      |       | 17.20                        |       | 16.62                       |       | 16.85                                                                                        |       | 184,136                 |       |
| May        |       | 17.00                        |       | 16.52                       |       | 16.65                                                                                        |       | 313,706                 |       |
| June       |       | 17.00                        |       | 16.50                       |       | 16.95                                                                                        |       | 78,936                  |       |
| July       |       | 17.00                        |       | 16.00                       |       | 16.18                                                                                        |       | 146,929                 |       |
| August     |       | 16.50                        |       | 14.50                       |       | 14.60                                                                                        |       | 94,544                  |       |
| September  |       | 14.59                        |       | 12.02                       |       | 13.25                                                                                        |       | 213,485                 |       |
| October    |       | 13.85                        |       | 12.80                       |       | 13.03                                                                                        |       | 264,215                 |       |
| November   |       | 13.10                        |       | 4.36                        |       | 5.80                                                                                         |       | 964,893                 |       |
| December   |       | 6.50                         |       | 3.50                        |       | 4.75                                                                                         |       | 685,976                 |       |

 

**TSX -SERIES 5 PREFERRED SHARES**

**Symbol:“IQW-PC.TO”**

 
| **2007**   | ** ** | **High   (Cdn$ )** | ** ** | **Low   (Cdn$ )** | ** ** | **Closing Price at  the end of the   month (Cdn$ )** | ** ** | **Trading Volume** | ** ** |
|------------|------------|------------------------------|------------|-----------------------------|------------|----------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** ** | ** ** | ** **                   | ** ** | ** **                  | ** ** | ** **                                                                                   | ** ** | ** **              | ** ** |
| January    |       | 25.25                        |       | 24.35                       |       | 25.10                                                                                        |       | 186,328                 |       |
| February   |       | 25.45                        |       | 24.85                       |       | 25.05                                                                                        |       | 118,043                 |       |
| March      |       | 25.25                        |       | 24.91                       |       | 25.05                                                                                        |       | 34,296                  |       |
| April      |       | 25.30                        |       | 24.50                       |       | 25.10                                                                                        |       | 29,400                  |       |
| May        |       | 25.40                        |       | 24.56                       |       | 24.75                                                                                        |       | 41,034                  |       |
| June       |       | 25.00                        |       | 24.70                       |       | 24.85                                                                                        |       | 23,682                  |       |
| July       |       | 24.97                        |       | 24.70                       |       | 24.70                                                                                        |       | 13,078                  |       |
| August     |       | 24.90                        |       | 21.00                       |       | 23.79                                                                                        |       | 59,916                  |       |
| September  |       | 24.70                        |       | 23.10                       |       | 24.23                                                                                        |       | 186,549                 |       |
| October    |       | 25.00                        |       | 23.60                       |       | 24.46                                                                                        |       | 99,959                  |       |
| November   |       | 25.20                        |       | 15.00                       |       | 17.90                                                                                        |       | 1,463,556               |       |
| December   |       | 20.75                        |       | 11.95                       |       | 15.96                                                                                        |       | 2,618,555               |       |

** **

**10.4**                        RATINGS

** **

After the commencementof the Insolvency Proceedings, the rating agencies have either attributed toour senior secured and unsecured debt and Preferred Shares a rating of D, beingthe lowest rating given by all rating agencies, or ceased rating all our debtinstruments and Preferred Shares.

 

**ITEM11 — INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS**

 

For purposes of thisItem 11, reference is made to (i) Note 10to our AuditedConsolidated Financial Statements for the financial year ended December 31,2007 and Note 9 to our Audited Consolidated Financial Statements for thefinancial year ended December 31, 2006 and (ii) Section 5.3 — Related party transactions of our Management’sDiscussion and Analysis for the financial year ended December 31, 2007,each of which is incorporated by reference into this Annual Information Form.

 

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Our Audited ConsolidatedFinancial Statements for the financial years ended December 31, 2007 and2006 and our Management’s Discussion and Analysis for the financial year ended December 31,2007 may be found on our website at www.quebecorworld.com, on the CanadianSecurities Administrators’ website at www.sedar.com and on the EDGAR section ofthe United States Securities and Exchange Commission’s website at www.sec.gov.

 

In addition,during the financial year ended December 31, 2007, we have done business,at market rates, with Quebecor Inc. and other companies within the Quebecorgroup. We may continue to engage in similar transactions on terms which aregenerally no less favourable to us than would be available to us for similartransactions with unaffiliated third parties.

 

Weconsider the amounts paid with respect to the various transactions mentionedabove to be both reasonable and competitive.

 

**ITEM12 — MATERIAL CONTRACTS**

 

Between January 1, 2007and September 30, 2008, the only material contracts that we entered intooutside the ordinary course of business were (i) the DIP Credit Agreement, as amended, which ismore fully described under Item9.1 of this Annual Information Form — DIP Credit Agreement, (ii) the variousamendments to our revolving credit facilities described under Item 9.2 of this Annual Information Form — Credit Facilities and (iii) the Share Purchase Agreementdated May 29, 2008 relating to the sale and purchase of the shares ofQuebecor World European Holding S.A. resulting in the sale of our Europeanoperations (see Item 2.2 of this Annual Information Form — Sale of our European Operations). All ofthe aforementioned material contracts have been filed with the Canadiansecurities regulatory authorities on SEDAR at www.sedar.com as wellas with the United States Securities and Exchange Commission on EDGAR at www.sec.gov.Current and potential investors are urged to consult such agreements as filed with such securitiesregulatory authorities and the summary descriptions of such agreementscontained in this Annual Information Form are qualified entirely byreference to the text of the agreements as filed with such authorities.

 

**ITEM13 — INTERESTS OF EXPERTS**

** **

KPMG LLP is the firm ofauditors who prepared the Auditors’ Report, Report of Independent RegisteredPublic Accounting Firm and Comments by Auditors for US Readers on Canada-USReporting Differences with respect to our Audited Consolidated FinancialStatements for the year ended December 31, 2007. KPMG LLP has confirmed tous that they are independent in accordance with the applicable rules ofprofessional conduct of each of the provinces of Canada and that they havecomplied with the rules on auditor independence of the United StatesSecurities and Exchange Commission.

 

**ITEM14 — TRANSFER AGENT**

** **

The transfer agent forour Subordinate Voting Shares and our Preferred Shares is Computershare TrustCompany of Canada, whose head office is situated in Toronto (Ontario). Sharetransfer service is available at Computershare’s Montreal (Quebec) and Toronto(Ontario) offices, as well as at the principal office of Computershare TrustCompany, Inc. in Denver (Colorado) and New York (New York).

 

**ITEM15 — ADDITIONAL DISCLOSURE**

** **

National Instrument 51-102 — *Continuous Disclosure Obligations* (including Form 51-102F2), requires issuers that do notsend a management information circular to any of their securityholders todisclose in their annual information form certain information with respect totheir voting securities and principal holders of voting securities, directors,executive compensation, securities authorized for issuance under equitycompensation plans, indebtedness of directors and executive officers andappointment of auditors.

 

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**15.1**                        VOTING SECURITIES AND PRINCIPAL HOLDERS OF VOTINGSECURITIES

 

As at September 30, 2008, therewere 46,987,120 Multiple Voting Shares and 153,737,924 SubordinateVoting Shares issued and outstanding.

 

The Subordinate Voting Shares, eachof which carries the right to one vote, are restricted securities (within themeaning of Canadian regulations respecting securities) in that they do notcarry equal voting rights to the Multiple Voting Shares, each of which carriesthe right to ten votes. As of September 30, 2008, 24.6% of all voting rights in the Corporation wereattached to the Subordinate Voting Shares.

 

To the knowledge of the directorsand officers of the Corporation, the only person who beneficially owns orexercises control or direction over more than 10% of the shares of any class ofvoting shares of the Corporation is Quebecor Inc., directly and through awholly-owned subsidiary, namely 4032667 Canada Inc. As at September 30,2008, Quebecor Inc. held a total of 46,911,277 Multiple Voting Shares,representing 99.84% of the issued and outstanding Multiple Voting Shares and****75.23% of all the voting rights in the Corporation.

 

**15.2**                        DIRECTORS

** **

Pleaserefer to Item 5.1 of this Annual Information Form — Our Directors.

 

**15.3**                        EXECUTIVE COMPENSATION

** **

**15.3.1**              Compensationof Directors

** **

The director’scompensation program is designed to attract and retain the most qualifiedpeople to serve on the Board and its committees. Annual retainers andattendance fees are paid to the members of the Board who do not serve in anymanagement function for the Corporation, its subsidiaries or its controllingshareholder, Quebecor Inc. The Corporation currently pays its non-management directorscompensation in accordance with the schedule below:

 
| **Directors’ Compensation Schedule** | ** ** | **Fee**    | ** ** |
|-----------------------------------------------------|------------|------------|------------|
| Board Chair  Retainer                               |       | US$300,000 |       |
| Board  Retainer                                     |       | US$100,000 |       |
| Lead  Director                                      |       | US$10,000  |       |
| Committee  Chair Retainer                           |       |       |       |
| — Audit  Committee                             |       | US$10,000  |       |
| — Other  Committees                            |       | US$8,000   |       |
| Meeting  Attendance Fees                            |       | US$2,500   |       |

 

Up until February 2008, directors were required to receive atleast 50% of their annual retainer in the form of deferred share units (“DSUs”)under a Directors’ Deferred Share Unit Plan (the “DDSU Plan”), with the optionof being able to elect to receive up to 100% of their annual retainer in theform of DSUs. The value of DSUs corresponded to the value of the SubordinateVoting Shares as listed on the NYSE. However, in light of the InsolvencyProceedings, the delisting of the Subordinate Voting Shares from the NYSE andthe significant drop in the market price of the Subordinate Voting Shares, theCorporation terminated the DDSU Plan in February 2008. Consequently, allremuneration as described above is now paid by the Corporation entirely incash.

 

**15.3.2**              Compensationof Executive Officers

** **

The followingtable shows certain selected compensation information for: (i) the twoindividuals who acted as President and Chief Executive Officer of theCorporation during the Corporation’s most recently completed financial year,namely Messrs. Jacques Mallette and Wes W. Lucas; (ii) the ExecutiveVice President and Chief Financial Officer (also Jacques Mallette throughout2007); and (iii) the three other most highly compensated executiveofficers of the Corporation who were serving as such as at December

 

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31, 2007 andwhose total salary and bonus exceeded $150,000 in the most recently completedfinancial year (collectively, the “Named Executive Officers”); in each case forservices rendered in all capacities during the financial years ended December 31,2007, 2006 and 2005.

 

**15.3.3**              SummaryCompensation Table

 
| ** **                                                                       | ** ** | ** ** | ** ** | **Annual Compensation** | ** ** | **Long-Term Compensation** | ** ** | ** **                              | ** ** |
|----------------------------------------------------------------------------------|------------|------------|------------|-------------------------|------------|----------------------------|------------|-----------------------------------------|------------|
| ** **                                                                       | ** ** | ** ** | ** ** | ** **              | ** ** | ** **                 | ** ** | ** **                              | ** ** | **Awards** | ** ** | **Payouts** | ** ** | ** ** | ** ** |
| **Name  and  Principal Position**                                                | ** ** | **Year**   | ** ** | **Salary  ($)**         | ** ** | **Bonus(1)  ($)**          | ** ** | **Other  Annual  Compensation  ($)(2)** | ** ** | **Securities  Under  Options/  SARs  Granted(3)  (#)** | ** ** | **Shares or  Units  Subject to  Resale  Restrictions  ($)** | ** ** | **LTIP  Payouts  ($)** | ** ** | **All Other  Compensation  ($)** | ** ** |
|                                                                             |       |       |       |                    |       |                       |       |                                    |       |   |   |   |   |   |   |   |   |
| Jacques Mallette(4)                                                              |       | 2007       |       | 517,404                 | (5)        | 449,716                    |       | —                                  |       | — |   | — |   | — |   | — |   |
| President and Chief                                                              |       | 2006       |       | 450,000                 |       | 208,140                    |       | —                                  |       | 127,000 |   | — |   | — |   | 138,718 | (6) |
| Executive Officer  (former Executive Vice President and Chief Financial Officer) |       | 2005       |       | 112,500                 | (7)        | US56,250                   |       | —                                  |       | 97,000 |   | — |   | — |   | — |   |
|                                                                             |       |       |       |                    |       |                       |       |                                    |       |   |   |   |   |   |   |   |   |
| Wes W. Lucas                                                                     |       | 2007       |       | 1,175,912               | (8)        | —                     |       | —                                  |       | — |   | — |   | — |   | — | (9) |
| Former President and                                                             |       | 2006       |       | 738,654                 | (10)       | 750,000                    |       | —                                  |       | 950,000 |   | — |   | — |   | 659,880 | (11) |
| Chief Executive Officer                                                          |       | 2005       |       | —                  |       | —                     |       | —                                  |       | — |   | — |   | — |   | — |   |
|                                                                             |       |       |       |                    |       |                       |       |                                    |       |   |   |   |   |   |   |   |   |
| Yvan Lesniak                                                                     |       | 2007       |       | 432,840                 | (13)       | —                     |       | —                                  |       | — |   | — |   | — |   | — |   |
| Former President                                                                 |       | 2006       |       | 416,717                 | (13)       | 69,460                     |       | —                                  |       | — |   | — |   | — |   | 112,136 | (6) |
| Managing Director    Quebecor World   France(12)                                 |       | 2005       |       | 382,127                 | (13)       | —                     |       | —                                  |       | 60,000 |   | — |   | — |   | — |   |
|                                                                             |       |       |       |                    |       |                       |       |                                    |       |   |   |   |   |   |   |   |   |
| Guy Trahan                                                                       |       | 2007       |       | US433,000               |       | US305,201                  |       | —                                  |       | — |   | — |   | — |   | — |   |
| President                                                                        |       | 2006       |       | US425,000               |       | —                     |       | —                                  |       | 75,000 |   | — |   | — |   | — |   |
| Latin America                                                                    |       | 2005       |       | US425,000               |       | US382,500                  |       | —                                  |       | 60,000 |   | — |   | — |   | — |   |
|                                                                             |       |       |       |                    |       |                       |       |                                    |       |   |   |   |   |   |   |   |   |
| David Blair                                                                      |       | 2007       |       | 325,000                 |       | 130,705                    |       | —                                  |       | — |   | — |   | — |   | — |   |
| Senior Vice President,                                                           |       | 2006       |       | 293,500                 |       | 88,050                     |       | —                                  |       | 100,000 |   | — |   | — |   | — |   |
| Operations,  Technologies and Continuous Improvement                             |       | 2005       |       | 293,500                 |       | —                     |       | —                                  |       | 38,000 |   | — |   | — |   | — |   |

 

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(1)                      Historically,bonus amounts have been paid in cash in the year following the financial yearin respect of which they were earned. Retention bonuses are paid in the sameyear in which they are awarded. However, bonus amounts with respect to thefirst half of 2007 were paid in December 2007 while bonus amounts for thelast six months of 2007 were paid in March 2008.

 

(2)                      Perquisitesthat do not exceed the lesser of $50,000 or 10% of the total of the salary andbonuses are not included in this column.

 

(3)                      Underlyingsecurities: Subordinate Voting Shares.

 

(4)                       Mr. Malletteserved as our Executive Vice President and Chief Financial Officer until December 17,2007, when he was appointed our President and Chief Executive Officer. Mr. Mallettecontinued to exercise the functions of the Corporation’s Chief FinancialOfficer until December 31, 2007.

 

(5)                      Representsthe salary earned by Mr. Mallette as Executive Vice President and ChiefFinancial Officer from January 2007 until December 17, 2007 and asPresident and Chief Executive Officer from December 17, 2007 until December 31,2007.

 

(6)                      Thisamount represents a non-cash bonus awarded in respect of 2006 to be paid in theform of Subordinate Voting Shares purchased by a third party on the openmarket. This non-cash bonus will be deferred for three (3) years and apredetermined number of Subordinate Voting Shares will be delivered to theindividual during the first quarter of 2009, provided that the Named ExecutiveOfficer in question is employed by the Corporation on December 31, 2008.If the Named Executive Officer in question is terminated without cause before December 31,2008, then a *pro rata* amount based on timeserved during 2006 to 2008 will be paid by the Corporation to the NamedExecutive Officer.

 

(7)                      Representsthe salary actually earned by and paid to Mr. Mallette in 2005. Mr. Mallettewas appointed our Executive Vice President and Chief Financial Officer on October 1,2005. Mr. Mallette’s annual salary for 2005 was $450,000.

 

(8)                      Representsthe base salary actually earned by and paid to Mr. Lucas in 2007 until hisdeparture on December 17, 2007.

 

(9)                      Noother compensation, including lump-sum or severance amounts, was paid to Mr. Lucasin connection with his departure on December 17, 2007. However, Mr. Lucashas filed a claim in an amount of approximately $23 millionwith the Monitor under the Insolvency Proceedings in connectionwith his departure.

 

(10)                 Represents thebase salary actually earned by and paid to Mr. Lucas in 2006. Mr. Lucasassumed the position of President and Chief Executive Officer of theCorporation on May 11, 2006. Mr. Lucas’ annual salary for 2006 was$1,150,000.

 

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(11)                 Represents thereimbursement of relocation expenses incurred by Mr. Lucas upon hisinternational relocation from the United States to Montreal, Canada. Thisamount included the costs related to the sale and purchase of his primaryresidence, costs and professional fees incurred in connection with taxplanning, immigration matters, legal expenses, moving expenses and such othercosts ordinarily associated with an international relocation. In addition tothe amount disclosed in the table above under the column “All OtherCompensation”, the Corporation also paid Mr. Lucas an amount of $110,577for consulting services provided to the Corporation between April 6 and May 10,2006.

 

(12)                 We sold ourEuropean operations on June 26, 2008 and, consequently, Mr. Lesniak’semployment remains with our former European operations under their newownership.

 

(13)                 Amounts actuallypaid to Mr. Lesniak in Euros and converted to Canadian dollars at thefollowing noon spot rates of exchange of the Bank of Canada: CDN$1.4428 per €1.00 on December 31, 2007; CDN$1.5377 per€1.00 on December 31, 2006; CDN$1.3805 per €1.00 on December 31,2005. Following the completion of the sale our European operations in June 2008,Mr. Lesniak is no longer employed by the Corporation.

 

**15.3.4**              OptionsGranted in 2007

** **

TheCorporation has established an executive stock option plan (the “ESOP”) for itsexecutives, which is administered by the Human Resources and CompensationCommittee of the Board. Participants in the ESOP are granted options that maybe exercised to purchase Subordinate Voting Shares of the Corporation. The ESOPhas been terminated for all future option grants and no stock options tosubscribe for Subordinate Voting Shares were granted to the Named ExecutiveOfficers under the Corporation’s ESOP during the financial year ended December 31,2007. See Item 15.3.9 ofthis Annual Information Form — Report on ExecutiveCompensation — Short-Term and Long-Term Incentive Compensation.

 

**15.3.5**              OptionsExercised in 2007

** **

The followingtable indicates for each of the Named Executive Officers the number of optionsto purchase Subordinate Voting Shares, if any, exercised during the financialyear ended December 31, 2007, the gains realized upon exercise, the totalnumber of unexercised options held at December 31, 2007, and the value ofsuch unexercised options at that date.

 

**Aggregated Option/SARExercises during the Most Recently Completed Financial Yearand Financial Year-End Option/SAR Values**

 
| ** **       | ** ** | **Securities**                      | ** ** | **Aggregate  Value**   | ** ** | **Unexercised Options/  SARs at FY-End** | ** ** | **Value of Unexercised  “In-The-Money” Options/  SARs at FY-End(2)** | ** ** |
|------------------|------------|-------------------------------------|------------|------------------------|------------|---------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|
| **Name**         | ** ** | **Acquired on  Exercise  (#)** | ** ** | **Realized(1)****($)** | ** ** | **Exercisable  (#)**                                    | ** ** | **Unexercisable  (#)**                                                                                  | ** ** | **Exercisable  ($)** | ** ** | **Unexercisable  ($)** | ** ** |
| Jacques Mallette |       | —                              |       | —                 |       | 56,000                                                  |       | 168,000                                                                                                 |       | — |   | — |   |
| Wes W. Lucas(3)  |       | —                              |       | —                 |       | 237,500                                                 |       | —                                                                                                  |       | — |   | — |   |
| Yvan Lesniak     |       | —                              |       | —                 |       | 22,742                                                  |       | 45,000                                                                                                  |       | — |   | — |   |
|             |       | —                              |       | —                 |       | 11,250                                                  |       | 3,750                                                                                                   |       | — |   | — |   |
| Guy Trahan       |       | —                              |       | —                 |       | 179                                                     |       | —                                                                                                  |       | — |   | — |   |
|             |       | —                              |       | —                 |       | 76,879                                                  |       | 101,250                                                                                                 |       | — |   | — |   |
| David Blair      |       | —                              |       | —                 |       | 88,316                                                  |       | 113,500                                                                                                 |       | — |   | — |   |

 

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(1)                    The AggregateValue Realized upon exercise is the difference between the closing sale priceof the Subordinate Voting Shares on the TSX (or on the NYSE forU.S. participants) on the exercise date and the exercise price of theNamed Executive Officer’s option.

 

(2)                    The Value ofUnexercised In-The-Money Options at Financial Year-End is the differencebetween the option price and the closing sale price of the Subordinate VotingShares on the TSX on December 31, 2007 (or on the NYSE forU.S. participants). This gain, unlike the gain set forth in the column“Aggregate Value Realized”, has not been and may never be realized. Theunderlying options have not been and may not be exercised, and actual gains, ifany, will depend on the value of the Subordinate Voting Shares on the date ofexercise of the corresponding options. The closing sale prices of theSubordinate Voting Shares on the TSX and on the NYSE on December 31, 2007 were $1.77 per shareand US$1.80 per share, respectively.

 

(3)                    Mr. Lucasdeparted the Corporation on December 17, 2007.

 

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**15.3.6**              PensionBenefits

** **

This Item15.3.6 describes the pension benefits and entitlements that were payable to oraccrued by the Corporation’s Named Executive Officers as at December 31,2007 ****under the Corporation’spension plans****. Since January 21, 2008, theCorporation and a number of its Canadian and U.S. subsidiaries have beensubject to the Insolvency Proceedings.**** Consequently, the obligations of theCorporation under the Corporation’s pension plans will be dealt with in thecontext of the Insolvency Proceedings.**** Pleaserefer to Item 2.1 of thisAnnual Information Form — Creditor Protection andRestructuring, for a detailed description of the Insolvency Proceedings.

 

**·**                  CanadianPension Plans

** **

TheCorporation maintains a basic pension plan for its non-unionized Canadianemployees (the “Basic****Plan”), whichalso covers executive officers of the Corporation. The pension is calculated onthe basis of the average salary of the five consecutive years in which thesalary was the highest, including bonuses, multiplied by the number of years ofmembership in the plan. The pension is payable at the normal retirement age of65 years or from the age of 62, without reduction, if the participant hascompleted a minimum of ten years of service with the Corporation.

 

The maximumpension payable under the pension plan is as prescribed by the *Income Tax Act* (Canada). A participant contributes tothe plan an amount equal to 5% of his or her salary not exceeding $111,111 for2007, up to a maximum of $5,555 per year. Effective January 1, 2008, themaximum pension and participant contributions will be based on a salary of$116,667. In the event that a participant’s salary exceeds the maximum, benefitswill be paid from the unfunded Quebecor World Restoration Plan (the“Restoration****Plan”), which uses excess pay totop up any shortfalls (excluding bonuses) and the same formula as that found inthe Basic Plan.

 

The followingtable sets forth the annual retirement benefits under the Basic Plan and theRestoration Plan payable at age 65 based on final average salary and years ofmembership as shown for a participant.

 

**Pension Plan Table(Canadian — Basic and Restoration)**

 
| ** **                 | ** ** | **Years of Membership** | ** ** |
|----------------------------|------------|-----------------------------------|------------|
| **Remuneration ($)*** | ** ** | **10**                            | ** ** | **15** | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** |
| 400,000                    |       | $                                 | 80,000     |   | $ | 120,000 |   | $ | 160,000 |   | $ | 200,000 |   | $ | 240,000 |   |
| 600,000                    |       | $                                 | 120,000    |   | $ | 180,000 |   | $ | 240,000 |   | $ | 300,000 |   | $ | 360,000 |   |
| 800,000                    |       | $                                 | 160,000    |   | $ | 240,000 |   | $ | 320,000 |   | $ | 400,000 |   | $ | 480,000 |   |
| 1,000,000                  |       | $                                 | 200,000    |   | $ | 300,000 |   | $ | 400,000 |   | $ | 500,000 |   | $ | 600,000 |   |
| 1,200,000                  |       | $                                 | 240,000    |   | $ | 360,000 |   | $ | 480,000 |   | $ | 600,000 |   | $ | 720,000 |   |

 

----

*                 Remunerationrefers to annual base salary only.

 

Aparticipant’s pension is payable for life. In case of death after retirement,the plan provides a five-year full pension guarantee starting at the retirementdate. After such period, the participant’s surviving spouse will continue toreceive for life 60% of the pension.

 

As of December 31,2007, the credited number of years of membership in the plans for participatingNamed Executive Officers were:

 

·                  for Jacques Mallette, 4 years and 9 months;

 

·                  for Wes Lucas, 1 year and 8 months;

 

·                  for Guy Trahan, 14 years in the BasicPlan (as his participation while in Latin America is limited to 5 years)and 19 years and 10 monthsin the Restoration Plan; and

 

·                  for David Blair, 18 years and 7 months.

 

The number ofyears indicated above for Mr. Mallette include credited years accruedunder Quebecor Inc.’s pension plans that have been transferred to theCorporation’s pension plans under an inter-company reciprocal pension plantransfer agreement.

 

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Wes Lucas, ourformer President and Chief Executive Officer, departed the Corporation on December 17,2007. No lump sum related to his accumulated pension benefits has been paid to Mr. Lucasin connection with his departure; however, he has filed a claim in an amount of approximately $23 millionwith the Monitor under the Insolvency Proceedings.

 

**·**                  CanadianSupplementary Retirement Plan

** **

In addition tothe Canadian Basic and Restoration Plans, the Corporation providesSupplementary Retirement Plans for its Canadian executive officers. Thesupplemental retirement benefits payable to the Canadian Named ExecutiveOfficers are indicated below:

 

·                  At December 31, 2007, the credited number of years ofmembership in the plan for the participating Named Executive Officers were forGuy Trahan, 19 years and 10months. The pension is payable in accordance with the same modalities as theBasic Plan.

 

The followingtable sets forth the aggregate annual retirement benefits payable to Mr. Trahanunder the Basic Plan, the Restoration Plan and the Canadian SupplementaryRetirement Plan at age 65 based on final average salary and years of membershipas shown for a participant.

 

**Pension Plan Table(Canadian — Basic, Restoration and Supplementary)**

 
| ** **                 | ** ** | **Years of Membership** | ** ** |
|----------------------------|------------|-----------------------------------|------------|
| **Remuneration ($)*** | ** ** | **10**                            | ** ** | **15** | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** |
| 600,000                    |       | N/A                               |       | $ | 136,000 |   | $ | 181,000 |   | $ | 226,000 |   | $ | 272,000 |   |
| 900,000                    |       | N/A                               |       | $ | 206,000 |   | $ | 274,000 |   | $ | 343,000 |   | $ | 411,000 |   |
| 1,200,000                  |       | N/A                               |       | $ | 275,000 |   | $ | 367,000 |   | $ | 459,000 |   | $ | 551,000 |   |
| 1,500,000                  |       | N/A                               |       | $ | 345,000 |   | $ | 460,000 |   | $ | 575,000 |   | $ | 690,000 |   |
| 1,800,000                  |       | N/A                               |       | $ | 415,000 |   | $ | 553,000 |   | $ | 691,000 |   | $ | 830,000 |   |

 

----

*                 Remunerationrefers to annual base salary and a bonus assumed to equal 50% of a normal basesalary.

 

·                  At December 31, 2007, the credited number of years ofmembership in the plan for the participating Named Executive Officers were: forJacques Mallette, 2 years and 3 months,for Wes Lucas, 1 year and 8months and for David Blair, 16 years. The pension ispayable in accordance with the same modalities as the Basic Plan.

 

Wes Lucas, ourformer President and Chief Executive Officer, departed the Corporation on December 17,2007. No lump sum related to his accumulated pension benefits has been paid to Mr. Lucasin connection with his departure; however, he has filed a claim in an amount of approximately $23 millionwith the Monitor under the Insolvency Proceedings.

 

The followingtable sets forth the annual aggregate retirement benefits under the Basic Plan,the Restoration Plan and the Supplementary Retirement Plan payable at age 65for Jacques Mallette and David Blair, based on final average salary (includingbonuses) and years of membership as shown for a participant.

 

**Pension Plan Table(Canadian — Basic, Restoration and Supplementary)**

 
| ** **                 | ** ** | **Years of Membership** | ** ** |
|----------------------------|------------|-----------------------------------|------------|
| **Remuneration ($)*** | ** ** | **10**                            | ** ** | **15** | ** ** | **20** | ** ** | **25** | ** ** | **30** | ** ** |
| 600,000                    |       | $                                 | 120,000    |   | $ | 180,000 |   | $ | 240,000 |   | $ | 300,000 |   | $ | 360,000 |   |
| 900,000                    |       | $                                 | 180,000    |   | $ | 270,000 |   | $ | 360,000 |   | $ | 450,000 |   | $ | 540,000 |   |
| 1,200,000                  |       | $                                 | 240,000    |   | $ | 360,000 |   | $ | 480,000 |   | $ | 600,000 |   | $ | 720,000 |   |
| 1,500,000                  |       | $                                 | 300,000    |   | $ | 450,000 |   | $ | 600,000 |   | $ | 750,000 |   | $ | 900,000 |   |
| 1,800,000                  |       | $                                 | 360,000    |   | $ | 540,000 |   | $ | 720,000 |   | $ | 900,000 |   | $ | 1,080,000 |   |

 

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*       Remuneration refers to annual base salary and a bonus assumed to equal50% of annual base salary.

 

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**·**                  European PensionPlans

** **

Prior to thesale of our European operations on June 26, 2008 (see Item 2.2 of this Annual Information Form — Sale of our European Operations), the Corporation did not have asupplemental retirement plan for its European-based executives. Yvan Lesniakparticipated in the mandatory Social Security Plan of France.

 

**15.3.7**              EmploymentAgreements

** **

TheCorporation has entered into employment agreements with certain of the NamedExecutive Officers, namely Jacques Mallette, Wes Lucas, Yvan Lesniak and GuyTrahan (collectively, the “Employment****Agreements”).

 

Pursuant tothe Employment Agreements, each Named Executive Officer is entitled toparticipate in the Corporation’s short-term incentive plan and theCorporation’s ESOP and to receive other benefits commensurate with hisposition. The Employment Agreements are for an indefinite term.

 

The following Named Executive Officers havetermination of employment provisions in their Employment Agreements.

 

**Jacques Mallette** — Mr. Mallette’s Employment Agreement provides that in theevent his employment is terminated without cause, he will be entitled to areasonable severance payment. In addition, if a change of control of theCorporation occurs and (i) Mr. Mallette’s employment is terminatedwithout cause or (ii) he resigns for a serious reason, he will be entitledto a lump-sum payment equal to 18 months of his then prevailing annual basesalary and benefits, being his annual target bonus and the value of his annualbenefits related to automobile and group insurance policy, excluding theshort-term and long-term disability coverage.

 

**Yvan Lesniak** — Mr. Lesniak’s Employment Agreement provides that in theevent his employment is terminated without cause, he will be entitled to alump-sum payment equal to 24 months of his then prevailing base annual salary.We sold our European operations on June 26, 2008 and consequently, Mr. Lesniak’semployment remains with our former European operations under their newownership.

 

**Wes W. Lucas —**Wes Lucas, our former President and Chief Executive Officer,departed the Corporation on December 17, 2007. No termination or otherlump-sum amounts have been paid to Mr. Lucas in connection with hisdeparture; however, he has filed aclaim in an amount of approximately $23 million with the Monitor under theInsolvency Proceedings.

 

**15.3.8**              Compositionof the Human Resources and Compensation Committee

** **

The currentmembers of the Human Resources and Compensation Committee are André Caillé(Chairman), Jean La Couture and Michèle Desjardins, each of whom is independentwithin the meaning of the Categorical Standards of Independence of Directorsadopted by the Corporation and derived from the corporate governance guidelinesestablished by the Canadian Securities Administrators, the New York StockExchange and the *Sarbanes-Oxley Act of 2002.*OurCategorial Standards of Independence are reproduced in their entirety atSchedule “C” to this Annual Information Form.

 

**15.3.9**              Reporton Executive Compensation

** **

The HumanResources and Compensation Committee assists the Board in fulfilling itsgovernance responsibilities for the Corporation’s human resources policies andpractices. Each year, as part of its mandate, the Human Resources andCompensation Committee reviews the Corporation’s compensation principles,policies and plans and reports to the Board on the Corporation’s executivecompensation. In order to enhance the Corporation’s ability to attract,motivate and retain high-performing senior management required to attain itsfinancial, operating and performance objectives, the Corporation has developedand implemented an executive compensation policy. This policy is intended toensure that the Corporation’s executives receive total compensation that (a) iscompetitive with the compensation received by executives employed by a group ofcomparable North American companies (the “Reference****Market”),(b) rewards superior performance and (c) aligns the executives’interests with those of the Corporation’s shareholders. The Reference Market iscomprised of a combination of American and

 

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Canadianpublic companies of comparable size and complexity operating in the media,information and entertainment, manufacturing and other capital intensiveindustries, with international scale and scope. The compensation strategy isweighted towards “pay-for-performance” components.

 

TheCorporation must ensure that it offers competitive compensation in thechallenging markets in which it operates and recruits high-performingexecutives. In general, the Corporation and the Human Resources andCompensation Committee set the remuneration of executive officers at the medianof the overall compensation paid to executives in the Reference Market.

 

The HumanResources and Compensation Committee recognizes the fundamental value added bya highly committed management team. The skills and impact of this group ofindividuals are essential to the successful management of the Corporation andvital to the formulation and implementation of its strategic plan and financialobjectives. The executive compensation package reviewed by the Human Resourcesand Compensation Committee aims primarily at:

 

*·*            Maximizing thecreation of shareholder value;

* *

*·*            Promoting theachievement of organizational objectives;

* *

*·*            Ensuring thatfinancial targets are achieved or surpassed;

* *

*·*            Attracting,retaining and rewarding key contributors; and

* *

*·*            Providingcompensation substantially in line with that offered by comparable companies.

* *

Historically,the executive compensation package has been composed of three major components:(i) base salary and benefits; (ii) short-term incentive compensation;and (iii) long-term incentive compensation.

 

The relativeweight attributed to each component of compensation varies according to thelevel and nature of the executive’s position with the Corporation. In general,the higher the position, the greater will be the component of compensation thatis variable and at risk. The Corporation believes that this system serves tobetter align an executive’s degree of influence and the Corporation’soperational results. The relative weight attributed to each component of theremuneration is determined according to market figures and takes into accountthe Corporation’s internal policies and performance. The compensation structurefor the most highly ranked executives approved by the Human Resources andCompensation Committee attributes a weight ranging from 20% to 35% to basecompensation and 65% to 80% to incentive compensation and for other executivesa weight ranging from 45% to 70% is attributed to incentive compensation.

** **

**·**                  BaseSalary and Benefits

** **

Our salary andbenefits policies are determined using various annual compensation surveys thatare representative of the Reference Market. As described above, the ReferenceMarket consists of American and Canadian public companies of comparable sizeand complexity in the media, information and entertainment, manufacturing andother capital intensive industries, with international scale and scope, whichare specifically prepared on behalf of the Corporation by consulting firms onthe basis of a list of comparable companies. The base compensation paid to ouremployees is established on the basis of business trends in the countries inwhich the Corporation operates, taking into account economic trends, theCorporation’s profitability and return on capital. On the basis of an overallannual budget authorized by the Board, each operational unit must justify theevolution of its salary and benefits policies based on its results.

 

Base salariesare reviewed on an annual basis, increases are not automatic and are typicallyprovided only if an executive assumes additional material responsibilities orthere is an increase in base salary levels for executives in the ReferenceMarket. The Human Resources and Compensation Committee reviews annually thebase salaries of the Named Executive Officers. Taking into account each NamedExecutive Officers’ level of responsibility, experience and sustainedcontribution, the Human Resources and Compensation Committee makes theappropriate adjustments, as required. Similarly, in order to ensure that theofficers’ base salaries are competitive, the Committee looks to the mediansalaries paid to executives of the Reference Market and, if necessary orappropriate, makes certain adjustments thereto.

 

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**·**                  Short-Termand Long-Term Incentive Compensation

** **

Prior to thecommencement of the Insolvency Proceedings, we maintained a short-termincentive plan (referred to as the “Management****Incentive****Compensation****Plan”****or****the****“MICP”) for the senior management of the Corporation andits subsidiaries, which provided for the payment of cash bonuses to executivesand managers whose business units (printing service groups or divisions)attained results in line with the annual financial and strategic targetsapproved by the Corporation, and additional bonuses if the operating resultssurpassed these financial and strategic targets. Our short-term incentive planfocused on the achievement of key financial and strategic performanceindicators, such as earnings before interest and tax (“EBIT”), return oncapital employed (“ROCE”), cost of capital, earnings per share (“EPS”), returnon equity (“ROE”), strategic initiatives, corporate development, capabilitybuilding and cost reduction targets. The specific amount of these payments wereapproved by the Human Resources and Compensation Committee. In the case of theNamed Executive Officers, incentive bonuses varied in proportion to basesalary, depending primarily on the level of responsibilities and whether or notthe specified financial and strategic objectives have been attained. When suchobjectives were exceeded, bonuses are higher; when objectives are not attained,the incentive bonuses are lower or nil, depending on the circumstances. Inconnection with the Insolvency Proceedings, the Corporation decided toterminate the MICP.

 

Also, prior tothe Insolvency Proceedings, the long-term incentive component was comprised of (i) theESOP, which provided for the issuance of stock options to executive officers topurchase Subordinate Voting Shares, and (ii) a Deferred Performance ShareUnit Plan (the “DPSUP”).

 

The ESOP was initially adopted in April 23,1992 as a performance incentive for certain key employees of the Corporation.In furtherance of a general goal of encouraging the Corporation’s developmentand growth, the ESOP was implemented in order to create direct links betweenexecutive compensation and increased value for shareholders. In addition, theESOP was also conceived with a view to developing each eligible executive’ssense of ownership in the Corporation, while aligning their compensation tomeaningful and measurable performance goals reinforced through the inclusion ofperformance targets. The Corporation granted stock options to executives as along-term incentive intended with a view to enhancing both retention andattraction.

 

The purpose ofthe DPSUP was to (i) promote a better alignment of the interests of theCorporation shareholders and key executives, (ii) provide a tax-deferredcapital accumulation opportunity to key executives through deferral ofcompensation, and (iii) provide the Corporation with a method of rewardingand retaining select executives. Participation in the DPSUP had been mandatoryfor all members of “Senior Management”, being all employees of the Corporationwhose compensation was directly approved by the Human Resources andCompensation Committee.

 

However, withthe Insolvency Proceedings initiated in January 2008, the Corporationterminated both the MICP and the ESOP for all future incentive grants. Inaddition, the DPSUP, which was originally implemented effective January 1,2005, had already been suspended for the 2006 financial year.

 

On July 9,2008, the Quebec Superior Court (the “Court”) authorized the implementation andcontinuation by Quebecor World of the MICP. Our objective is to implement for2008 and the first half of 2009 a redesigned MICP, which existed prior to theInsolvency Proceedings, and the parameters of which have now been modified andenhanced to take into account the challenges related to the InsolvencyProceedings and to drive employee performance during this critical time period.

 

The 2008/2009MICP, as approved by the Court, has been simplified to focus on (i) attainingand surpassing specified adjusted Earnings Before Interest, Taxes, Depreciationand Amortization (“EBITDA”) targets as measured over the 18-month loan periodprovided for under our DIP Credit Agreement and (ii) creating value forstakeholders. In addition to the employees who have typically been eligible toparticipate under the MICP, an additional 25 key employees will be eligible toparticipate in the 2008/2009 MICP, for a total of 250 participating employees.Bonuses granted under the MICP will be expressed, as in the past, as apercentage of a participant’s base salary. For a majority of the eligibleemployees, that percentage will be the same as it was in 2007. In addition, 100MICP participants will be eligible for enhancements to their 2007 MICP award.The enhanced portion of the MICP is intended to provide competitivecompensation to employees who have been identified as particularly critical toour successful emergence from the Insolvency Proceedings, as well as to betteralign their interests with those of the Corporation and its stakeholders. These100 employees have been identified by our senior management based on thefollowing factors: the nature of their job

 

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requirements;the importance of their role in the management of specific operations and theirability to influence the success of our restructuring efforts; to meetcustomized performance objectives; and to ensure that the Corporation meets itsoverall restructuring goals.

 

Awards underthe 2008/2009 MICP will be determined using two measuring periods: (i) the2008 calendar year, for which awards are payable no later than March 31,2009; and (ii) the first six months of 2009, for which awards are payableno later than September 30, 2009. For divisional participants, theperformance metric of adjusted EBITDA will be broken down into two components: (1) 75%will be based on the employees’ divisional adjusted EBITDA; and (2) 25%will be based on consolidated corporate adjusted EBITDA. With respect tocorporate participants, the performance metric of adjusted EBITDA will be: (1) 75%of adjusted EBITDA of each division on a weighted basis; and (2) 25% ofconsolidated adjusted EBITDA. For each participant, there will be a thresholdlevel of adjusted EBITDA (corresponding to an award of one-third of the maximumaward), a target level (corresponding to an award of two-thirds of the maximumaward) and a maximum level (corresponding to the maximum award). MICP awardswill be forfeited if a participant leaves the Corporation voluntarily(excluding retirement) before the payout date. In the event of retirement,death or termination other than for cause, the participant will receive apro-rated award based on the Corporation’s performance through the full awardperiod and payable on the scheduled payout date. It is currently estimated thatthe total cost of the 2008/2009 MICP over 18 months (including the enhancedportion) will be between $13.9 million and $41.9 million.

 

Despite thetermination of the ESOP for all future option grants, the ESOP remains in forcefor all options that were outstanding at the time of termination. As at September 30,2008, the maximum number of Subordinate Voting Shares that were authorizedto be issued under the ESOP was 11,000,000, of which 1,817,766 have beenexercised and 9,182,234****SubordinateVoting Shares remained reserved for plan participants, representing 0.90% and4.57%, respectively, of all issued and outstanding Multiple Voting Shares andSubordinate Voting Shares combined as at September 30, 2008. From thisreserve, at September 30, 2008, a total of 5,497,261 options to purchaseSubordinate Voting Shares****wereoutstanding (i.e. unexercised options that have neither expired nor beencancelled), representing 2.74% of all issued and outstanding Multiple VotingShares and Subordinate Voting Shares combined. Furthermore, an additional65,000****options had been granted outside thereserve under the ESOP as inducement options to an officer of the Corporation.In light of the Insolvency Proceedings and the termination of the ESOP for allfuture option grants, we have withdrawn our application to the TSX to list theadditional 2,000,000 Subordinate Voting Shares approved at our annual meetingof shareholders held in May 2007.

 

**·**                  Compensationof the President and Chief Executive Officer

** **

Aspart of its mandate, the Human Resources and Compensation Committee reviewedthe total compensation package of Jacques Mallette who succeeded to Wes W.Lucas as our President and Chief Executive Officer on December 17, 2007.Considering the international nature of the Corporation’s operations, for 2007,the target value of the Chief Executive Officer’s compensation components weredetermined to be in line with the median of the U.S. market (in localcurrency), which is in line with the upper quartile of the Canadian market. Thesecompensation components are as follows:

 

·                  An annual base salary of $1,000,000.

 

·                  Under his Employment Agreement, Mr. Mallette would be entitledto an annual performance-based incentive award of 100% of his annual basesalary based on the objectives approved by the Board of Directors. Such awardmay reach a maximum of 150% of his annual base salary for each financial yearif the objectives approved by the Board of Directors are surpassed.

 

·                  However, in the context of the Insolvency Proceedings, Mr. Malletteis entitled to participate in the 2008/2009 MICP with an annualized enhancedMICP target of 167% of his annual base salary in the event the adjusted EBITDAobjectives described above are attained.

 

OnDecember 17, 2007, our former President and Chief Executive Officer, WesW. Lucas, departed the Corporation. Nolump-sum or severance amount has been paid to Mr. Lucas in connection withhis departure. However, Mr. Lucas has filed a claim in an amount ofapproximately $23 million with the Monitor under the Insolvency Proceedings.

 

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** **

**·**                  Conclusion

** **

Withthe commencement and continuation of the Insolvency Proceedings, 2008 is a yearin which, perhaps more than ever, the Corporation requires the devotion andperformance of its key senior executives in order to ensure that they aremotivated to remain with the Corporation during a difficult period of time. Itis also imperative that the Corporation be able to continue to attract newexecutive talent on a par with both its peers and competitors. The HumanResources and Compensation Committee is confident that, together withmanagement, it will be able to continue to design and implement an executivecompensation scheme that is appropriate to the Corporation and its key seniorexecutive in light of all of the prevailing circumstances, of which therecently Court-approved 2008/2009 MICP is a key element.

 

**Forthe Human Resources and Compensation Committee:**

 

·                  André Caillé (Chairman)

 

·                  Jean La Couture

 

·                  MichèleDesjardins

 

**15.3.10**       Performance Graph

** **

Thefollowing performance graph illustrates the cumulative total return of a $100investment in the Corporation’s Subordinate Voting Shares, compared with thecumulative total return of the S&P/TSX Composite Index, theS&P/TSX 60 Index and the S&P 500 Index.

 

Theyear-end values of each investment are based on share appreciation plusdividends paid in cash, the dividends having been reinvested on the date theywere paid. The calculations exclude brokerage fees and taxes. Total shareholderreturns from each investment can be calculated from the year-end investmentvalues shown below the graph.

 

 
| ** **            | ** ** | **12-31-02** | ** ** | **12-31-03** | ** ** | **12-31-04** | ** ** | **12-31-05** | ** ** | **12-31-06** | ** ** | **12-31-07** | ** ** |
|-----------------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|
| Quebecor World Inc.   |       | $            | 100        |         | $          | 79           |       | $            | 78         |         | $          | 49           |       | $ | 44 |   | $ | 6 |   |
| S&P/TSX Composite |       | $            | 100        |         | $          | 126          |       | $            | 144        |         | $          | 179          |       | $ | 210 |   | $ | 230 |   |
| S&P/TSX 60        |       | $            | 100        |         | $          | 125          |       | $            | 142        |         | $          | 179          |       | $ | 213 |   | $ | 237 |   |
| S&P 500 (CDN$)    |       | $            | 100        |         | $          | 106          |       | $            | 108        |         | $          | 110          |       | $ | 127 |   | $ | 114 |   |

** **

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** **

**15.4**                        SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITYCOMPENSATION PLANS

** **

**15.4.1**              SecuritiesAuthorized for Issuance under Equity-Based Compensation Plans

** **

The followingtable sets forth, as at September 30, 2008, the information with respectto all of our compensation plans pursuant to which equity securities of theCorporation are authorized for issuance.

 
| ** **                                                     | ** ** | **(a)**                                                                                                                                              | ** ** | **(b)**                                                                                                | ** ** | **(c)**                                                                                                                                                                       | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | ** **                                                                                                                                           | ** ** | ** **                                                                                             | ** ** | ** Number of securities**                                                                                                                                      | ** ** |
| **Plan Category**                                         | ** ** | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **remaining available for  further issuance under  equity compensation  plans (excluding  securities reflected in  column (a))** | ** ** |
| **Equity compensation plans  approved by securityholders:**    |       | 5,562,261                                                                                                                                            | (1)        | US$23.47                                                                                               |       | 3,619,973                                                                                                                                                                     | (2)        |
| Executive Stock Option  Plan                                   |       | 5,562,261                                                                                                                                            | (1)        | US$23.47                                                                                               |       | 3,619,973                                                                                                                                                                     | (2)        |
| **Equity compensation plans not  approved by securityholders** |       | —                                                                                                                                               |       | —                                                                                                 |       | —                                                                                                                                                                        |       |
| **TOTAL:**                                                     | ** ** | **5,562,261**                                                                                                                                        | **(1)**    | **US$23.47**                                                                                           | ** ** | **3,619,973**                                                                                                                                                                 | **(2)**    |

 

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(1) Includes65,000****Inducement Options outstanding outsideof the shares reserved under the ESOP and approved by the TSX.

 

(2) While11,000,000 Subordinate Voting Shares are currently authorized to be issuedunder the ESOP, only 9,000,000 of such Subordinate Voting Shares are currentlylisted on the TSX.

 

**15.4.2**              PrincipalTerms of Quebecor World’s Security-Based Compensation Arrangements and OtherRequired Disclosure

** **

Companieslisted on the TSX are required to disclose on an annual basis the terms oftheir security-based compensation arrangements and any amendments adopted tosuch arrangements during the most recently completed financial year. Under the rules ofthe TSX Company Manual (the “TSX Rules”), security-based compensationarrangements include, for example, stock option plans, stock purchase planswhere the listed issuer provides financial assistance or where the listedissuer matches the whole or a portion of the securities being purchased, andany other compensation or incentive mechanism involving the issuance orpotential issuance of securities of the listed issuer. In general, arrangementsor plans that do not involve the issuance from treasury or potential issuance fromtreasury of securities of the listed issuer are not security-based compensationarrangements for the purposes of the TSX Rules.

 

QuebecorWorld currently has in place no such security-based compensation arrangements,since both its ESOP and its USA Employee Stock Purchase Plan were terminated in2008. In January 2008, the Corporation terminated its USA Employee StockPurchase Plan for its employees in the United States. In February 2008,the Corporation also terminated the ESOP for all future incentive grants. TheESOP, however, remains in place for all options that were outstanding as at itstermination (see Item 15.3.9 ofthis Annual Information Form — Report on ExecutiveCompensation — Short-Term and Long-Term Incentive Compensation).

 

**15.5**                        INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

** **

We havea policy that prohibits both the extending of any new personal loans to ourdirectors and executive officers as well as the renewal of, or materialmodification to, any existing personal loans.

 

None ofour directors, executive officers or senior officers or persons who held suchpositions during the most recently completed financial year or any nomineesproposed as a director nor any person associated with any of the foregoing isindebted to us or was indebted to us or to any of our subsidiaries at any timeduring the most recently completed financial year.

 

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**ITEM 16 — STATEMENT OF CORPORATE GOVERNANCE PRACTICES**

** **

Weconsider good corporate governance practices to be an important factor in ouroverall success. According to National Instrument 58-101 — *Disclosure of Corporate Governance Practices*(“NI 58-101”), we are requiredto disclose our corporate governance practices.

 

Overthe course of the past few years, we have undertaken a comprehensive review ofour corporate governance practices in order to best comply with and exceed thecorporate governance practices of the Canadian securities regulators and theU.S. *Sarbanes-Oxley Act* of *2002.*

* *

**Schedule “B” to this Annual Information Form describesour corporate governance practices with specific reference to each of theguidelines set forth in NI 58-101 and MI 52-110.**

** **

The Board has adopted a Code of Business Conduct which governs thebehavior of our directors, officers and employees. The Code provides thatconcerns of employees regarding any potential or real wrongdoing in terms ofaccounting or auditing matters may be submitted confidentially through anethics line or other internal mechanism. The Board has also adopted proceduresallowing interested parties (i) to submit to us accounting and auditingcomplaints, and (ii) to communicate directly with the independent Lead Directoror with the independent directors as a group. These procedures are alsodescribed on our website at *www.quebecorworld.com*under the “Investors” Tab. The Codeis available on our website and in print to any shareholder who requests copiesby contacting the Corporate Secretary as well as on the SEDAR websitemaintained by the Canadian Securities administrators at www.sedar.com.

 

Furtherdetails on our corporate governance practices are provided on our website at *www.quebecorworld.com*under the “Investors” Tab.

 

**ITEM 17 — FORWARD-LOOKING STATEMENTS**

** **

ThisAnnual Information Form includes “forward-looking statements” that involverisks and uncertainties. All statements other than statements of historicalfacts included in this Annual Information Form, including statements regardingthe prospects of the industry, and prospects, plans, financial position andbusiness strategy of the Corporation, may constitute forward-looking statementswithin the meaning of the U.S. Private Securities Litigation Reform Act of 1995and Canadian securities legislation and regulations. Forward-looking statementsgenerally can be identified by the use of forward-looking terminology such as “may”,“will”, “expect”, “intend”, “estimate”, “anticipate”, “plan”, “foresee”, “believe”or “continue” or the negatives of these terms or variations of them or similarterminology. Although the Corporation believes that the expectations reflectedin these forward-looking statements are reasonable, it can give no assurancethat these expectations will prove to have been correct. Forward-lookingstatements do not take into account the effect that transactions ornon-recurring or other special items announced or occurring after thestatements are made have on the Corporation’s business. For example, they donot include the effect of dispositions, acquisitions, other businesstransactions, asset write-downs or other charges announced or occurring afterforward-looking statements are made. Investors and others are cautioned thatundue reliance should not be placed on any forward-looking statements.

 

Formore information on the risks, uncertainties and assumptions that would causethe Corporation’s actual results to differ from current expectations, pleasealso refer to the Corporation’s public filings available at www.sedar.com,www.sec.gov and www.quebecorworld.com. In particular, further details anddescriptions of these and other factors are disclosed in this AnnualInformation Form under Item 8 — Risk Factors and in Section 7 — RiskFactors of our Management’s Discussion and Analysis for our most recently completed financial year.

 

Unlessmentioned otherwise, the forward-looking statements in this Annual Information Form reflectthe Corporation’s expectations as of October 17,2008, being the date at which they have been approved, and are subject tochange after this date. The Corporation expressly disclaims any obligation orintention to update or revise any forward-looking statements, whether as aresult of new information, future events or otherwise, unless required by theapplicable securities laws.

 

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**ITEM 18 — ADDITIONAL INFORMATION**

** **

Additional information relating tous may be found on our website at www.quebecorworld.com, on the SEDAR websiteof the Canadian Securities Administrators at www.sedar.com. and on the EDGARsection of the United States Securities and Exchange Commission’s website atwww.sec.gov.

 

Additional financial information isprovided in our Audited Consolidated Financial Statements and in our Management’sDiscussion and Analysis for our most recently completed financial year.

 

*****

 

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**SCHEDULE A — M****ANDATE OF THE AUDITCOMMITTEE**

** **

The Audit Committee (the “Committee”)assists the Board of Directors (the “Board”) in overseeing the Corporation’sfinancial controls and reporting, and significant financing transactions. TheCommittee also ascertains that the Corporation complies with financialcovenants and legal and regulatory requirements governing financial disclosurematters and financial risk management. The Committee is a standing committee ofthe Board.

 

**COMPOSITION AND QUORUM**

** **

The Committee is composedof a minimum of three (3) members who will be independent under the *Categorical Standards of Independence for**Directors* adopted by the Board and applicablelaw. Each member of the Committee must be “*financiallyliterate*” and at least one member must be an “*audit committee financial expert*” underapplicable laws and regulations (all as determined by the Board).

 

Members of the Committeedo not receive any compensation from the Corporation other than compensation asdirectors and committee members. Prohibited compensation includes fees paid,directly or indirectly, for services as consultant or as legal or financialadvisor, regardless of the amount, but excludes any compensation approved bythe Board and that is paid to the directors as members of the Board and itsCommittees.

 

The quorum at any meetingof the Committee is a majority of its members.

 

Because of the Committee’sdemanding role and responsibilities, the Nominating and Corporate GovernanceCommittee reviews any invitation to Committee members to join the auditcommittee of any other company or corporation. Where a member of the Committeesimultaneously serves on the audit committee of more than three (3) publiccompanies, including the Committee, the Board determines whether suchsimultaneous service impairs the ability of such member to effectively serve onthe Committee.

 

**RESPONSIBILITIES**

** **

The Committee has thefollowing responsibilities:

 

With respect toaccounting and financial reporting

 

1.                                      Reviewing with management and theexternal auditor the annual financial statements and accompanying notes, theexternal auditor’s report thereon, the Management’s Discussion and Analysis ofthe Financial Condition and Results of Operations (the “MD&A”) and therelated press release, before recommending approval by the Board and therelease thereof.

 

2.                                      Reviewing with management and theexternal auditor the quarterly financial statements and accompanying notes, theexternal auditor’s review thereof, the MD&A and the related press release,before recommending the approval by the Board and the release thereof.

 

3.                                      Reviewing the financial informationcontained in the Annual Information Form, Form 40-F, Annual Report,Management Proxy Circular, MD&A, Prospectuses, and the Quarterly Report on Form 6-K(including any Supplemental Disclosure documents thereto) and reviewing otherdocuments containing similar financial information before their publicdisclosure or filing with regulatory authorities in Canada or the UnitedStates.

 

4.                                      Discussing with management and theexternal auditor the Corporation’s accounting policies and any changes that areproposed to be made thereto; and reviewing the disclosure and impact ofcontingencies and the reasonableness of the provisions, reserves and estimatesthat may have a material impact on financial reporting.

 

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5.                                      Reviewing with the external auditor anyaudit problems or difficulties and management’s response thereto and resolvingany disagreement between management and the external auditor regardingaccounting and financial reporting.

 

6.                                      Ensuring that adequate procedures are inplace for the review of the Corporation’s disclosure of financial informationextracted or derived from the Corporation’s financial statements, other thanthe public disclosure referred to in paragraphs 1 and 2 above, and periodicallyassess the adequacy of those procedures.

 

7.                                      Reviewing the Committee’s report to theshareholders.

 

With respect to riskmanagement, internal controls and disclosure controls and procedures

 

1.                                      Overseeing the quality and integrity ofthe Corporation’s internal control and management information systems.

 

2.                                      Discussing the Corporation’s riskassessment and management policies.

 

3.                                      Annually reviewing the report of theexternal auditor on management’s assessment of the Corporation’s internalcontrol over financial reporting describing any material issues raised by themost recent reviews of internal controls and management information systems orby any inquiry or investigation by governmental or professional authorities andany recommendations made and steps taken to deal with any such issues.

 

4.                                      Assisting the Board with the oversight ofthe Corporation’s compliance with applicable legal and regulatory requirementsregarding accounting and auditing matters as well as financial reporting anddisclosure.

 

5.                                      Establishing and, if required, revisingprocedures for the receipt, retention and treatment of complaints or concernsreceived by the Corporation regarding accounting, internal accounting controls,or auditing matters, including the anonymous submission by employees ofconcerns respecting accounting or auditing matters.

 

With respect tofinancings and borrowings

 

1.                                      Reviewing the terms and conditions ofsignificant short-term or long-term financing transactions of the Corporation,including the issuance of securities or corporate borrowings, and makingrecommendations to the Board on such financings and borrowings.

 

With respect to theinternal auditors

 

1.                                      Monitoring the qualifications andperformance of the internal auditors and review their degree of independence.

 

2.                                      Reviewing the internal audit program, itsscope and capacity to ensure the effectiveness of the systems of internalcontrol and reporting accuracy.

 

3.                                      Monitoring the execution of the internalaudit plan.

 

4.                                      Ensuring that the internal auditors arealways ultimately accountable to the Committee and the Board.

 

With respect to theexternal auditor

 

1.                                      Reviewing, at least annually, a report bythe external auditor describing its internal quality-control procedures; anymaterial issues raised by the most recent internal quality-control review ofthe firm, or peer review, or by any inquiry or investigation by governmental orprofessional authorities,

 

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within the preceding five years, respecting one ormore audits carried out by the external auditor, and any steps taken to dealwith any such issues.

 

2.                                      Reviewing the annual written statement ofthe external auditors regarding all its relationships with the Corporation anddiscussing any issues, relationships or services that may impact on itsobjectivity or independence.

 

3.                                      Recommending the appointment of theexternal auditor and its remuneration for the audit services and, if appropriate,the termination of its mandate (subject however, in both cases to theshareholders’ approval) and monitoring its qualifications, performance andindependence.

 

4.                                      Pre-approving all audit services providedby the external auditor to the Corporation or any of its subsidiaries,determining which non-audit services the external auditor is entitled toprovide, and pre-approving permitted non-audit services to be performed by theexternal auditor, the whole in accordance with the Corporation’s Pre-Approval Policyand with the laws and regulations in force. Revising annually the Corporation’sPre-Approval Policy.

 

5.                                      Approving the basis and amount of theexternal auditor’s fees for both audit and authorized non-audit services.

 

6.                                      Reviewing the audit plan with theexternal auditor and management and approving the scope, extent and schedule ofsuch audit plan.

 

7.                                      Reviewing the Corporation’s hiringpolicies for current and former partners or employees of the external auditor.

 

8.                                      Ensuring the rotation of relevant auditpartners in conformity with the legal requirements in force.

 

9.                                      Ensuring that the external auditor isalways accountable to the Committee and the Board.

 

10.                                Making arrangements for sufficient fundsto be available to effect payment of the fees of the external auditor and ofany advisors or experts retained by the Committee.

 

With respect to theparent company

 

1.                                      Establishing close coordination andcommunication with the audit committee of the parent company.

 

2.                                      Providing for substantial sharing ofinformation with the parent company and its audit committee, to the extentpermitted by law, while putting in place safeguards to ensure that the sharingof information is not used by the parent company to the disadvantage of theCorporation’s minority shareholders.

 

3.                                      Reviewing and monitoring all materialrelated party transactions.

 

**METHOD OF OPERATION**

** **

1.                                      The Chairman of the Committee isappointed each year by the Board.

 

2.                                      The Secretary or Assistant Secretary ofthe Corporation acts as the secretary of the Committee unless the Committeeappoints someone else for a specific meeting.

 

3.                                      Meetings of the Committee are held atleast quarterly and as required.

 

4.                                      The Chairman of the Committee developsthe agenda for each meeting of the Committee in consultation with the ChiefFinancial Officer and Secretary. The agenda and the appropriate material areprovided to members of the Committee on a timely basis prior to any meeting ofthe Committee.

 

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5.                                      The Chairman of the Committee reportsregularly to the Board on the business, findings and recommendations of theCommittee.

 

6.                                      The Committee has at all times a direct lineof communication with the internal and external auditors.

 

7.                                      At each regularly scheduled meeting, theCommittee shall meet in camera.

 

8.                                      At each regularly scheduled meeting, theCommittee meets separately with management, the internal auditors and externalauditors.

 

9.                                      The Committee may, when circumstancesdictate, engage external advisors, subject to advising the Chairman of theBoard thereof.

 

10.                                The Committee annually reviews itsmandate and reports to the Board on its adequacy.

 

11.                                The Nominating and Corporate GovernanceCommittee annually supervises the performance assessment of the Committee andits members.

 

12.                                The minutes of the Committee meetings areapproved by the Committee and submitted to the Board for information purposes.

 

Nothing contained in thismandate is intended to expand applicable standards of conduct under statutoryor regulatory requirements for the directors of the Corporation or the membersof the Committee. Even though the Committee has a specific mandate and itsmembers may have financial experience, they do not have the obligation to actas auditors or to perform auditing, or to determine that the Corporation’sfinancial statements are complete and accurate.

 

Members of the Committeeare entitled to rely, absent knowledge to the contrary, on (i) theintegrity of the persons and organizations from whom they receive information, (ii) theaccuracy and completeness of the information provided, and (iii) representationsmade by management as to the non-audit services provided to the Corporation bythe external auditor. The Committee’s oversight responsibilities are notestablished to provide an independent basis to determine that (i) managementhas maintained appropriate accounting and financial reporting principles orappropriate internal controls and procedures, or (ii) the Corporation’sfinancial statements have been prepared and, if applicable, audited inaccordance with generally accepted accounting principles or generally acceptedauditing standards.

 

* * * * * * *

 

Revised and approved bythe Board on November 7, 2006

 

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**SCHEDULE B —****STATEMENTOF CORPORATE GOVERNANCE PRACTICES**

** **

**AS OF SEPTEMBER 30, 2008**

** **
| **Corporate Governance Disclosure  Requirements  (NI 58-101)**                                                                                    | ** ** | **Corporate Governance Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 1.               Board of Directors                                                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (a)          Disclose  the identity of directors who are independent.                                               | ** ** | **Independence**  - The Board of Directors of the Corporation (the “Board”) must determine  which of its directors qualify as “*independent”*  directors. In order to do so, the Board has developed and adopted Categorical  Standards of Independence for Directors of the Corporation (the “Categorical  Standards”), which are derived from the corporate governance guidelines  established by the Canadian Securities Administrators and the *Sarbanes-Oxley Act of 2002.*A copy of the Categorical  Standards is appended hereto as Schedule “C”. These Categorical Standards are  also available on the Corporation’s website at *www.quebecorworld.com*under the “Investors” Tab.

 

On the basis of the definition in Section 1.4 of MI 52-110, a  director is “*independent*” if he or she has  no direct or indirect material relationship with the Corporation. A “*material relationship*” is one that could, in the view of  the Board, be reasonably expected to interfere with the exercise of a  director’s independent judgement. 

 

The Board, in conjunction with  the Nominating and Corporate Governance Committee, has reviewed the  relationships of each Board member and has affirmatively determined that six  (6) out of the ten (10) directors are “*independent*”,  namely: |
|                                                                                                                                                             | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Douglas G. Bassett |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | André Caillé |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Michèle Desjardins |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Alain Rhéaume |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Jean Neveu |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Jean La Couture |
|                                                                                                                                                             | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |
| (b)         Disclose  the identity of directors who are not independent, and describe the basis for  that determination. |       | The Board, in conjunction with the Nominating and Corporate Governance  Committee, has reviewed the relationships of each Board member and has  determined that the following directors are not independent within the  meaning of the Categorical Standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Jacques Mallette is not independent since he is the President and  Chief Executive Officer of the Corporation. |
|                                                                                                                                                             | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | The Right Honourable Brian Mulroney is not independent since he is the  Chairman of the Board of the Corporation and senior partner of the law firm  Ogilvy Renault LLP, principal legal counsel to the Corporation. |
|                                                                                                                                                             | ** ** |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|                                                                                                                                                             | ** ** | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Érik Péladeau is not  independent since he is Vice Chairman of the Board of the Corporation and a  member of senior management of the controlling shareholder, Quebecor Inc.,  and Quebecor Media Inc. He also holds a significant interest in the  controlling shareholder of the Corporation. |

 

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| **Corporate Governance Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** **   | **Corporate Governance Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** **   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** **   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Pierre Karl Péladeau is  not independent since he is a member of senior management of the controlling  shareholder, Quebecor Inc., and Quebecor Media Inc. He also served as  President and Chief Executive Officer of the Corporation from March 2004  until May 2006. In addition, he holds a significant interest in the  controlling shareholder of the Corporation. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** **   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (c)          Disclose  whether or not a majority of directors are independent. If a majority of  directors are not independent, describe what the Board of Directors does to  facilitate its exercise of independent judgement in carrying out its  responsibilities.                                                                                                                                                                                                                                               | ** **   | **Majority of Independent Directors** — Six  (6) out of the ten (10) directors are independent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (d)         If a  director is presently a director of any other issuer that is a reporting  issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction,  identify both the director and the other issuer.                                                                                                                                                                                                                                                                                                    | ** **   | **Outside Directorships** - All  directorships with other public entities for each Board member are set out in  the table in Item 5.1 of this Annual Information Form — Our Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | *** *** | *** ***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| (e)          Disclose  whether or not the independent directors hold regularly scheduled meetings at  which non-independent directors and members of management are not in  attendance. If the independent directors hold such meetings, disclose the  number of meetings held since the beginning of the issuer’s most recently  completed year. If independent directors do not hold such meetings, describe  what the Board does to facilitate open and candid discussion among its  independent directors. | *** *** | ***In Camera*****Sessions of the Board** - The Mandate of the Board stipulates that  the independent directors hold *in camera*  sessions after each regularly scheduled meeting. The non-independent  directors are not present at such*in  camera* sessions.

 

Four  (4) meetings of the independent directors were  held during the financial year  ended December 31, 2007. 

 

***In Camera*****Sessions of the Committees** - The members of the Audit Committee, Human  Resources and Compensation Committee, Independent Committee, Nominating and  Corporate Governance Committee and Pension Committee, are all independent.  Each of these Committees holds *in camera*  sessions after each regularly scheduled meeting without management being  present.

 

The Committees held *in camera*  sessions during the Corporation’s most recently completed financial year, as  follows:

 

·                       Audit  Committee: Four (4)

 

·                       Nominating  and Corporate Governance Committee: Five (5)

 

·                       Human  Resources and Compensation Committee: Three (3)

 

·                       Pension  Committee: Four  (4) |

 

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| **Corporate Governance Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | **Corporate Governance Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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| (f)    Disclose whether or  not the Chair of the Board is an independent director. If the Board has a  Chair or Lead Director who is an independent director, disclose the identity  of the Chair or Lead Director and describe his or her role and  responsibilities. If the Board has neither a Chair that is independent nor a  Lead Director that is independent, describe what the Board does to provide  leadership for its independent directors. | ** ** | **Lead Director** - Given that the Chairman of the Board is not independent, the  Board has appointed Alain Rhéaume to act as independent Lead Director.

 

In general, the role and responsibilities  of the independent Lead Director include the following: (i) ensuring  that the Board functions independently of management and that independent  directors have regular opportunities to meet to discuss issues without  management being present; (ii) chairing separate meetings of the  independent directors; (iii) reporting to the Chairman of the Board on  the discussions held during the meetings of the independent directors; and  (iv) being available to directors who have concerns that cannot be  addressed through the Chairman of the Board.

 

The Position Description of the Lead  Director is available on the Corporation’s website at *www.quebecorworld.com*  under the “Investors” Tab. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (g)   Disclose the  attendance record of each director for all Board meetings held since the  beginning of the issuer’s most recently completed financial year.                                                                                                                                                                                                                                                                                          | ** ** | **Record Attendance** - The Board held 18****meetings  during the financial year ended December 31, 2007. The attendance record  of each director at Board meetings and Committee meetings during the  financial year ended December 31, 2007 is set out in Item 5.2 of this Annual Information Form — Record of Attendance of the Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| **2.****             ****Board Mandate —**Disclose  the text of the Board’s written mandate. If the Board does not have a written  mandate, describe how the Board delineates its role and responsibilities.                                                                                                                                                                                 | ** ** | **Board Mandate** - The  Board’s role is to assume stewardship of the Corporation’s overall  administration and to oversee the management of the Corporation’s operations.  The Board has approved and adopted a formal mandate (the “Board****Mandate”) describing the composition, responsibilities  and operational procedures of the Board.

 

The Board  Mandate provides that the Board is responsible for supervising the management  of the Corporation’s business and affairs.

 

Although  management conducts the Corporation’s day-to-day operations, the Board has a  duty of stewardship and, as such, it must efficiently and independently  supervise the business of the Corporation.

 

The Board Mandate is appended hereto as Schedule “D” and is also  available on the Corporation’s website at *www.quebecorworld.com*  under the “Investors” Tab.                       |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **3.****             ****Position****Descriptions**                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (a)   Disclose whether or  not the Board has developed written position descriptions for the Chair and  the Chair of each Board Committee. If the Board has not developed written  position descriptions for the Chair and/or the Chair                                                                                                                                                                                                                       | ** ** | **Mandate of the Chairman of the Board** - The  Board has adopted written Position Descriptions for the Chairman of the Board  and the Chairperson of each Board Committee.

 

The Chairman of the Board is responsible for the efficient operation  of the Board. His key role is to ensure that the Board fully executes its  Mandate and clearly understands and respects the boundaries between the  responsibilities of the Board and those of management. The Board expects its  Chairman to provide                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

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| **Corporate Governance Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                               | ** ** | **Corporate Governance Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| of each Board Committee, briefly describe how  the Board delineates the role and responsibilities of each such position.                                                                                                                                                                                                                                    | ** ** | leadership to enhance Board effectiveness, ensuring that the Board  works as a cohesive group.

 

**Mandate  of Committee Chairs** - According to the Position  Description for each Board Committee Chairperson, the Chairperson’s key role  is to ensure that the Committee fully execute its Mandate and that the  Committee work as a cohesive team. Each Committee Chairperson must report on  a regular basis to the Board regarding the activities of the Committee.

 

The Position Descriptions are available on the Corporation’s website  at *www.quebecorworld.com* under the  “Investors” Tab.                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (b)         Disclose  whether or not the Board and CEO have developed a written position  description for the CEO. If the Board and CEO have not developed such a  position description, briefly describe how the Board delineates the role and  responsibilities of the CEO.                                       | ** ** | **Mandate of the Chief Executive Officer** - The  Board has adopted a formal mandate for the President and Chief Executive  Officer of the Corporation (the “CEO”).

 

Among other things, the CEO is responsible for implementing the  Corporation’s strategic and operational objectives and for execution of the  Board’s decisions. Moreover, the CEO must establish the required procedures  for fostering a corporate culture that promotes integrity, discipline and  rigorous financial policies.

 

Also, the Human Resources and Compensation Committee, together with  the Board and the CEO, develops goals and objectives that the CEO is  responsible for meeting.                                                                                                                                                       |
| ** **                                                                                                                                                                                                                                                                                                                                                  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **4.****             ****Orientation and  Continuing Education**                                                                                                                                                                                                                           | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** **                                                                                                                                                                                                                                                                                                                                                  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (a)   Briefly describe  what measures the Board takes to orient new directors regarding:

 

(i)    the  role of the Board, its committees and its directors, and

 

(ii)   the  nature and operation of the issuer’s business.                                                                          | ** ** | **Orientation Program** - The Nominating and Corporate Governance Committee is  responsible for developing, monitoring and reviewing orientation and  continuing education programs for directors. Each director receives a Director’s  Manual, which is updated periodically. Senior management also provides new  directors with historical and forward-looking information regarding the  Corporation’s operations and financial condition. Also, new directors may  meet with members of senior management to discuss any topics concerning the  Corporation.                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (b)         Briefly  describe what measures, if any, the Board takes to provide continuing  education for its directors. If the Board does not provide continuing  education, describe how the Board ensures that its directors maintain the  skill and knowledge necessary to meet their obligations as directors. | ** ** | **Continuing Education** - Senior management regularly makes presentations to the Board  regarding the business environment, methods of operation and organizational  structure of the Corporation as well as various other aspects concerning the  Corporation. Also, the directors have full access to senior management and  employees of the Corporation.

 

The Board receives a comprehensive  package of information prior to each Board and Committee meeting and attends  periodic strategic planning sessions and budget meetings.

 

The Board reviews and approves the  Corporation’s strategic plans. In addition to addressing key initiatives,  these plans include details of the opportunities, risks, competitive  position, financial projections and other key performance indicators for each  of the principal business groups. |

 

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| **Corporate Governance Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                            | ** ** | **Corporate Governance Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| ** **                                                                                                                                                                                                                                                               |       | The  directors have the possibility to attend seminars on relevant topics  organized by specialized firms, the whole as part of the Directors’  Continuing Education Program.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ** **                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **5.****             ****Ethical Business Conduct**                                                                                                                                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **                                                                                                                                                                                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (a)   Disclose whether or not the Board has adopted a written code for the  directors, officers and employees. If the Board has adopted a written code:                                                                                                        | ** ** | **Code of Ethics** - The  Board has adopted a Code of Business Conduct (“Code”) to encourage and  promote a culture of ethical business conduct within the Corporation  (including its subsidiaries).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| (i)    Disclose how a person or company may obtain a copy of the code;                                                                                                                                                                                    |       | The Code is available on the Corporation’s web site at *www.quebecorworld.com* under the “Investors” Tab and also  on SEDAR under the Corporation’s profile at *www.sedar.com*.  A paper copy is also available upon request from the Corporate Secretary of  the Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (ii)   Describe how the Board monitors compliance with its code, or if the  Board does not monitor  compliance, explain whether and how the Board satisfies itself regarding  compliance with its code; and                                                    |       | The Code is given to all the employees of the Corporation and its  subsidiaries. Upon being hired, all employees must sign a declaration  confirming that they have read the Code and undertaking to comply therewith.

 

The Senior Director, Internal Audit provides reports, on a regular  basis, to the Audit Committee on departures from the Code that have been  brought to his attention through the whistleblower program (i.e. the  confidential ethics line and secured website that is operated by an  independent third party) or through other internal mechanisms described in  the Code and the steps taken by the Corporation to deal with the  non-compliance issues. The Chairman of the Audit Committee informs the Board  thereof at each regular meeting of the Board.

 

In addition, an annual attestation process exists to ensure that  management throughout the organization respects the Code.

 

Also, complaints about accounting, internal accounting controls or  auditing matters can be confidentially submitted to the Corporation. |
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| (iii)  Provide a cross-reference to any material change  report filed since the beginning of the issuer’s most recently completed  financial year that pertains to any conduct of a director or executive  officer that constitutes a departure from the code. |       | No material  change report has been required or filed since the beginning  of the Corporation’s most recently completed financial year regarding a  departure from the Code.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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| **Corporate Governance  Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                      | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| (b)         Describe  any steps the Board takes to ensure directors exercise independent judgement  in considering transactions and agreements in respect of which a director or  executive officer has a material interest. | ** ** | **Process for Dealing with Conflicts of Interest** - It is  the Nominating and Corporate Governance Committee’s role to review any  transactions and contracts that would be entered into between the Corporation  and any of its directors and executive officers.

 

The directors have a duty to report any conflict of interest to the  Board. Thus, when a conflict of interest arises, a director is required to  disclose his or her interest and abstain from voting on the matter. In  addition, the Chairman of the Board will ask the director not to be present  during the discussions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                 | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (c)          Describe  any other steps the Board takes to encourage and promote a culture of ethical  business conduct.                                                                                                 | ** ** | **Reporting Process** - In  addition to monitoring compliance with the Code, the Board has adopted  various internal policies to encourage and promote a culture of ethical  business conduct, including the following:

 

·                Policy Relating to the Use of Privileged  Information:**The purpose of this  Policy is to remind the directors, officers and employees of the Corporation  that are privy to confidential information (the “Privileged****Information”) that could likely affect the market price  or value of the Corporation’s securities or of any third party (the “Other****Party”) to significant negotiations, that they are  prohibited from trading in the securities of the Corporation or of the Other  Party, until the expiry of a 24-hour period following the public disclosure  of the Privileged Information. Also, the directors and officers of the  Corporation and all other persons who are deemed to be insiders of the  Corporation are prohibited from trading in the securities of the Corporation  during certain blackout periods set forth in this Policy.

 

·                Blackout Policy:The purpose of this Policy is to help the directors and executive  officers to comply with applicable U.S insider trading laws and regulations  relating to pension fund blackout periods, the whole in conformity with the*Sarbanes-Oxley Act of 2002.*

* *

·                A Disclosure Policy: The  objective of this Policy is to ensure that disclosure to the investing public  regarding the Corporation is made in a timely manner, accurate and in keeping  with the facts, and broadly disseminated in accordance with the relevant  legal and regulatory requirements. |
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| **6.****               ****Nomination of Directors**                                                                                                                                      | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** **                                                                                                                                                                                                                                                           | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (a)          Describe  the process by which the Board identifies new candidates for Board  nomination.                                                                                                                  | ** ** | **Board Candidate** - The  Nominating and Corporate Governance Committee is responsible for:  (i) developing and reviewing criteria for selecting directors, by  regularly assessing, firstly, the qualifications, personal skills, business  background, diversified experience and complementary knowledge and  qualifications that fit with the needs of the Board members and, secondly,  the Corporation’s needs; (ii) identifying, in conjunction with the  Chairman of the Board, nominees for membership on the Board;  (iii) recommending nominees to fill vacancies on the Board; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

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| **Corporate Governance  Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                  | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|                                                                                                                                                                                                                                                                                                                                             | ** ** | (iv) assisting the Board and its Chairman in selecting Committee  members. The Chairman of the Nominating and Corporate Governance Committee  (which is also the independent Lead Director) discusses with the Chairman the  recommendations made by the Committee and meets with the candidates.

 

The Committee may retain an independent recruiting firm, if need be,  to identify director candidates.

 

The Nominating and Corporate Governance Committee ensures that the  composition of the Board is such that all necessary competencies and skills  are represented on the Board and that the nominees make up a competent and  dynamic team which can carry out the Board Mandate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                             | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (b)         Disclose  whether or not the Board has a Nominating Committee composed entirely of  independent directors. If the Board does not have a Nominating Committee  composed entirely of independent directors, describe what steps the Board  takes to encourage an objective nomination process. | ** ** | **Composition of the Nominating and Corporate  Governance Committee** - The Committee is currently composed of  three (3) directors:

 

·                Alain  Rhéaume — Chairman

·                Jean  Neveu

·                Michèle  Desjardins

 

The Board has determined that each member of the Nominating and  Corporate Governance Committee is “*independent*”  within the meaning of the Categorical Standards.

 

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|                                                                                                                                                                                                                                                                                                                                             | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (c)          If the  Board has a Nominating Committee, describe the responsibilities, powers and  operation of the Nominating Committee.                                                                                                                                                            | ** ** | **Responsibility of the Nominating and Corporate  Governance Committee** - In addition to the responsibility and  powers described in paragraph 6(a) above, the Nominating and Corporate  Governance Committee: (i) assists the Board in developing, monitoring  and overseeing the Corporation’s corporate governance practices; (ii) makes  recommendations to the Board, on a regular basis, in order to enhance the  Corporation’s corporate governance practices; (iii) periodically reviews  the various Mandates of the Board, its Committees and their respective  Chairperson; (iv) periodically reviews the Code of Business Conduct and  the Corporation’s Disclosure Policy; and (v) reviews the Corporation’s  procedures for “whistleblower protection” to ensure that no employee is  discharged or otherwise penalized for reporting in good faith potential  violations of any laws or regulations applicable to the Corporation.

 

During the financial year ended December 31, 2007, the Nominating  and Corporate Governance Committee held 4 meetings. The Mandate of the  Committee is available on the Corporation’s website at *www.quebecorworld.com*  under the “Investors” Tab. |
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| **7.****             ****Compensation**                                                                                                                                                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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| (a)          Describe  the process by which the Board determines the compensation for the issuer’s  directors and officers                                                                                                                                                                     | ** ** | **Process to Determine Directors’ Compensation****:**The Nominating and Corporate Governance Committee periodically reviews  the adequacy and form of directors’ compensation. In making its  recommendations to the Board, the Committee takes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

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| **Corporate Governance  Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                                          | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                     | ** ** | into account the time commitment, the risks and responsibilities of  directors as well as the types of compensation and the amounts paid to the  directors based on a peer group of North American publicly traded companies of comparable size and complexity operating  in the media, information and entertainment, manufacturing and other capital  intensive industries, with international scale and scope (the  “Reference****Market”). Members of the Board who serve in a  management function for the Corporation, its subsidiaries or its controlling  shareholder, Quebecor Inc., receive no remuneration as directors.

** **

**Process to Determine Executive Compensation**: The  Human Resources and Compensation Committee is responsible for assessing, on  an annual basis, and approving the global compensation of senior management,  or in the case of the Corporation’s five most senior ranking executive  officers (i.e. the Named Executive Officers), recommending their compensation  to the Board. Thus, the Board, upon recommendation of the Committee, approves  the global compensation of the five most senior ranking executive officers.

 

To determine  appropriate compensation levels, the Corporation uses the Reference Market to  establish compensation for senior management, based on the following  compensation elements (base salary, target annual incentive and total direct  compensation).

 

Details of directors’ and officers’ compensation are disclosed in Item  15.3 of this Annual Information Form — Executive  Compensation. |
|                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (b)         Disclose  whether or not the Board has a Compensation Committee composed entirely of  independent directors. If the Board does not have a Compensation Committee  composed entirely of independent directors, describe what steps the Board  takes to ensure an objective process for determining such compensation. | ** ** | **Composition of the Human  Resources and Compensation Committee** -  The Committee is currently composed of three (3) directors:

 

·                André Caillé  — Chairman

·                Jean La Couture

·                Michèle Desjardins

 

The Board has determined that each member  of the Human Resources and Compensation Committee is independent within the  meaning of the Categorical Standards.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (c)          If the  Board has a Compensation Committee, describe the responsibilities, powers and  operation of the Compensation Committee.                                                                                                                                                                                | ** ** | **Responsibilities of the Human Resources and  Compensation Committee** -The  Committee’s responsibilities include: (i) succession planning for the  members of senior management; (ii) hiring and appointment, as well as  the assessment of members of senior management and approving the compensation  of senior management or, in the case of the Corporation’s five most senior  ranking executive officers (i.e. the Named Executive Officers), recommending  their compensation to the Board; (iii) reviewing the CEO’s corporate  goals and objectives and assessing his performance in light of such goals and  objectives; and (iv) ensuring that appropriate human resources systems  are in place,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

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| **Corporate Governance  Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | so that the Corporation can attract, motivate and retain executives  and personnel who exhibit high standards of integrity, as well as competence  in order to meet its business objectives.

 

During the financial year ended December 31, 2007, the Human  Resources and Compensation Committee held 9 meetings. The Mandate of the  Committee is available on the Corporation’s website at *www.quebecorworld.com*  under the “Investors” Tab.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (d)         If a  compensation consultant or advisor has, at any time since the beginning of  the issuer’s most recently completed financial year, been retained to assist  in determining compensation for any of the issuer’s directors and officers,  disclose the identity of the consultant or advisor and briefly summarize the  mandate for which they have been retained. If the consultant or advisor has  been retained to perform any other work for the issuer, state the fact and  briefly describe the nature of the work.

 

  | ** ** | **Compensation Consultant** —  Periodically, the Corporation retains the services of Towers Perrin to  conduct surveys on the compensation of the CEO and other members of senior  management based on the Reference Group which is composed of U.S. and  Canadian publicly traded companies and to make appropriate recommendations in  accordance with the Corporation’s practices and the market trends. The  results contained in these surveys are presented to the Human Resources and  Compensation Committee.

 

The Corporation retains the services of compensation consultants to  provide specific market surveys in case of new hires or promotions among its  senior management. As such, in 2007, the Corporation retained the services of  Towers Perrin to provide such surveys on a case by case basis.

 

In addition, in the  context of the Insolvency Proceedings, the Corporation retained the services  of Towers Perrin in order to develop the enhanced portion of its 2008/2009  MICP, which is described in Item 15.3.9 of this Annual Information  Form — Report on Executive Compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **8.****             ****Other Board Committees**— If the  Board has standing Committees other than the Audit, Compensation and  Nominating Committees, identify the Committees and describe their function.                                                                                                                                                                                                                                                                                                                         | ** ** | **Other Board Committees** - The  Board has four additional standing committees, namely: the Executive  Committee, the Independent Committee, the Pension Committee and the  Restructuring Committee. The roles and responsibilities of such Committees  are described below.

 

**Executive Committee**: The  Board has adopted a formal Mandate for the Executive Committee, which  provides that it must be composed of a minimum of three (3) and a  maximum of seven (7) directors, a majority of whom shall qualify as “*independent*” directors within the  meaning of the Categorical Standards. The majority of the members of the  Executive Committee are “*independent*”  within the meaning of the Categorical Standards. The Mandate provides that  the Committee shall deal with such matters as cannot be effectively dealt  with by the Board in a timely fashion and will be convened to meet on an *ad hoc* basis in order to do so. The  Executive Committee did not meet in 2007.

 

The Executive Committee is currently composed of five  (5) directors:

 

·                Pierre  Karl Péladeau — Chairman

·                Alain  Rhéaume

·                André  Caillé

·                Jean La Couture

·                The Right  Honorable Brian Mulroney |

 

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| **Corporate Governance  Disclosure  Requirements  (NI 58-101)** | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|                                                            | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ** **                                                      | ** ** | The Mandate of the Executive Committee is available on the  Corporation’s website at *www.quebecorworld.com*  under the “Investors” Tab.

 

**Independent Committee**: On  August 12, 2008, the Board adopted a formal Mandate for the Independent  Committee. The Independent Committee is vested with exclusive power to review, make and implement all such  determinations and decisions as deemed appropriate by the Independent  Committee with respect to all matters pertaining to the Corporation which may  raise or present issues of industry confidentiality or trade information  sensitivity or potential conflicts for members of the Board having  relationships with actual or potential competitors of the Corporation or  Quebecor Inc. or any affiliates of Quebecor Inc. other than the Corporation  and the latter’s wholly-owned direct and indirect subsidiaries.

 

The Independent Committee is composed of a minimum of three  (3) and a maximum of five (5) directors of the Corporation, each of  whom is neither a director, officer, employee or consultant or service  provider of or to Quebecor Inc. or any affiliates of Quebecor Inc. other than  the Corporation and its wholly-owned direct and indirect subsidiaries. The  Independent Committee is currently composed of three (3) directors:

 

·                André Caillé —  Chairman

·                Michèle Desjardins

·                Alain Rhéaume

 

**Pension Committee**: The  Board has adopted a formal Mandate for the Pension Committee. The Pension  Committee assists the Board in discharging its responsibilities with regard  to the administration, funding and investment of the Corporation’s pension  plans.

 

The Pension Committee is currently composed of three  (3) directors:

 

·                Douglas G. Bassett — Chairman

·                André Caillé

·                Michèle Desjardins

 

The Board has determined that each member of the Pension Committee is  “*independent*” within the meaning of the  Categorical Standards.

 

During the financial year  ended December 31, 2007, the Pension Committee held 4****meetings.

 

The Mandate of the Pension Committee is available on the Corporation’s  website at *www.quebecorworld.com* under the  Investors tab.

 

**Restructuring Committee**: On  February 21, 2008, the Board adopted a formal Mandate for the  Restructuring Committee. The Restructuring Committee is mandated, in the context of the Insolvency  Proceedings, to facilitate and supervise the work of management of the  Corporation and its advisors in developing such plan or plans as may be  necessary or desirable to effect |

 

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| **Corporate Governance  Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | (i) a restructuring  of the Corporation’s financial affairs including, without limitation, the  liabilities and obligations to such of the creditors of the Corporation and  its subsidiaries as it may deem necessary or appropriate and/or (ii) a  recapitalization of the Corporation and/or its subsidiaries and to report  thereon, from time to time, with its recommendations, if any, to the Board.

 

The Restructuring  Committee is currently composed of five (5) directors:

 

·                André  Caillé — Chairman

·                Michèle  Desjardins

·                Jean  Neveu

·                Jean La  Couture

·                Jacques  Mallette |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **9.****             ****Assessments**—  Disclose whether or not the Board, its Committees and individual directors  are regularly assessed with respect to their effectiveness and contribution.  If assessments are regularly conducted, describe the process used for the  assessments. If assessments are not regularly conducted, describe how the  Board satisfies itself that the Board, its Committees, and its individual  directors are performing effectively. | ** ** | **Assessment Process** - On an  annual basis, the Nominating and Corporate Governance Committee assesses the  performance and effectiveness of the Board as a whole, the Board Committees,  the Committee Chairs and the individual directors. A peer evaluation is  included in this process.

 

As part of this process, a questionnaire that covers a wide range of  topics is distributed to each director for the purpose of evaluating the  Board and its Committees. The results of the questionnaire are compiled on a  confidential basis to encourage full and frank commentary and are discussed at  the next regular meeting of the Nominating and Corporate Governance  Committee. Also, the results of the questionnaire pertaining to each  Committee are presented by the Chair of each Committee to the members of such  Committee.

 

Thereafter, the Chairman of the Nominating and Corporate Governance  Committee discusses the results of the questionnaire with the Chairman of the  Board and the independent Board members.                                                                                     |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *MI 52-110 states that each  Audit Committee member must be financially literate.*                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Financial Literacy** - Each member of the Audit Committee is “*financially  literate*” i.e. he or she is able to read and understand a set of  financial statements that present a breadth and level of complexity of  accounting issues that are generally comparable to the breadth and complexity  of the issues that can reasonably be expected to be raised by the  Corporation’s financial statements.

 

**Audit Committee Financial  Expert** - In addition, at least one  member of the Audit Committee is an “*Audit Committee  Financial Expert*”, as contemplated by the rules of the U.S.  Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *MI 52-110 states that the Audit Committee must  have a written charter that sets out its mandate and responsibilities.*                                                                                                                                                                                                                                                                                                                                                                                                                        | ** ** | **Responsibility of the Audit Committee** - The  Mandate of the Audit Committee, appended as Schedule “A”, describes  explicitly the role and oversight responsibility of the Audit Committee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

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| **Corporate Governance  Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| *MI 52-110 states that an Audit  Committee must recommend to the Board of Directors: (a) the external  auditor to be nominated for the purposes of preparing or issuing an auditors’  report or performing other audit, review or attest services for the issuer;  and (b) the compensation of the external auditors.*                                                                                                                                                                                                                                                                                        | ** ** | **Appointment of External  Auditors** - The Mandate of the Audit  Committee states that the Committee is responsible for recommending the  appointment and, if appropriate, the termination of the external auditors’  mandate, their compensation, as well as evaluating and monitoring their  qualifications, performance and independence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| *MI 52-110 states that the Audit Committee must be  directly responsible for overseeing the work of the external auditors engaged  for purpose of preparing and issuing an auditors report or performing other  audit, review or attest services for the issuer, including the resolution of  disagreements between management and the external auditors regarding  financial reporting.*                                                                                                                                                                                                                                    | ** ** | **Relations with External Auditors** - The  Audit Committee is responsible for overseeing the work of the external  auditors and discussing with them the Corporation’s accounting policies and  any changes that are proposed to be made thereto, which includes reviewing  with the external auditors audit problems or difficulties and management’s  response thereto and resolving any disagreement between them regarding  accounting and financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| *MI 52-110 states that an Audit  Committee must pre-approve all non-audit services to be provided to the  issuer or its subsidiary entities by the issuers’ external auditors.*                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **Pre-Approval of Non-Audit Services** — Pursuant to its Mandate, the Audit Committee approves and  oversees all relationships between the external auditors and the Corporation,  including: (i) determining which non-audit services the external  auditors are prohibited from providing; (ii) approving policies defining  audit and permitted non-audit services provided by the external auditors;  (iii) pre-approving all audit services and permitted non-audit services  to be provided by the external auditors; and (iv) approving the total  amount of fees paid by the Corporation to the external auditors for all audit  and permitted non-audit services.

 

The Audit Committee has adopted a *Pre-Approval**Policy* in  conformity with the applicable Canadian and U.S. rules (see Item 6 of this Annual Information Form — Audit Committee Disclosure). The Audit Committee reviews this  Policy annually. |
| * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| *MI 52-110 states that an audit  committee must review the issuer’s financial statements, MD&A and annual  and interim earnings press releases before the issuer publicly discloses this  information. These rules also mention that the Audit Committee must be  satisfied that adequate procedures are in place for the review of the  issuer’s public disclosure of financial information extracted or derived from  the issuer’s financial statements, other than the public disclosure referred  to in the preceding sentence, and must periodically assess the adequacy of  those procedures.* | ** ** | **Review of Financial Information  Documents** — Pursuant to its Mandate,  the Audit Committee is responsible for reviewing annual and quarterly  financial statements, annual and quarterly Management’s Discussion and  Analysis (MD&A), financial and earnings press releases and certain other  disclosure and offering documents, prior to approval by the Board of  Directors and their disclosure and filing with the regulatory authorities.  The Committee must also review with management and the external auditors the  financial information contained in documents required to be disclosed or  filed by the Corporation before their disclosure or filing with the  securities regulatory authorities in Canada and the United States.                                                                                                                                                                                                                |

 

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| **Corporate Governance Disclosure  Requirements  (NI 58-101)**                                                                                                                                                                                                                                                                                                                               | ** ** | **Corporate Governance  Practices  at the Corporation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| *MI 52-110 states that an Audit Committee must  establish procedures for: (a) the receipt, retention and treatment of  complaints received by the issuer regarding accounting, internal accounting  controls, or auditing matters; and (b) the confidential, anonymous  submission by employees of the issuer of concerns regarding questionable  accounting or auditing matters.* | ** ** | **Complaints on Accounting or Other Matters** — The  Corporation has established procedures for the receipt, retention and  treatment of complaints or concerns received by the Corporation regarding  questionable accounting, internal accounting control or auditing matters or  employee concerns regarding accounting or auditing matters, while ensuring  confidentiality and anonymity. In connection with the foregoing, the  Corporation has implemented a whistleblower program. At each quarterly Audit  Committee meeting, the Senior Director, Internal Audit, presents an activity report,  which includes a summary of complaints received through the whistleblower  program and results of the investigations conducted in connection therewith.  Please refer to the Corporation’s Code of Business Conduct that is available  on the Corporation’s website at *www.quebecorworld.com*  under the “Investors” Tab. |
| * *                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| *MI 52-110 states that the Audit Committee must  review and approve the issuer’s hiring policies regarding partners, employees  and former partners and employees of the present and former external auditors  of the issuer.*                                                                                                                                                          | ** ** | **External Auditors Hiring Policy** - The  Audit Committee is responsible for reviewing hiring policies for the current  and former partners and employees of the Corporation’s firm of external  auditors. In conformity with MI 52-110 and the *U.S.  Sarbanes-Oxley Act of 2002,*the Audit Committee has adopted a “*Policy Respecting the Hiring of Employees of the External Auditors*”.  The Corporation reviews this Policy regularly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| * *                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| *MI 52-110 states that the Audit Committee must  have the authority: (a) to engage independent counsel and other advisors  as it determines necessary to carry out its duties; (b) to set and pay  the compensation for any advisors employed by the Audit Committee; and  (c) to communicate directly with the internal and external auditors.*                              | ** ** | **Authority to Engage Independent Counsel** - The  Mandate of the Audit Committee states that the Committee may, when  circumstances dictate, hire external advisors, subject to advising the  Chairman of the Board thereof. The Audit Committee will then make  arrangements with the Corporation for the appropriate funding for payment of  the external advisors retained by it. Also, the Audit Committee has the  authority to communicate directly with the internal and external auditors.                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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**SCHEDULE C —****CATEGORICAL STANDARDS OF INDEPENDENCE**

** **

**GeneralInformation**

 

The independence ofall directors of Quebecor World Inc. (the “Corporation”) will be reviewed atleast annually by the Board of Directors (the “Board**”**)in light of the specific requirements set out below and these CategoricalStandards of Independence (the “Categorical****Standards”)are the basis for the independence determinations that will be made public inthe Corporation’s Proxy Circular prior to directors standing for election orre-election to the Board. Directors who meet the specific requirements of theseCategorical Standards will generally be considered independent.

 

The Board will be composedof a majority of independent directors pursuant to these Categorical Standards.

 

The Board may becomposed of directors who do not meet these standards for independence, butmake valuable contributions to the Board and to the Corporation by reason oftheir knowledge and experience.

 

**Definitions**

** **

An “Affiliate” of a specified person(which includes a corporate entity or partnership) is a person that directly orindirectly through one or more intermediaries controls, or is controlled by, oris under common control with, the specified person.

 

“Immediate Family Member” includes aperson’s spouse, parents, children, siblings, mothers and fathers-in-law, sonsand daughters-in-law, brothers and sisters-in-law, and anyone (other thandomestic employees) who shares the person’s home.

 

“Officers” means a chairman,vice-chairman, chief executive officer, president, chief financial officer,principal accounting officer (or, if there is no such accounting officer, thecontroller), any vice-president in charge of a principal business unit,division or function (such as sales, administration or production) and anyother officer or person who performs a policy-making function for such abusiness enterprise. Officers of subsidiaries will be deemed to be officers of theparent if they perform policy-making functions for the parent.

 

**Independenceof Directors**

** **

To be consideredindependent, the Board must affirmatively determine that a director does nothave any direct or indirect material relationship with the Corporation. Amaterial relationship is a relationship which could, in the view of theCorporation’s Board, be reasonably expected to interfere with the exercise of amember’s independent judgement. In this regards, the Categorical Standards setout below have been established to assist the Board in determining whetherdirectors are independent or not.

 

A director will notbe independent if:

 

(i) the director is, or has been withinthe last three years, an employee of the Corporation, or an Immediate FamilyMember of the director is, or has been within the last three years, an officerof the Corporation;(1)(2)

 

(ii) the director has received, or has anImmediate Family Member who has received, during any twelve-month period withinthe last three years, more than $CDN 75,000 in direct compensation from theCorporation, other than (A) director and committee fees; (B) pensionor other forms of deferred compensation for prior service (provided such

 

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(1)         In this Schedulethe term “Corporation” includes any parent or subsidiary in a consolidatedgroup with the Corporation.

 

(2)         Employment as (i) aninterim Board Chair or Chief Executive Officer or other executive officer or (ii) apart-time Board Chair shall not automatically disqualify a director from beingconsidered independent following that employment.

 

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compensation is not contingent in any way oncontinued service); and (C) compensation received for acting as part-timeChairman or Vice-Chairman of the Board;

 

(iii) (A) the director or anImmediate Family Member of the director is a current partner of a firm that isthe Corporation’s internal or external auditor; (B) the director is acurrent employee of such a firm; (C) the director has an Immediate FamilyMember who is a current employee of such a firm and who participates in thefirm’s audit, assurance or tax compliance (but not tax planning) practice; or (D) thedirector or an Immediate Family Member was within the last three years (but isno longer) a partner or employee of such a firm and personally worked on theCorporation’s audit within that time;

 

(iv) the director or an Immediate FamilyMember of the director is, or has been within the last three years, employed asan officer of another entity where any of the Corporation’s present officers atthe same time serves or served on that entity’s compensation committee;

 

(v) the director is a current employee, oran Immediate Family Member of the director is a current officer, of a companythat has made payments to, or received payments from, the Corporation forproperty or services in an amount which, in any of the last three fiscal years,exceeds the greater of $CDN 1 million, or 1% of such other company’sconsolidated gross revenues.

 

(vi) the director or an Immediate FamilyMember of the director is an officer, director or trustee of a not-for-profitorganization that has received charitable contributions from the Corporation inan amount which, in any of the last three fiscal years, exceeds 1% of thatorganization’s total annual charitable receipts**,**provided that amounts received as part of aprogram where the Corporation matches the contribution of its employees are nottaken into account in such calculation.

 

**Loans to directors**

 

The Corporation will not make or arrange any personalloans or extensions of credit to directors.

 

All the members of the Audit Committee (the “AuditCommittee”), the Human Resources and Compensation Committee, the Nominating andCorporate Governance Committee, and the Pension Committee shall be independentpursuant to these Categorical Standards. Members of the Corporation’s AuditCommittee will also be required to meet the additional criteria set out belowto be considered independent for the purposes of membership on the AuditCommittee.

 

**Audit Committee Members**

** **

In addition to satisfying the specific requirementsset out above, directors who are members of the Corporation’s Audit Committeewill not be considered independent for purposes of membership on the AuditCommittee if:

 

·      TheAudit Committee member is an Affiliate(3) of the Corporation or anysubsidiary of the Corporation, apart from his or her capacity as a member ofthe Board or of any other Committee of the Board;

 

·      TheAudit Committee member or an Immediate Family Member of the Audit Committeemember accepts any consulting, advisory or other compensatory fee from theCorporation or any subsidiary of the Corporation, apart from: (A) in hisor her capacity as a member of the Board or of any other Committees of theBoard; (B) other fixed amounts of compensation under a retirement plan(including deferred compensation) for prior service (provided such compensationis not

 

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(3)        While a facts-basedanalysis is required to determine whether an Audit Committee member is an Affiliate,a person who is an independent director of a shareholder owning 10% or more ofany class of voting securities of the Corporation is generally independent forAudit Committee purposes.

 

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contingent in any way on continued service); and (C) as apart-time Vice-Chair of the Board or any Board Committee; or

 

·      TheAudit Committee member is a partner, member, managing director occupying acomparable position, or Officer (except limited partners, non-managing membersand those occupying similar positions who, in each case, have no active role inproviding the services) of a consulting, legal, accounting, investment bankingor financial advisory services firm which provides services to the Corporationor any subsidiary of the Corporation for fees.

 

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**SCHEDULE D —****MANDATE OF THE BOARD OF DIRECTORS**

** **

The Board of Directors (the “Board”) is responsiblefor the stewardship of the Corporation and, as such, it must provide independent,effective leadership and vision to supervise the management of theCorporation’s business and affairs. The Board may delegate certain tasks to itscommittees. However, such delegation does not relieve the Board of its overallresponsibilities. The Board provides leadership and vision to supervise themanagement of the Corporation in the best interests of its shareholders.

 

All decisions of the Board must be made in the bestinterests of the Corporation and its shareholders.

 

**COMPOSITIONAND QUORUM**

** **

The Board is composed of a minimum of three (3) and a maximum of fifteen (15)directors. The majority of the directors must be independent under the *Categorical Standards of Independence**for Directors* (the “CategoricalStandards”) adopted by the Board and applicable law.

 

The quorum at any meeting of the Board is a majorityof directors in office.

 

**RESPONSIBILITIES**

** **

TheBoard has the following responsibilities:

 

Withrespect to strategic planning

 

(1)   Reviewingand approving, annually, the Corporation’s long-term strategy, taking intoaccount, amongst other matters, business opportunities and risks.

 

(2)   Approvingand monitoring the implementation of the Corporation’s annual business plan.

 

(3)   Advisingmanagement on strategic issues.

 

Withrespect to human resources and performance assessment

 

(1)   Selectingthe President and Chief Executive Officer (“CEO”) and approving the appointmentof the officers,

 

(2)   With theadvice of the Human Resources and Compensation Committee, approving thecorporate objectives that the CEO is responsible for meeting and evaluating theCEO’s performance in light of theses objectives and the Board’s expectationsand approving the CEO’s global compensation based on this evaluation.

 

(3)   With theadvice of the Human Resources and Compensation Committee, evaluating theperformance of the four (4) most senior ranking executive officers of theCorporation (other than the CEO) against the Board’s expectations and fixedobjectives and approving their global compensation based on this evaluation.

 

Withrespect to financial matters and internal control

 

(1)   Monitoringthe integrity and quality of the Corporation’s financial statements and theappropriateness of their disclosure.

 

(2)   Reviewingthe general content of the Corporation’s Annual Information Form, AnnualReport, Management Proxy Circular, Management’s Discussion and Analysis,prospectuses, Form 6-K (including any Supplemental Disclosure documentsthereto) and Form 40-F, and any other document required to be disclosed orfiled by the Corporation before their public disclosure or filing withregulatory authorities in Canada or the United States.

 

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(3)   Approvingoperating and capital budgets, the issuance of securities and, subject to the *Schedule of Authority* adopted by theBoard, any matter or transaction in excess of the delegated authority.

 

(4)   Consideringand, in the Board’s discretion, approving any matters recommended by the BoardCommittees and/or proposed by management.

 

(5)   Determiningdividend policies and procedures and approving the payment of dividends.

 

(6)   Ensuringthat appropriate systems are in place to identify business risks andopportunities and overseeing the implementation of processes to manage theserisks and opportunities.

 

(7)   Monitoringthe Corporation’s internal control and management information systems.

 

(8)   Monitoringthe Corporation’s compliance with applicable legal and regulatory requirements.

 

(9)   Reviewingannually the Corporation’s *Disclosure Policy*and monitoring the Corporation’s communications with analysts, investors andthe public.

 

Withrespect to corporate governance matters

 

(1)   Overseeingmanagement in the competent and ethical operation of the Corporation.

 

(2)   Taking allreasonable steps to satisfy itself of the integrity of management and thatmanagement creates a culture of integrity throughout the Corporation.

 

(3)   Ensuringthat appropriate processes are in place, so that the Board and its Committeescan function independently from management.

 

(4)   With theadvice of the Nominating and Corporate Governance Committee, reviewing, once ormore annually as required, the Corporation’s corporate governance guidelinesand adopting new ones. Identifying decisions that require approval of theBoard. Ensuring that the Corporation has measures for receiving feedback fromthe shareholders.

 

(5)   With theadvice of the Nominating and Corporate Governance Committee, reviewing annuallythe comprehensive *Code of Business Conduct* for theCorporation’s directors, officers and employees, which Code also serves as aCode of Ethics for the CEO and the financial officers of the Corporation.Monitoring compliance with the *Code of Business Conduct*and granting exceptionally and disclosing, or declining, any waiver from theCode for directors and officers.

 

(6)   Ensuringthat there is an annual performance assessment of the Board, Board Committees,Board and Committee Chairs and individual directors and Lead Director.

 

(7)   Monitoringmanagement and Board succession planning process.

 

(8)   Monitoringthe size and composition of the Board and its Committees based on competencies,skills and personal qualities sought in Board members. Reviewing and approvingannually the composition of the Board Committees.

 

(9)   Uponrecommendation of the Nominating and Corporate Governance Committee, approvingthe list of Board nominees for election by shareholders.

 

(10)Reviewingand approving annually the mandates of the Board and Committees and of theirrespective Chairman and of the Lead Director. The Board delegates certain ofits functions to Committees, each of which has a written charter. There arefive (5) Board Committees, to wit: (i) the Executive Committee; (ii) theAudit Committee, (iii) the Human Resources and Compensation Committee, (iv) theNominating and Corporate Governance Committee and, (v) the PensionCommittee. The roles and responsibilities of each Committee are described inthe respective Committee charter.

 

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(11)With theadvice of the Nominating and Corporate Governance Committee, determining, inthe Board’s business judgment, that all the Audit Committee members are“financially literate” and determining which Audit Committee member qualifiesas an “audit committee financial expert” under applicable law.

 

(12)If an AuditCommittee member simultaneously serves on the audit committees of more thanthree (3) public companies (including the Corporation), determiningwhether such simultaneous service does not impair the ability of such member toeffectively serve on the Corporation’s Audit Committee

 

Withrespect to pension matters

 

(1)   Inconjunction with the Pension Committee, monitoring governance structure,funding, and investment policies for the Corporation’s pension plans.

 

(2)   Inconjunction with the Pension Committee, monitoring the investment management ofthe pension funds.

 

**METHODOF OPERATION**

** **

(1)   The Boardshall appoint annually its Chairman and Vice Chairman from among theCorporation’s directors. The Board shall also appoint annually a Lead Directorfrom and amongst the independent directors to chair the independent directors’meetings and to assume other appropriate functions as specified in the LeadDirector’s mandate.

 

(2)   Meetings ofthe Board are held at least quarterly and as required; in addition, a specialmeeting of the Board is held, at least annually, to review the Corporation’sstrategic plan.

 

(3)   The Chairmanof the Board develops the agenda for each Board meeting in consultation withthe CEO and the Secretary. The agenda and the appropriate material are providedto the directors on a timely basis prior to any Board meeting.

 

(4)   Theindependent directors meet in camera sessions at each regularly scheduledmeeting.

 

(5)   TheNominating and Corporate Governance Committee annually supervises theperformance assessment of individual directors, the Board as a whole, the BoardCommittees, and the Board and Committee Chairs, as well as of the LeadDirector.

 

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# **CONSOLIDATEDFINANCIAL STATEMENTS AMENDED**

# ** **

## ***YEAR ENDED DECEMBER 31, 2007***

## *** ***

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** **

**MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS**

 

The management ofQuebecor World Inc. is responsible for the preparation, presentation andintegrity of the accompanying consolidated financial statements of QuebecorWorld Inc. and its subsidiaries, the Management Discussion and Analysis(MD&A) and all other information in the Annual Report. These financialstatements have been prepared by management in conformity with Canadiangenerally accepted accounting principles and include amounts that are based onbest estimates and judgments. To provide reasonable assurance that relevant andreliable financial information is produced, management is responsible for thedevelopment of internal controls over financial reporting process. Managementhas developed and maintained a system of internal controls and support aprogram of internal audit.

 

The Board ofDirectors (the “Board”) carries out its responsibility for the financialstatements principally through its Audit Committee, consisting solely of outsidedirectors. The Board is responsible for reviewing and approving theconsolidated financial statements and the MD&A for inclusion in the AnnualReport based on the review and recommendation of the Audit Committee. The Boardis also responsible for overseeing management’s responsibilities for thepreparation and presentation of financial information, maintenance ofappropriate internal controls and compliance with legal and regulatoryrequirements.

 

The AuditCommittee is responsible for recommending the independent auditors forappointment by the shareholders. The Audit Committee meets regularly withsenior and financial management, internal auditors and the independent auditorsto discuss internal controls, auditing activities and financial reporting matters.The independent auditors and internal auditors have full access to the AuditCommittee, with and without management being present.

 

These financialstatements have been audited by the auditors appointed by the shareholders,KPMG LLP, chartered accountants, and theirreport is presented hereafter.

 

 
| /s/ Brian  Mulroney    |   | /s/ Jacques  Mallette    |   | /s/ Jeremy  Roberts      |
|------------------------|--------|--------------------------|--------|--------------------------|
|                   |   |                     |   |                     |
| The Right  Honourable  |   | Jacques Mallette         |   | Jeremy Roberts           |
| Brian Mulroney         |   | President and            |   | Chief Financial  Officer |
| Chairman of the  Board |   | Chief Executive  Officer |   |                     |

 

 

Montreal, Canada

April 28,2008, except as to Notes 1, 27 and 29 which are as of December 15,2008.

 

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**AUDITORS’ REPORT**

 

To the Shareholders ofQuebecor World Inc.

 

We have audited theconsolidated balance sheets ofQuebecor World Inc. (“the Company”) as at December 31, 2007 and 2006 andthe consolidated statements of income, comprehensive income, shareholders’equity and cash flows for each of the years in the three-year period ended December 31,2007. These consolidated financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits inaccordance with Canadian generally accepted auditing standards. With respect tothe consolidated financialstatements for the years ended December 31, 2007 and 2006, we also conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.

 

In our opinion, theseconsolidated financialstatements present fairly, in all material respects, the financial position ofthe Company as at December 31, 2007 and 2006 and the results of itsoperations and its cash flows for each of the years in the three-year periodended December 31, 2007 inconformity with Canadian generally accepted accounting principles.

 

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the Company’s internal control over financial reporting as of December 31,2007, based on criteria established in Internal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), and our report dated April 28, 2008 expressed our opinion that theCompany did not maintain effective internal control over financial reporting asof December 31, 2007 because of the effect of material weaknesses on theachievement of the objectives of the control criteria and contains anexplanatory paragraph that states that the Company did not maintain effectiveprocesses and controls related to a) impairment of long-lived assets andgoodwill; b) controls over the accounting for and reporting of complex andnon-routine transactions; and c) period-end controls and procedures.

 

/s/ KPMG LLP

 

CharteredAccountants

 

Montreal,Canada

April 28,2008, except as to Notes 1, 27 and 29 which are as of December 15,2008.

 

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**COMMENTS BY AUDITORSFOR US READERS ON CANADA-US REPORTING DIFFERENCES**

 

To the Board of Directors ofQuebecor World Inc.

 

In the United States,reporting standards for auditors require the addition of an explanatoryparagraph (following the opinion paragraph) when the financial statements areaffected by conditions and events that cast substantial doubt on the company’sability to continue as a going concern, such as those described in Note 1to the consolidated financial statements. Our report to the shareholders dated April 28,2008****is expressed in accordancewith Canadian reporting standards, which do not permit a reference to suchevents and conditions in the auditors’ report when these are adequatelydisclosed in the financial statements. These explanatory paragraphs wouldemphasize the following:

 

As discussed in Note 1,Quebecor World Inc. (the “Company”) obtained on January 21, 2008 an orderfrom the Quebec Superior Court granting creditor protection under the Companies’Creditors Arrangement Act for itself and 53 of its U.S. subsidiaries and filedunder Chapter 11 of the United States Bankruptcy Code for 53 of its U.S.subsidiaries (together the “Insolvency Proceedings”).  The accompanying financial statements do notpurport to reflect or provide for the consequences of the InsolvencyProceedings. In particular, such financial statements do not purport to show (a) asto assets, their realizable value on a liquidation basis or their availabilityto satisfy liabilities; (b) as to prepetition liabilities, the amountsthat may be allowed for claims or contingencies, or the status and prioritythereof; (c) as to shareholders accounts, the effect of any changes thatmay be made in the capitalization of the Company; or (d) as to operations,the effect of any changes that may be made in its business.

 

The accompanying financialstatements have been prepared assuming that the Company will continue as agoing concern. As discussed in Note 1, as a result of the contributing factorshaving led to the Insolvency Proceedings and the Insolvency Proceedings,realization of assets and discharge of liabilities, without substantialadjustments and/or changes in ownership, are subject to significant uncertaintyand raise substantial doubt about the Company’s ability to continue as a goingconcern. Management’s plan concerning these matters is also discussed in Note1. The financial statements do not include adjustments that might result fromthe outcome of this uncertainty.

 

In the United States,reporting standards for auditors require the addition of an explanatoryparagraph (following the opinion paragraph) when there is a change inaccounting principles that has a material effect on the comparability of theCompany’s financial statements, such as the change described in note 2 to the consolidated financial statements asat December 31, 2007 and 2006 and for the three-year period then ended. Our report to theshareholders dated April 28, 2008****is expressed in accordance withCanadian reporting standards, which do not require a reference to such a changein accounting principles in the auditors’ report when the change is properlyaccounted for and adequately disclosed in the financial statements.

 

 

/s/KPMG LLP

 

CharteredAccountants

Montreal,Canada

April 28,2008

 

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**REPORT OF INDEPENDANT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Shareholders and Boardof Directors of Quebecor World Inc.

 

** **We have audited Quebecor World Inc.’s (“theCompany”) internal control over financial reporting as of December 31,2007, based on the criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO).****The Company’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting included in theaccompanying “Management’s Report on Internal Control over Financial Reporting”in the Management’s Discussion and Analysis. Our responsibility is to expressan opinion on the Company’s internal control over financial reporting based onour audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk.  Our audit also includedperforming such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion.

 

A company’s internal controlover financial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

A material weakness is adeficiency, or a combination of deficiencies, in internal control overfinancial reporting, such that there is a reasonable possibility that amaterial misstatement of the company’s financial statements will not beprevented or detected on a timely basis. The following material weaknesses havebeen identified and included in management’s assessment: The Company did notmaintain effective processes and controls related to a) impairment oflong-lived assets and goodwill b) controls over the accounting for andreporting of complex and non-routine transactions and c) period-end controlsand procedures.  We also have audited, inaccordance with Canadian generally accepted auditing standards and thestandards of the Public Company Accounting Oversight Board (United States), the2007 consolidated financial statements of the Company. These materialweaknesses were considered in determining the nature, timing, and extent ofaudit tests applied in our audit of the consolidated financial statements, andthis report does not affect our report dated April 28, 2008****which expressed an unqualified opinion onthose consolidated financial statements.

 

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In our opinion, because of theeffect of the aforementioned material weaknesses on the achievement of theobjectives of the control criteria, Quebecor World Inc. has not maintainedeffective internal control over financial reporting as of December 31,2007, based on the criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO).

 

 

/s/ KPMG LLP

 

CharteredAccountants

 

Montreal,Canada

April 28,2008

 

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** **

**CONSOLIDATED STATEMENTS OF INCOME**

** **

(Under Creditor Protection as of January 21, 2008 - Note 1)

Years ended December 31

(In millions of US dollars, except per shareamounts)

 
| ** **                                                         | ** ** | **Note  29** | ** ** | **2007  Amended** | ** **   | **2006  Amended** | ** ** | **2005  Amended** | ** ** |
|--------------------------------------------------------------------|------------|--------------|------------|-------------------|--------------|-------------------|------------|-------------------|------------|
| **Operating  revenues**                                            | ** ** | ** **   |       | **$**             | **4,654.5**  | ** **        | $          | 5,060.9           |       | $ | 5,120.4 |   |
| ** **                                                         | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| Operating  expenses:                                               |       |         |       | ** **        | ** **   |              |       |              |       |
| Cost of  sales                                                     | ** ** | ** **   |       | **3,842.1**       | ** **   | 4,187.1           |       | 4,168.9           |       |
| Selling,  general and administrative                               | ** ** | ** **   |       | **379.1**         | ** **   | 331.0             |       | 317.3             |       |
| Securitization  fees                                               | ** ** | ** **   |       | **15.1**          | ** **   | 24.6              |       | 17.6              |       |
| Depreciation  and amortization                                     | ** ** | ** **   |       | **250.1**         | ** **   | 254.2             |       | 247.3             |       |
| Loss on  business disposals and other                              |       | 8, 10        |       | **14.8**          | ** **   | 2.2               |       | —            |       |
| Impairment  of assets, restructuring and other charges             |       | 3            | ** ** | **207.6**         | ** **   | 66.2              |       | 23.3              |       |
| Goodwill  impairment charge                                        |       | 13           | ** ** | **1,832.9**       | ** **   | —            |       | —            |       |
| ** **                                                         |       |         |       | **6,541.7**       | ** **   | 4,865.3           |       | 4,774.4           |       |
| ** **                                                         |       |         |       | ** **        | ** **   |              |       |              |       |
| **Operating  income (loss)**                                       | ** ** | ** **   |       | **(1,887.2**      | **)**        | 195.6             |       | 346.0             |       |
| ** **                                                         | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| Financial  expenses                                                |       | 4            | ** ** | **178.9**         | ** **   | 114.0             |       | 103.6             |       |
|                                                               |       |         | ** ** | ** **        | ** **   |              |       |              |       |
| Dividends on  preferred shares classified as liability             |       | 19           | ** ** | **9.8**           | ** **   | —            |       | —            |       |
|                                                               |       |         | ** ** | ** **        | ** **   |              |       |              |       |
| Income  (loss) from continuing operations before income taxes      | ** ** | ** **   | ** ** | **(2,075.9**      | **)**        | 81.6              |       | 242.4             |       |
|                                                               | ** ** | ** **   | ** ** | ** **        | ** **   |              |       |              |       |
| Income taxes                                                       |       | 5            | ** ** | **(238.2**        | **)**        | (38.0             | )          | 63.1              |       |
|                                                               |       |         | ** ** | ** **        | ** **   |              |       |              |       |
| Income  (loss) from continuing operations before minority interest | ** ** | ** **   |       | **(1,837.7**      | **)**        | 119.6             |       | 179.3             |       |
|                                                               | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| Minority  interest                                                 | ** ** | ** **   |       | **(0.3**          | **)**        | 0.8               |       | (0.3              | )          |
|                                                               | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| Net income  (loss) from continuing operations                      | ** ** | ** **   |       | **(1,837.4**      | **)**        | 118.8             |       | 179.6             |       |
|                                                               | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| Loss from  discontinued operations (net of tax)                    |       | 6, 29        |       | **(363.0**        | **)**        | (90.5             | )          | (342.2            | )          |
|                                                               |       |         |       | ** **        | ** **   |              |       |              |       |
| **Net  income (loss)**                                             | ** ** | ** **   |       | **$**             | **(2,200.4** | **)**             | $          | 28.3              |       | $ | (162.6 | ) |
| ** **                                                         | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| Net income  allocated to holders of preferred shares               | ** ** | ** **   |       | **22.2**          | ** **   | 34.0              |       | 39.6              |       |
|                                                               | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| Loss  available to holders of equity shares                        | ** ** | ** **   |       | **$**             | **(2,222.6** | **)**             | $          | (5.7              | )          | $ | (202.2 | ) |
|                                                               | ** ** | ** **   |       | ** **        | ** **   |              |       |              |       |
| **Earnings  (loss) per share:**                                    |       | 7            |       | ** **        | ** **   |              |       |              |       |
| Basic and  diluted:                                                |       |         |       | ** **        | ** **   |              |       |              |       |
| Continuing  operations                                             | ** ** | ** **   |       | **$**             | **(14.10**   | **)**             | $          | 0.65              |       | $ | 1.06 |   |
| Discontinued  operations                                           | ** ** | ** **   |       | **(2.75**         | **)**        | (0.69             | )          | (2.59             | )          |
| ** **                                                         |       |         |       | **$**             | **(16.85**   | **)**             | $          | (0.04             | )          | $ | (1.53 | ) |
| **Weighted-average  number of equity shares outstanding:**         |       | 7            |       | ** **        | ** **   |              |       |              |       |
| (in  millions)                                                     |       |         |       | ** **        | ** **   |              |       |              |       |
| Basic and  diluted                                                 | ** ** | ** **   |       | **131.9**         | ** **   | 131.4             |       | 131.8             |       |

 

Seeaccompanying Notes to Consolidated Financial Statements.

 

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**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

 

(Under CreditorProtection as of January 21, 2008 - Note 1)

Years ended December 31

(In millions of US dollars)

 
| ** **                                                                                                                                 | ** ** | **Note**    | ** ** | **2007**   | ** **         | **2006**                | ** ** | **2005**                | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|------------|------------|--------------------|-------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                 | ** ** | ** **  | ** ** | ** ** | ** **         | **(Revised,  Note 19)** | ** ** | **(Revised,  Note 19)** | ** ** |
| **Net income (loss)**                                                                                                            | ** ** | ** **  | ** ** | **$**      | ** (2,200.4** | **)**                   | $          |  28.3              |       | $ | (162.6 | ) |
| ** **                                                                                                                                 | ** ** | ** **  | ** ** | ** ** | ** **         | ** **              |       | ** **              | ** ** |
| Other comprehensive income, net of income tax:                                                               |       | 21, 22 |       | ** ** | ** **         |                    |       |                    |       |
|                                                                                                                                       |       |        |       | ** ** | ** **         |                    |       |                    |       |
| Unrealized  (loss) gain on foreign currency translation adjustment                                                                         |       |        | ** ** | **(104.8** | **)**              | 17.5                    |       | (71.3                   | )          |
| Portion of  foreign currency translation adjustment recognized in income as a result of a  reduction in self-sustaining foreign operations |       |        | ** ** | **—** | ** **         | 2.5                     |       | —                  |       |
| Unrealized  net gain on derivative financial instruments related to cash flow hedges                                                       |       |        | ** ** | **10.4**   | ** **         | —                  |       | —                  |       |
| Reclassification  of realized net loss on derivative financial instruments to the statements of  income                                    |       |        | ** ** | **4.8**    | ** **         | —                  |       | —                  |       |
| **Comprehensive  income (loss)**                                                                                                           |       |        | ** ** | **$**      | **(2,290.0**       | **)**                   | ** ** | $                       | 48.3       |   |   | $ | (233.9 | ) |
|                                                                                                                                            |            |             |            |            |                    |                         |            |                         |            |  |  |  |  |  |

 

See accompanyingNotes to Consolidated Financial Statements.

 

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Table of Contents

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

 

(Under Creditor Protection asof January 21, 2008 - Note 1) Years ended December 31

(In millions of USdollars)

 
| ** **                                                                | ** ** | **Note**   | ** ** | **Capital  stock** | ** **  | **Contributed  surplus** | ** ** | **Retained  earnings  (Deficit)** | ** ** | **Accumulated  other  comprehensive  income (loss)** | ** **   | **Total shareholders’ equity (Deficit)** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|--------------------|-------------|--------------------------|------------|-----------------------------------|------------|------------------------------------------------------|--------------|-----------------------------------------------|------------|
| ** **                                                                | ** ** | ** ** | ** ** | ** **         | ** **  | ** **               | ** ** | ** **                        | ** ** | ** **                                           | ** **   | ** **                                    | ** ** |
| Balance, December 31, 2004, as previously  reported                  |       |       |       | $                  | 1,705.3     |                     | $          | 109.7                             |       | $                                                    | 729.2        |                                          | $          | 36.6 |   | $ | 2,580.8 |   |
|                                                                      |       |       |       |               |        |                     |       |                              |       |                                                 |         |                                          |       |
| Cumulative effect of change in accounting  policy - Reclassification      |       | 19         |       | (244.1             | )           | —                   |       | —                            |       | (67.9                                                | )            | (312.0                                        | )          |
|                                                                      |       |       |       |               |        |                     |       |                              |       |                                                 |         |                                          |       |
| Balance, December 31, 2004, revised                                  |       |       |       | $                  | 1,461.2     |                     | $          | 109.7                             |       | $                                                    | 729.2        |                                          | $          | (31.3 | ) | $ | 2,268.8 |   |
|                                                                      |       |       |       |               |        |                     |       |                              |       |                                                 |         |                                          |       |
| Net loss                                                                  |       |       |       | —             |        | —                   |       | (162.6                            | )          | —                                               |         | (162.6                                        | )          |
| Other comprehensive income, net of income taxes                           |       | 21         |       | —             |        | —                   |       | —                            |       | (67.5                                                | )            | (67.5                                         | )          |
| Equity shares repurchased                                                 |       | 19         |       | (33.0              | )           | —                   |       | (9.8                              | )          | (3.8                                                 | )            | (46.6                                         | )          |
| Equity shares issued from stock plans                                     |       | 19         |       | 16.3               |        | —                   |       | —                            |       | —                                               |         | 16.3                                          |       |
| Related party transactions                                                |       |       |       | —             |        | (0.2                     | )          | —                            |       | —                                               |         | (0.2                                          | )          |
| Stock-based compensation                                                  |       | 20         |       | —             |        | 1.1                      |       | —                            |       | —                                               |         | 1.1                                           |       |
| Dividends on equity shares                                                |       |       |       | —             |        | —                   |       | (73.4                             | )          | —                                               |         | (73.4                                         | )          |
| Dividends on preferred shares                                             |       |       |       | —             |        | —                   |       | (39.6                             | )          | —                                               |         | (39.6                                         | )          |
|                                                                      |       |       |       |               |        |                     |       |                              |       |                                                 |         |                                          |       |
| Balance, December 31, 2005, revised                                  |       |       |       | $                  | 1,444.5     |                     | $          | 110.6                             |       | $                                                    | 443.8        |                                          | $          | (102.6 | ) | $ | 1,896.3 |   |
|                                                                      |       |       |       |               |        |                     |       |                              |       |                                                 |         |                                          |       |
| Net income                                                                |       |       |       | —             |        | —                   |       | 28.3                              |       | —                                               |         | 28.3                                          |       |
| Other comprehensive income, net of income taxes                           |       | 21         |       | —             |        | —                   |       | —                            |       | 20.0                                                 |         | 20.0                                          |       |
| Equity shares issued from stock plans                                     |       | 19         |       | 7.9                |        | —                   |       | —                            |       | —                                               |         | 7.9                                           |       |
| Related party transactions                                                |       | 10         |       | —             |        | (1.0                     | )          | —                            |       | —                                               |         | (1 .0                                         | )          |
| Stock-based compensation                                                  |       | 20         |       | —             |        | 4.5                      |       | —                            |       | —                                               |         | 4.5                                           |       |
| Dividends on equity shares                                                |       |       |       | —             |        | —                   |       | (39.8                             | )          | —                                               |         | (39.8                                         | )          |
| Dividends on preferred shares                                             |       |       |       | —             |        | —                   |       | (34.0                             | )          | —                                               |         | (34.0                                         | )          |
|                                                                      |       |       |       |               |        |                     |       |                              |       |                                                 |         |                                          |       |
| Balance, December 31, 2006, revised                                  |       |       |       | $                  | 1,452.4     |                     | $          | 114.1                             |       | $                                                    | 398.3        |                                          | $          | (82.6 | ) | $ | 1,882.2 |   |
|                                                                      |       |       |       |               |        |                     |       |                              |       |                                                 |         |                                          |       |
| Net loss                                                                  |       |       | ** ** | **—**         | ** **  | **—**               | ** ** | **(2,200.4**                      | **)**      | **—**                                           | ** **   | **(2,200.4**                                  | **)**      |
| Cumulative effect of change in accounting  policy - Financial instruments |       | 2          | ** ** | **—**         | ** **  | **—**               | ** ** | **(4.9**                          | **)**      | **(7.0**                                             | **)**        | **(11.9**                                     | **)**      |
| Other comprehensive income, net of income taxes                           |       | 21         | ** ** | **—**         | ** **  | **—**               | ** ** | **—**                        | ** ** | **(89.6**                                            | **)**        | **(89.6**                                     | **)**      |
| Equity shares issued from stock plans                                     |       | 19         | ** ** | **5.0**            | ** **  | **—**               | ** ** | **—**                        | ** ** | **—**                                           | ** **   | **5.0**                                       | ** ** |
| Related party transactions                                                |       | 10         | ** ** | **—**         | ** **  | **0.4**                  | ** ** | **—**                        | ** ** | **—**                                           | ** **   | **0.4**                                       | ** ** |
| Stock-based compensation                                                  |       | 20         | ** ** | **—**         | ** **  | **3.5**                  | ** ** | **—**                        | ** ** | **—**                                           | ** **   | **3.5**                                       | ** ** |
| Redemption of convertible notes                                           |       | 18         | ** ** | **—**         | ** **  | **(15.9**                | **)**      | **15.9**                          | ** ** | **—**                                           | ** **   | **—**                                    | ** ** |
| Dividends on preferred shares                                             | ** ** | ** ** | ** ** | **—**         | ** **  | **—**               | ** ** | **(22.2**                         | **)**      | **—**                                           | ** **   | **(22.2**                                     | **)**      |
|                                                                      | ** ** | ** ** | ** ** | ** **         | ** **  | ** **               | ** ** | ** **                        | ** ** | ** **                                           | ** **   | ** **                                    | ** ** |
| **Balance, December 31,  2007**                                      |       |       | ** ** | **$**              | **1,457.4** | ** **               | **$**      | **102.1**                         | ** ** | **$**                                                | **(1,813.3** | **)**                                         | **$**      | **(179.2** | **)** | **$** | **(433.0** | **)** |

 

See accompanying Notes toConsolidated Financial Statements.

 

9

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Table ofContents

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

(Under CreditorProtection as of January 21, 2008 - Note 1)

Years ended December 31

(In millions of US dollars)

 
| ** **                                                                    | ** ** | **Note**   | ** ** | **2007**    | ** **         | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|-------------|--------------------|------------|------------|------------|------------|
| ** **                                                                    | ** ** | ** ** | ** ** | ** **  | ** **         |       | ** ** |       | ** ** |
| **Cash flows  from operating activities:**                                    | ** ** | ** ** | ** ** | ** **  | ** **         | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                                                             |       |       |       | **$**       | ** (2,200.4** | **)**      | $          | 28.3       |       | $ | (162.6 | ) |
| Adjustments for:                                                         |       |       |       | ** **  | ** **         |       |       |       |       |
| Depreciation of property,  plant and equipment                                |       |       | ** ** | **311.4**   | ** **         | 308.4      |       | 308.1      |       |
| Impairment of assets and  non-cash portion of restructuring and other charges |       | 3          | ** ** | **260.9**   | ** **         | 34.9       |       | 53.9       |       |
| Goodwill impairment charge                                                    |       | 13         | ** ** | **1,998.9** | ** **         | —     |       | 243.0      |       |
| Future income taxes                                                           |       | 5          | ** ** | **(255.8**  | **)**              | 2.2        |       | (20.7      | )          |
| Amortization of other  assets                                                 |       |       | ** ** | **21.9**    | ** **         | 30.0       |       | 27.3       |       |
| Write down of contract  acquisition costs                                     |       |       | ** ** | **38.5**    | ** **         | —     |       | —     |       |
| Business disposals and  other                                                 |       | 8          | ** ** | **27.5**    | ** **         | 3.8        |       | 1.1        |       |
| Other                                                                         |       |       | ** ** | **11.0**    | ** **         | 7.9        |       | 5.1        |       |
|                                                                          | ** ** | ** ** |       | **213.9**   | ** **         | 415.5      |       | 455.2      |       |
| Net changes in non-cash  balances related to operations:                      |       |       |       | ** **  | ** **         |       |       |       |       |
| Accounts receivable                                                           |       |       | ** ** | **(181.7**  | **)**              | (38.6      | )          | (30.9      | )          |
| Inventories                                                                   |       |       | ** ** | **1.8**     | ** **         | 5.6        |       | 26.1       |       |
| Trade payables and accrued  liabilities                                       |       |       | ** ** | **54.4**    | ** **         | 18.4       |       | (16.1      | )          |
| Other current assets and  liabilities                                         |       |       | ** ** | **55.8**    | ** **         | (89.9      | )          | 42.3       |       |
| Other non-current assets  and liabilities                                     |       |       | ** ** | **(76.2**   | **)**              | (75.0      | )          | (7.1       | )          |
|                                                                          | ** ** | ** ** |       | **(145.9**  | **)**              | (179.5     | )          | 14.3       |       |
| Cash flows provided by  operating activities                                  |       |       | ** ** | **68.0**    | ** **         | 236.0      |       | 469.5      |       |
| ** **                                                                    |       |       |       | ** **  | ** **         |       |       |       |       |
| **Cash flows from  financing activities:**                                    |       |       |       | ** **  | ** **         |       |       |       |       |
| Net change in bank  indebtedness                                              |       | 15         | ** ** | **18.1**    | ** **         | —     |       | —     |       |
| Issuance of long-term debt  net of issuance costs                             |       | 16         | ** ** | **67.0**    | ** **         | 950.1      |       | —     |       |
| Repayments of long-term  debt                                                 |       | 16         | ** ** | **(332.3**  | **)**              | (459.3     | )          | (19.2      | )          |
| Redemption of convertible  notes                                              |       | 18         | ** ** | **(119.5**  | **)**              | —     |       | —     |       |
| Net borrowings  (repayments) under revolving bank facility                    | ** ** | ** ** |       | **577.9**   | ** **         | (239.2     | )          | (88.4      | )          |
| Net change in secured  financing                                              |       | 9          | ** ** | **83.9**    | ** **         | —     |       | —     |       |
| Net proceeds from issuance  of equity shares                                  |       | 19         | ** ** | **5.0**     | ** **         | 7.9        |       | 16.3       |       |
| Redemption of preferred  shares                                               |       | 19         | ** ** | **—**  | ** **         | (175.9     | )          | —     |       |
| Repurchases of equity  shares                                                 |       | 19         | ** ** | **—**  | ** **         | —     |       | (46.6      | )          |
| Dividends on equity shares                                                    |       |       | ** ** | **—**  | ** **         | (39.8      | )          | (73.4      | )          |
| Dividends on preferred  shares                                                |       |       | ** ** | **(17.6**   | **)**              | (43.1      | )          | (39.6      | )          |
| Cash flows provided by  (used in) financing activities                        |       |       | ** ** | **282.5**   | ** **         | 0.7        |       | (250.9     | )          |
|                                                                          |       |       | ** ** | ** **  | ** **         |       |       |       |       |
| **Cash flows from  investing activities:**                                    |       |       |       | ** **  | ** **         |       |       |       |       |
| Business acquisitions, net  of cash and cash equivalents                      |       |       | ** ** | **(3.5**    | **)**              | (0.1       | )          | (7.0       | )          |
| Proceeds from business  disposals, net of cash and cash equivalents           |       |       | ** ** | **—**  | ** **         | 28.5       |       | 66.9       |       |
| Additions to property,  plant and equipment                                   |       |       | ** ** | **(321.0**  | **)**              | (313.8     | )          | (394.0     | )          |
| Net proceeds from disposal  of assets                                         |       |       | ** ** | **101.4**   | ** **         | 82.5       |       | 16.4       |       |
| Proceeds from disposal of  derivative financial instruments                   |       |       | ** ** | **—**  | ** **         | —     |       | 69.2       |       |
| Restricted cash                                                               |       | 14         | ** ** | **(6.8**    | **)**              | (15.0      | )          | (26.1      | )          |
| Cash flows used in  investing activities                                      |       |       | ** ** | **(229.9**  | **)**              | (217.9     | )          | (274.6     | )          |
|                                                                          |       |       | ** ** | ** **  | ** **         |       |       |       |       |
| Effect of foreign currency                                                    |       |       | ** ** | **(77.3**   | **)**              | (19.3      | )          | 22.5       |       |
|                                                                          |       |       | ** ** | ** **  | ** **         |       |       |       |       |
| Net changes in cash and  cash equivalents                                     |       |       | ** ** | **43.3**    | ** **         | (0.5       | )          | (33.5      | )          |
| Cash and cash equivalents,  beginning of year                                 |       | 24         | ** ** | **17.8**    | ** **         | 18.3       |       | 51.8       |       |
| Cash and cash equivalents,  end of year                                       |       | 24         | ** ** | **$**       | **61.1**           | ** ** | $          | 17.8       |       | $ | 18.3 |   |

 

Supplementarycash flow information in Note 24.

Seeaccompanying Notes to Consolidated Financial Statements.

 

10

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Table of Contents

** **

**CONSOLIDATED BALANCE SHEETS**

 

(Under CreditorProtection as of January 21, 2008 - Note 1)

At December 31

(In millions of USdollars)

 
| ** **                                                 | ** ** | **Note**   | ** ** | **2007**     | ** **  | **2006**               | ** ** |
|------------------------------------------------------------|------------|------------|------------|--------------|-------------|------------------------|------------|
| ** **                                                 | ** ** | ** ** | ** ** | ** **   | ** **  | **(Revised, Note 19)** | ** ** |
| **Assets**                                                 | ** ** | ** ** | ** ** | ** **   | ** **  | ** **             | ** ** |
| ** **                                                 | ** ** | ** ** | ** ** | ** **   | ** **  | ** **             | ** ** |
| Current assets:                                            | ** ** | ** ** | ** ** | ** **   | ** **  | ** **             | ** ** |
| Cash and cash equivalents                                  | ** ** | 24         | ** ** | **$**        | **61.1**    | ** **             | $          | 17.8 |   |
| Accounts receivable                                        | ** ** | 9          | ** ** | **1,030.8**  | ** **  | 445.6                  |       |
| Receivables from related  parties                          | ** ** | 10         | ** ** | **16.1**     | ** **  | 20.3                   |       |
| Inventories                                                | ** ** | 11         | ** ** | **368.1**    | ** **  | 356.7                  |       |
| Income taxes receivable                                    | ** ** | ** ** | ** ** | **15.7**     | ** **  | 35.2                   |       |
| Future income taxes                                        | ** ** | 5          | ** ** | **28.6**     | ** **  | 40.6                   |       |
| Prepaid expenses                                           | ** ** | ** ** | ** ** | **18.5**     | ** **  | 23.2                   |       |
| Total current assets                                       | ** ** | ** ** | ** ** | **1,538.9**  | ** **  | 939.4                  |       |
|                                                       | ** ** | ** ** | ** ** | ** **   | ** **  |                   |       |
| Property, plant and  equipment                             | ** ** | 12         | ** ** | **2,009.0**  | ** **  | 2,287.4                |       |
| Goodwill                                                   | ** ** | 13         | ** ** | **342.3**    | ** **  | 2,324.3                |       |
| Restricted cash                                            | ** ** | 14         | ** ** | **54.9**     | ** **  | 48.1                   |       |
| Receivables from related  parties                          | ** ** | 10         | ** ** | **4.4**      | ** **  | —                 |       |
| Future income taxes                                        | ** ** | 5          | ** ** | **11.2**     | ** **  | —                 |       |
| Other assets                                               | ** ** | 26         | ** ** | **202.3**    | ** **  | 224.2                  |       |
|                                                       | ** ** |       | ** ** | ** **   | ** **  |                   |       |
| Total assets                                               | ** ** | ** ** | ** ** | **$**        | **4,163.0** | ** **             | $          | 5,823.4 |   |
|                                                       | ** ** | ** ** | ** ** | ** **   | ** **  |                   |       |
| **Liabilities and  Shareholders’ Equity**             | ** ** | ** ** | ** ** | ** **   | ** **  | ** **             | ** ** |
| ** **                                                 | ** ** | ** ** | ** ** | ** **   | ** **  | ** **             | ** ** |
| Current liabilities:                                       | ** ** | ** ** | ** ** | ** **   | ** **  |                   |       |
| Bank indebtedness                                          | ** ** | 15         | ** ** | **$**        | **73.2**    | ** **             | $          | — |   |
| Trade payables and accrued  liabilities                    | ** ** | ** ** |       | **994.8**    | ** **  | 942.4                  |       |
| Payables to related  parties                               | ** ** | 10         | ** ** | **13.3**     | ** **  | 1.5                    |       |
| Income and other taxes  payable                            | ** ** | ** ** |       | **39.8**     | ** **  | 39.7                   |       |
| Future income taxes                                        | ** ** | 5          | ** ** | **1.0**      | ** **  | 1.1                    |       |
| Secured financing                                          | ** ** | 9          | ** ** | **462.5**    | ** **  | —                 |       |
| Current portion of  long-term debt                         | ** ** | 16         | ** ** | **1,023.7**  | ** **  | 30.7                   |       |
| Total current liabilities                                  | ** ** | ** ** | ** ** | **2,608.3**  | ** **  | 1,015.4                |       |
|                                                       | ** ** | ** ** | ** ** | ** **   | ** **  |                   |       |
| Long-term debt                                             | ** ** | 16         | ** ** | **1,313.6**  | ** **  | 1,984.0                |       |
| Other liabilities                                          | ** ** | 17         | ** ** | **363.4**    | ** **  | 283.5                  |       |
| Future income taxes                                        | ** ** | 5          | ** ** | **132.2**    | ** **  | 389.1                  |       |
| Convertible notes                                          | ** ** | 18         | ** ** | **—**   | ** **  | 117.7                  |       |
| Preferred shares                                           | ** ** | 19         | ** ** | **178.5**    | ** **  | 150.2                  |       |
| Minority interest                                          | ** ** | ** ** | ** ** | **—**   | ** **  | 1.3                    |       |
|                                                       | ** ** | ** ** | ** ** | ** **   | ** **  |                   |       |
| Shareholders’ equity  (deficit):                      | ** ** | ** ** | ** ** | ** **   | ** **  | ** **             | ** ** |
| Capital stock                                              | ** ** | 19         | ** ** | **1,457.4**  | ** **  | 1,452.4                |       |
| Contributed surplus                                        | ** ** | ** ** | ** ** | **102.1**    | ** **  | 114.1                  |       |
| Retained earnings  (deficit)                               | ** ** | ** ** | ** ** | **(1,813.3** | **)**       | 398.3                  |       |
| Accumulated other  comprehensive income (loss)             | ** ** | 21         | ** ** | **(179.2**   | **)**       | (82.6                  | )          |
| ** **                                                 | ** ** | ** ** |       | **(433.0**   | **)**       | 1,882.2                |       |
| Subsequent events                                          |       | 1, 29      |       | ** **   | ** **  |                   |       |
| Total liabilities and  shareholders’ equity (deficit) | ** ** | ** ** | ** ** | **$**        | **4,163.0** | ** **             | $          | 5,823.4 |   |

 

See accompanyingNotes to Consolidated Financial Statements.

On behalf of theBoard:

 
| /s/ Brian  Mulroney       |   | /s/ Jacques  Mallette      |
|---------------------------|--------|----------------------------|
| The Right  Honourable     |   |                       |
| Brian Mulroney,  Director |   | Jacques Mallette, Director |

 

11

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**Table of Contents**

** **

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**Years ended December 31, 2007, 2006 and2005**

**(Tabular amounts are expressed in million ofUS dollars, except per share and option amounts)**

** **

**1.**              Creditor Protectionand Restructuring (Amended)

** **

On January 21, 2008 (the “Filing Date”), Quebecor World Inc. (“QuebecorWorld” or the “Company”) obtained an order (the “Initial Order”) from theQuebec Superior Court (the “Court”) granting creditor protection under theCompanies’ Creditors Arrangement Act (the “CCAA”) for itself and for 53 U.S.subsidiaries (the “U.S. Subsidiaries” and, collectively with the Company, the “Applicants”).On the same date, the U.S. subsidiaries filed a petition under Chapter 11 ofthe U.S. Bankruptcy Code (“Chapter 11”) in the U.S. Bankruptcy Court for theSouthern District of New York (the “U.S. Bankruptcy Court”). The proceedingsunder the CCAA are hereinafter referred to as the “Canadian Proceedings”, theproceedings under Chapter 11 are hereinafter referred to as the “U.S.Proceedings” and the Canadian Proceedings and the U.S. Proceedings arehereinafter collectively referred to as the “Insolvency Proceedings”. TheCompany’s Latin American subsidiaries are not subject to the InsolvencyProceedings. In addition, prior to their disposition as discussed below, theEuropean subsidiaries were not subject to the Insolvency Proceedings. Pursuantto the Insolvency Proceedings, the Applicants are provided with the authorityto, among other things, continue operating the Applicants’ business (subject tocourt approval for certain activities), file with the Court and submit tocreditors a plan of compromise or arrangement under the CCAA (the “Plan”) andoperate an orderly restructuring of the Applicants’ business and financialaffairs, in accordance with the terms of the Initial Order. Ernst &Young Inc. (the “Monitor”) has been appointed by the Court as Monitor in theCanadian Proceedings. Pursuant to the terms of the orders made in theInsolvency Proceedings, as amended, the Monitor was appointed to monitor thebusiness and financial affairs of the Applicants and, in connection with suchrole, the Initial Order imposes a number of duties and functions on theMonitor, including, but not limited to, assisting the Applicants in connectionwith their restructuring and reporting to the Court on the state of thebusiness and financial affairs of the Applicants and on developments in theInsolvency Proceedings, as the Monitor considers appropriate. Reference shouldbe made to the Initial Order for a more complete description of the duties andfunctions of the Monitor.

 

Chapter 11 provides for all actions and proceedings against the U.S.Subsidiaries to be stayed during the continuation of the U.S. Proceedings. TheInitial Order also provides for a general stay, and, pursuant to subsequentorders of the Court rendered on February 19, 2008, May 9, 2008, July 18,2008, September 29, 2008 and December 12, 2008 respectively, thisstay period was extended first to May 12, 2008 and then subsequently to July 25,2008, September 30, 2008, December 14, 2008 and March 1, 2009 inCanada. The stay period is subject to further extensions as the Court may deemappropriate. The applicable stays generally preclude parties from taking anyactions against the Applicants. The purpose of the stay period and theInsolvency Proceedings is to provide the Applicants the opportunity tostabilize their operations and businesses and to develop a business plan, allwith a view to proposing a Plan. Any such Plan will be subject to approval byaffected creditors, as well as the Court approval.

 

The Company became in default under its revolving bank facility, itsequipment financing credit facility and its North American securitizationprogram on January 16, 2008. On January 24, 2008 pursuant to theInsolvency Proceedings, an amount of $417.6 million, including fees, was paidin order to terminate the North American securitization program.

 

The Insolvency Proceedings also triggered defaults under substantiallyall of the Applicants’ other debt obligations. Generally, the InsolvencyProceedings have stayed actions against the Applicants, including actions tocollect pre-filing indebtedness or to exercise control over any of theApplicants’ property. As a result of the stay, the Applicants have ceasedmaking payments of interest and principal on substantially all of theirpre-petition debt obligations. The orders granted in the Insolvency Proceedingshave provided the Applicants with the authority, among other things: (a) topay outstanding and future employee wages, salaries and benefits; (b) tomake rent payments under existing arrangements payable after the Filing Date;and (c) to honour obligations to customers.

 

The Applicants are in the process of developing comprehensive businessand financial plans, which will serve as a basis for discussions withstakeholders, with the advice and guidance of their financial advisors and theMonitor. The Applicants presented their confidential business plan (the “BusinessPlan”) to the *Ad Hoc*Bondholder Group, the BankSyndicate and the Official Committee of Unsecured Creditors (collectively, the “Committees”)at the beginning of June 2008. An overview of the Applicants’ five-yearBusiness Plan was presented as well as details related to each of the majorbusiness segments. The Business Plan that was presented will serve as a basisfor discussions with the creditor constituencies in anticipation of theformulation of a Plan or Plans of reorganization and, subject to receipt ofnecessary approvals from affected creditors, the Court and the U.S. BankruptcyCourt, the Applicants will implement one or more Plans. There can be noassurance, however, that a Plan or Plans of reorganization will be proposed bythe Applicants, supported by the Applicants’ creditors or confirmed by theCourt and the U.S. Bankruptcy Court, or that any such Plan or Plans will beconsummated.

 

12

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**Table of Contents**

** **

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1.**              Creditor Protectionand Restructuring (Amended) (Cont’d)

** **

Another important step in the Company’s restructuringactivities has been the sale of the Company’s European operations to asubsidiary of Hombergh Holdings B.V. (“HHBV”), a Netherlands-based investmentgroup (Note 29). On June 17, 2008, the Court and the U.S. Bankruptcy Courtapproved the proposed sale transaction, which closed on June 26, 2008.Under the terms of the agreement, the Company received €52.2 million in cash atclosing. HHBV issued a €21.5 million five-year note bearing interest at 7% peryear payable to Quebecor World. The sale was made substantially on an “as is,where is” basis.

 

Should the stay period and any subsequent extensionsthereof, if granted, not be sufficient to develop and present a Plan or shouldthe Plan not be accepted by affected creditors and, in any such case, theApplicants lose the protection of the stay of proceedings, substantially alldebt obligations of the Applicants will then become due and payableimmediately, creating an immediate liquidity crisis which would in alllikelihood lead to the liquidation of the Applicants’ assets. Failure toimplement a Plan and obtain sufficient exit financing within the time grantedby the Court and the U.S. Bankruptcy Court will also result in substantiallyall of the Applicants’ debt obligations becoming due and payable immediately,which would in all likelihood lead to the liquidation of the Applicants’assets.

 

As detailed in Note 29, the Company’s UK subsidiary was placed intoadministration on January 28, 2008.

 

**On September 29, 2008, the Courtauthorized the Company to conduct a claims procedure for the identification,resolution and barring of claims against Quebecor World. The Canadian claimsprocedure contemplates that any person with any claim against the Company ofany kind or nature**arising prior to January 21, 2008, and any claim arising on or afterJanuary 21, 2008, that arose further to the repudiation, termination orrestructuring of any contract, lease, employment agreement or other agreement (“RestructuringClaim”), with the exception of certain excludedclaims, were to file its claim with the Monitor on or prior to December 5,2008 (the “Claims Bar Date”) or no later than the 30th day followingthe receipt of a written notice advising such creditor to file a Proof of Claimin relation to a Restructuring Claim.

** **

**Pursuant to orders entered by the U.S.Bankruptcy Court, the U.S. Subsidiaries filed their schedule of assets andliabilities and a statement of financial affairs on July 18, 2008. On September 29,2008, concurrently with the order granted by the Court with respect to theCanadian claims procedure, the U.S. Bankruptcy Court authorized the U.S.Subsidiaries to conduct a claims procedure setting December 5, 2008 as thebar date by which all creditors of the U.S. Subsidiaries were to file proofs oftheir respective claims and interests against the U.S. Subsidiaries.**

** **

**As at the date hereof, it is not possibleto determine the extent of the claims that were filed, whether or not suchclaims will be disputed and whether or not such claims will be subject todischarge in the Insolvency Proceedings. It is also not possible at this timeto determine whether to establish any additional liabilities in respect ofclaims. The Applicants are beginning to review all claims filed and begin theclaims reconciliation process. In connection with the review and reconciliationprocess, the Applicants will also determine the additional liabilities, if any,that should appropriately be established in respect of such claims.**

** **

On September 29, 2008, the Court granted an order lifting the stayof proceedings for the sole purpose of permitting certain of the noteholders tofile a paulian action (namely, an action by which a creditor who suffersprejudice through a juridical act made by its debtor in fraud of its rightsseeks to obtain a declaration that the act may not be set up against it)against, *inter alia*, the Company, contesting theopposability of security granted by Quebecor World and certain of itssubsidiaries in September and October 2007 to the lenders under itsrevolving bank facility and equipment financing facility at such time. Theorder expressly provides that, immediately following the issuance and serviceof the paulian action, all further proceedings with respect to such paulianaction be immediately stayed until further order of the Court.

 

Furthermore, on September 29, 2008, the Company was authorized bythe Court to enter into a share purchase agreement providing for the sale toBandhu Industrial Resources Private Limited of its interest in TEJ QuebecorPrinting Limited (“TQPL”), which operates a printing facility located inGurgaon, India. On November 20, 2008 the Company proceeded with the sharesale transaction, resulting in a total net consideration payable to the Companyof $0.15 million. The transaction also included a loan settlement agreementwith respect to certain loans owing by TQPL to the Company and master releaseand indemnity agreements between the purchaser and the Company concerning itsliabilities in relation to TQPL and the printing facility.

 

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1.**              Creditor Protectionand Restructuring (Amended) (Cont’d)

** **

On September 30, 2008, the Monitor commenced a case under Chapter15 of the U.S. Bankruptcy Code on behalf of the Company in the U.S. BankruptcyCourt. The Monitor sought recognition of the Company’s CCAA proceeding as aforeign main proceeding and enforcement in the US of the Claims Procedure Orderof the Court dated September 29, 2008. On November 14, 2008, the USBankruptcy Court for the Southern District of New York entered an orderrecognizing the Company’s CCAA proceeding as a “foreign main proceeding” andmade the Canadian claims procedure order of September 29, 2008 enforceablein the US. This relief facilitates the claims administration process for theCompany and applies only to Quebecor World. It does not affect the claimsprocedures for the Company’s subsidiaries that are subject to proceedings underChapter 11 of the US Bankruptcy Code.

 

**Contributing factors**

 

Quebecor World’sfinancial performance has suffered in the past few years, especially withrespect to its European operations, which were funded, in part, with cash flowsgenerated by the North American operations, as a result of a combination offactors, including declining prices and sales volume, and temporarydisturbances and inefficiencies caused by a major retooling and restructuringof its printing operations initiated in 2004. The combination of significantcapital investments and continued operating losses, principally as a result ofits European operations, resulted in increased financing needs. During the lastquarter of 2007, it was also necessary for the Company to repurchase certainsenior notes in order to avoid breaching certain financial ratios, while alsofacing a reduction in amounts available under its revolving bank facility.

 

Other eventsfurther hindered the Company’s efforts to improve its balance sheet andfinancial position. First, on November 20, 2007, Quebecor World announcedthe withdrawal of a refinancing plan previously announced on November 13,2007 due to adverse financial market conditions. Second, on December 13,2007, Quebecor World announced that it would not be able to consummate apreviously announced transaction to sell/merge its European operations, whichotherwise would have resulted in proceeds being paid to Quebecor World.

 

On December 31,2007, the Company obtained a waiver from its bank syndicate lenders and fromthe sponsors of its North American securitization program, subject to thesatisfaction of certain conditions and refinancing milestones, includingobtaining $125 million in new financing by January 15, 2008. On January 16,2008, the Company failed to satisfy the conditions and refinancing milestonesset by the bank syndicate lenders, which resulted in the Company and certain ofits subsidiaries being in default of its obligations under its revolving bankfacility, its equipment financing credit facility and its North Americansecuritization program.

 

As a result of theunsuccessful efforts of the Company to obtain new financing, the inability atthe time to conclude the first proposed sale of its European operations and theoperational demands of the Company, by mid-January 2008, the Company wasexperiencing a severe lack of liquidity and concluded it no longer had theability to meet obligations which were falling due.

 

**Basis of presentation and goingconcern issues**

 

These financialstatements have been prepared using the same Canadian GAAP as applied by theCompany prior to the Insolvency Proceedings. While the Applicants have filedfor and been granted creditor protection, these financial statements continueto be prepared using the going concern concept, which assumes that the Companywill be able to realize its assets and discharge its liabilities in the normalcourse of business for the foreseeable future. The Insolvency Proceedingsprovide the Company with a period of time to stabilize its operations andfinancial condition and develop a Plan. During the period, Debtor-In-Possession(“DIP”) financing has been approved by the Court and the U.S. Bankruptcy Courtand is available, subject to borrowing conditions, as described below.Management believes that these actions make the going concern basisappropriate. However, it is not possible to predict the outcome of theseproceedings and, as such, realization of assets and discharge of liabilities issubject to significant uncertainty. Accordingly, substantial doubt exists as towhether the Company will be able to continue as a going concern. Further, it isnot possible to predict whether the actions taken in any restructuring willresult in improvements to the financial condition of the Company sufficient toallow it to continue as a going concern. If the going concern basis is notappropriate, adjustments will be necessary to the carrying amounts and/orclassification of assets and liabilities, and to the expenses in thesefinancial statements. Except as disclosed in note 29, the financial statementsdo not reflect any adjustments related to subsequent events related toconditions that arose subsequent to December 31, 2007.

 

The accompanyingfinancial statements do not purport to reflect or provide for the consequencesof the Insolvency Proceedings. In particular, such financial statements do notpurport to show: (a) as to assets, their realizable value on a liquidationbasis or their availability to satisfy liabilities; (b) as to pre-petitionliabilities, the amounts that may be allowed for claims or contingencies, orthe status and priority thereof; (c) as to shareholders accounts, theeffect of any changes that may be made in the capitalization of the Company; or(d) as to operations, the effect of any changes that may be made in itsbusiness.

 

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1.**              Creditor Protection andRestructuring (Amended) (Cont’d)

** **

**Basis of presentation and goingconcern issues (Cont’d)**

 

While the Company is under creditor protection, it will make adjustmentsto the financial statements to isolate assets, liabilities, revenues, andexpenses related to the reorganization and restructuring activities so as todistinguish these events and transactions from those associated with theongoing operation of the business. Further, claims allowed arising under theInsolvency Proceedings may be recorded as liabilities and presented separatelyon the consolidated balance sheets. If a restructuring occurs and there issubstantial realignment of the equity and non-equity interests in the Company,the Company will be required, under Canadian GAAP, to adopt “fresh start”reporting. Under fresh start reporting, the Company would undertake acomprehensive re-evaluation of its assets and liabilities based on thereorganization value as established and confirmed in the Plan. The financialstatements do not present any adjustments that may be required during theperiod that the Company remains under creditor protection, or that may berequired under fresh start reporting.

 

In accordance with Canadian GAAP appropriate for a going concern,property, plant and equipment is carried at cost less accumulated amortizationand any impairment losses and they are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of such assetsmay not be recoverable. Goodwill is carried at cost less any impairment losses.Goodwill is tested for impairment annually and between annual tests when anevent or circumstance occurs that more likely than not reduces the fair valueof a reporting unit below its carrying amount. The series of events that ledthe Company to the Insolvency Proceedings and the events since then triggeredimpairment tests for its property, plant and equipment, and goodwill. TheCompany made assumptions, such as expected growth, maintaining customer baseand achieving costs reductions, about the future cash flows expected from theuse of its assets. There can be no assurance that expected future cash flowswill be realized or will be sufficient to recover the carrying amount of longlived assets or goodwill.

 

The preparation of financial statements in conformity with Canadian GAAPrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the dates of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting periods. TheInsolvency Proceedings materially affect the degree of uncertainty associatedwith the measurement of many amounts in the financial statements. Morespecifically, it could impact the recoverability tests and fair valueassumptions used in the impairment test of property, plant and equipment, andgoodwill, the valuation of future income tax assets and of contract acquisitioncosts.

 

In light of the Insolvency Proceedings, it is unlikely that the Company’sexisting Multiple Voting Shares, Redeemable First Preferred Shares andSubordinate Voting Shares will have any material value following the approvalof a Plan. There is a risk such shares could be cancelled.

 

**DIP financing**

 

On January 21, 2008, the Court approved a Senior SecuredSuperpriority DIP Credit Agreement (as subsequently amended by amendments datedJanuary 25, 2008, February 26, 2008, March 27, 2008 and August 5,2008, the “DIP Credit Agreement”) between Quebecor World Inc. and QuebecorWorld (USA) Inc., a debtor-in-possession under the U.S. Proceedings and apetitioner under the Canadian Proceedings, as Borrowers, Credit Suisse, asAdministrative Agent, Initial Issuing Bank and Initial Swing Line Lender,General Electric Capital Corporation and GE Canada Finance Holding Company, asCollateral Agent, Morgan Stanley Senior Funding, Inc., and Wells FargoFoothill, LLC, as Co-Syndication Agents, and Wachovia Bank, N.A., asDocumentation Agent.

 

The DIP financing is comprised of both a revolving credit facility withsub-facilities for Canadian dollar borrowings, swing line loans and issuance ofletters of credit for an aggregate maximum commitment of the lenders of $400million (the “Revolving DIP Facility”) bearing interest at variable rates basedon Base rate, or Eurodollar rate, Canadian Banker’s Acceptance rate or Canadianprime rate, plus applicable margins and a $600 million term loan (“DIP TermLoan”), bearing interest at variable rates based on Base rate, or Eurodollarrate, plus applicable margins, which was fully drawn immediately following theInitial Order and the interim order of the U.S. Bankruptcy Court, dated January 23,2008 (the “Interim DIP Order”). Amounts borrowed under the DIP Term Loan andrepaid or prepaid may not be re-borrowed. Under the Revolving DIP Facility, theavailability of funds is determined by a borrowing base based on percentages ofeligible receivables and inventory. The unused portion of the Revolving DIPFacility is subject to a commitment fee of 0.50% per annum. From the date ofthe Interim DIP Order up to the date of the final order of the U.S. BankruptcyCourt dated April 1, 2008 (the “Final DIP Order”), the maximumavailability under the Revolving DIP Facility was $150 million. By the entry ofthe Final DIP Order by the U.S. Bankruptcy Court, the maximum availabilityunder the Revolving DIP Facility became $400 million. On June 30, 2008,the Company repaid $74.5 million on the DIP Term Loan. As at December 12,2008 the Company had drawn an aggregate amount of $551.9 million on the DIPTerm Loan and Revolving DIP Facility.

 

The DIP Credit Agreement contains certain restrictive financialcovenants which were met as of September 30, 2008.

** **

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**1.**              Creditor Protectionand Restructuring (Amended) (Cont’d)

** **

**DIP financing (Cont’d)**

 

The Revolving DIP Facility and DIP Term Loan are secured by a perfectedlien on, and security interest in, all present and after-acquired property ofQuebecor World, the U.S. Subsidiaries subject to the U.S. Proceedings andcertain subsidiaries in Latin America. The liens are junior to the lienssecuring the Company’s syndicated revolving bank facility with Royal Bank ofCanada as administrative agent and its equipment financing credit facility withSociété Générale (Canada) as lender up to an aggregate amount of $170 million,which was granted prior to the Filing Date to the extent such liens are valid,perfected and not voidable. The Revolving DIP Facility and DIP Term Loan arealso guaranteed by substantially all of the Company’s direct and indirect NorthAmerican subsidiaries and certain foreign subsidiaries.

 

The Revolving DIP Facility and DIP Term Loan mature on the earliest tooccur of (a) July 21, 2009 and (b) the substantial consummationof a Plan. The DIP Credit Agreement may be prepaid or accelerated upon theoccurrence of an event of default and contains mandatory prepayments including,among other things, the net proceeds of certain asset sales, issuance ofcertain debt and certain extraordinary receipts.

 

Should the Court dismiss the Insolvency Proceedings or enter any ordergranting relief from the stays provided for thereunder, this would constitutean event of default under the DIP Credit Agreement and the debt could becomedue and payable immediately, which would, in all likelihood, lead to theliquidation of all the Applicants’ assets.

 

The DIP Credit Agreement provides for various restrictions on, amongother things, the ability of the Company and its subsidiaries to incuradditional debt, secure such debt, make investments, dispose of their assets(including pursuant to sale and leaseback transactions and sales of receivablesunder securitization programs) and make capital expenditures. Each of thesetransactions would require the consent of a majority of the Company’s DIPlenders if they exceed certain thresholds set forth in the DIP CreditAgreement, and may, in certain cases, require the consent of the Monitor and/orthe Courts.

 

The Court limits the amounts of funding available for its Latin Americasubsidiaries to $10 million, in addition to a $5 million amount forsubsidiaries that are not Applicants. As of December 12, 2008, $10 millionwas utilized to fund Latin America subsidiaries, while a supplemental $3million was used to fund Latin America subsidiaries and other non-Applicantsubsidiaries. The Company is considering the future needs of its subsidiariesand will request additional funding flexibility from its creditors, if required.

 

**2.**              Summaryof Significant Accounting Policies

** **

### **Change inAccounting Policies – Financial Instruments**

### ** **

Effective January 1, 2007, the Company adopted the CanadianInstitute of Chartered Accountants (CICA) Handbook Section 1530,Comprehensive Income, Section 3855, Financial Instruments – Recognitionand Measurement and Section 3865, Hedges. Changes in accounting policiesin conformity with these new accounting standards are as follows:

 

**(i)****           ****Comprehensive income**

 

Section 1530introduces the concept of comprehensive income, which is calculated byincluding other comprehensive income with net income. Other comprehensiveincome represents changes in shareholders’ equity arising from transactions andother events with non-owner sources such as unrealized gains and losses onfinancial assets classified as available-for-sale, changes in translationadjustment of self-sustaining foreign operations and changes in the fair valueof the effective portion of cash flow hedging instruments. With the adoption ofthis section, the consolidated financial statements now include consolidatedstatements of comprehensive income. The comparative statements were restatedsolely to include the translation adjustment of self-sustaining foreignoperations as provided by transition rules.

 

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** **

**Notes to Consolidated Financial Statements**

 

**2.****                       ****Summary of Significant Accounting Policies(Cont’d)**

 

**(ii)****          Financial instruments**

 

Section 3855establishes standards for recognizing and measuring financial assets, financialliabilities and derivatives. Under this standard, financial instruments are nowclassified as held-for-trading, available-for-sale, held-to-maturity, loans andreceivables, or other financial liabilities and measurement in subsequentperiods depends on their classification. Transaction costs are expensed asincurred for financial instruments classified as held-for-trading. For otherfinancial instruments, transaction costs are capitalized on initial recognitionand presented as a reduction of the underlying financial instruments. Financialassets and financial liabilities held-for-trading are measured at fair valuewith changes recognized in income. Available-for-sale financial assets aremeasured at fair value or at cost, in the case of financial assets that do nothave a quoted market price in an active market, and changes in fair value arerecorded in comprehensive income.

 

Financialassets held-to-maturity, loans and receivables, and other financial liabilitiesare measured at amortized cost using the effective interest method ofamortization. The Company has classified its restricted and unrestricted cashand cash equivalents and temporary investments as held for trading. Accountsreceivable, receivables from related parties, loans and other long-termreceivables included in other assets were classified as loans and receivables.Portfolio investments were classified as available for sale. All of the Company’sfinancial liabilities were classified as other financial liabilities.

 

**(ii)****          Financial instruments (cont’d)**

 

Derivativeinstruments are recorded as financial assets or liabilities at fair value,including those derivatives that are non-financial contracts considered not fornormal usage or embedded in financial contracts and are not closely related tothe underlying host. Changes in the fair values of derivatives are recognizedin financial expenses with the exception of derivatives designated in a cashflow hedge for which hedge accounting is used. In accordance with the newstandard, the Company selected January 1, 2003 as its transition date foradopting this standard related to embedded derivatives.

 

**(iii)****      Hedges**

 

Section 3865specifies the criteria that must be satisfied in order for hedge accounting tobe applied and the accounting for each of the permitted hedging strategies.

 

Accordingly,for derivatives designated as fair value hedges, such as certain cross currencyinterest rate swaps used by the Company, changes in the fair value of the hedgingderivative recorded in income are substantially offset by changes in the fairvalue of the hedged item to the extent that the hedging relationship iseffective. When a fair value hedge is discontinued, the carrying value of thehedged item is no longer adjusted and the cumulative fair value adjustments tothe carrying value of the hedged item are amortized to income over theremaining term of the original hedging relationship.

 

For derivativeinstruments designated as cash flow hedges, such as certain commodity swaps andforward exchange contracts used by the Company, the effective portion of ahedge is reported in other comprehensive income until it is recognized inincome during the same period in which the hedged item affects income, whilethe ineffective portion is immediately recognized in the consolidated statementof income. When a cash flow hedge is discontinued, the amounts previouslyrecognized in accumulated other comprehensive income are reclassified to incomewhen the variability in the cash flows of the hedged item affects income.

 

Uponadoption of these new sections, the transition rules require that theCompany adjust either opening retained earnings or accumulated othercomprehensive income as if the new rules had always been applied in thepast, without restating comparative figures of prior years. Accordingly, thefollowing adjustments were recorded in the consolidated financial statements asat January 1, 2007:

 

·                  Decrease of other assets by $24.3 million

·                  Decrease in tradepayable and accrued liabilities by $0.6 million

·                  Increase of otherliabilities by $18.9 million

·                  Decrease of long-term debt by $23.5 million

·                  Decrease of futureincome tax liabilities by $7.2 million

·                  Decrease of retainedearnings by $4.9 million

·                  Decrease ofaccumulated other comprehensive income by $7.0 million

 

Finally,the adoption of the new standards had no material impact on net income (loss)in 2007.

 

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**Notes to Consolidated Financial Statements**

 

**2.****                       ****Summary of Significant Accounting Policies(Cont’d)**

** **

**Accounting Principles**

** **

**(a)****            Principles of Consolidation**

 

Theconsolidated financial statements include the accounts of the Company and allits subsidiaries and are prepared in accordance with Canadian generallyaccepted accounting principles.

 

**(b)****            Uses of estimates**

 

Thepreparation of financial statements in accordance with Canadian generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and thereported amounts of revenues and expenses, and disclosure of contingent assetsand liabilities. Financial results as determined by actual events could differfrom those estimates.

 

Examples ofsignificant estimates include: key economic assumptions used in determining theallowance for doubtful accounts and some of the amounts accrued forrestructuring and other charges; the composition and valuation of future incometax assets; the useful life and valuation of property, plant and equipment;actuarial and economic assumptions used in determining pension andpostretirement costs, accrued pension and other postretirement benefit obligationsand pension plan assets; provisions and contingencies; and the assumptions usedin impairment tests on long-lived assets and goodwill (see also Note 1).

 

**(c)****            Foreign currency translation**

 

The Company’sfunctional currency is the Canadian dollar and its reporting currency for thepresentation of its consolidated financial statements is the U.S. dollar.

 

Financialstatements of self-sustaining foreign operations are translated using the ratein effect at the balance sheet date for asset and liability items and theaverage exchange rates during the year for revenues and expenses. Adjustmentsarising from this translation are deferred and recorded in a separate componentof accumulated other comprehensive income and are included in income only whena reduction in the investment in these foreign operations is realized.

 

Other foreigncurrency transactions are translated using the temporal method. Translationgains and losses are included in financial expenses.

 

**(d)****            Revenue recognition**

 

The Companyprovides a wide variety of print and print-related services to its customers,which usually require that the specifics be agreed upon prior to undertakingthe process. Substantially all of the Company’s revenues are derived fromcommercial printing and related services under the magazine, retail, catalog,book and directory platforms.

 

Revenue isprincipally recognized when the following four revenue recognition criteria aremet: persuasive evidence of an arrangement exists, services have been rendered,the price of the transaction is fixed or determinable, and collectibility isreasonably assured.

 

Services aresold either stand-alone or together as a multiple deliverables arrangement.Certain deliverables of multiple service arrangements are separately accountedfor, provided the delivered elements have stand-alone value to the customer andthe fair value of any undelivered elements can be objectively and reliablydetermined. These identifiable deliverables include pre-media services,printing and related services and delivery. For arrangements which includemultiple deliverables and for which the criteria for recognition as a multiplearrangements are met, the total contract value is allocated to each deliverablebased on its relative fair value. Where the criteria are not met, it isrecognized as a single unit of accounting, according to revenue recognitioncriteria stated above.

 

Contractrevenue is recognized using the proportional performance method on the basis ofoutput at the pro-rata billing value of work completed. Contract revenues thatdo not meet the criteria for proportional performance method are recorded whenthe performance of the agreed services is achieved. The Company also performslogistics and distribution services for the delivery of products related toprint services for which the revenues are recognized once freight services areperformed.

 

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** **

**Notes to Consolidated Financial Statements**

 

**2.****                       ****Summary of Significant Accounting Policies(Cont’d)**

** **

**(d)****            Revenue recognition (cont’d)**

 

Revenue ispresented in the consolidated statements of income, net of rebates, discounts,and amortization of contract acquisition costs. Provisions for estimatedlosses, if any, are recognized in the period in which the loss is determinable.

 

**(e)****            Contract acquisition costs**

 

Contractacquisition costs consist of cash payments, free services, or accruals relatedto amounts payable or credits owed to customers in connection with long-termagreements. Contract acquisition costs are generally amortized as reductions ofrevenue ratably over the related contract term or as related sales volumes arerecognized. Whenever events or changes occur that impact the related contract,including significant declines in the anticipated profitability, the Companyevaluates the carrying value of the contract acquisition costs to determinewhether impairment has occurred. These costs are included in other assets inthe consolidated balance sheets.

 

**(f)****              Cash and cash equivalents**

 

Cash and cashequivalents consist of highly liquid investments purchased three months or lessfrom maturity and are stated at cost, which approximates market value.

 

**(g)****           Sales of accounts receivable**

 

Transfers ofaccounts receivable under the Company’s asset securitization programs arerecognized as sales when the Company is deemed to have surrendered control overthe accounts receivable. Any gains or losses on the sale of accounts receivableare calculated by comparing the carrying amount of the accounts receivable soldto the sum of total proceeds on the sale and the fair value of the retainedinterest in such receivables on the date of transfer. The fair value of theretained interest approximates its carrying value given the short-term natureof associated cash flows. Costs, including gains or losses on the sale ofaccounts receivable, are recognized in income in the period incurred andincluded in securitization fees in the consolidated statements of income.  When the Company does not meet certaincriteria of the CICA Handbook Accounting Guidelines 12 – “Transfer ofReceivables”, the transfer is recorded as Secured financing.

 

**(h)****           Inventories**

 

Raw materialsand supplies are measured at the lower of cost, using the first-in, first-outmethod and market value, being replacement cost.

 

Work-in-progressis measured at the pro-rata billing value for work completed as a result ofprint services for which revenues have been recognized under the proportionalperformance method. When the criteria have not been met to allow forrecognition of revenue, related work in progress is measured as direct costsare incurred.

 

**(i)****              Property, plant and equipment**

 

Property,plant and equipment are stated at cost. Cost represents acquisition orconstruction costs including preparation, installation, testing costs andinterest incurred with respect to property, plant and equipment until they areready for commercial production.

 

Depreciationis calculated using the straight-line method over the estimated useful lives asfollows:

 
| ** **               | ** ** | **Estimated**                                   | ** ** |
|--------------------------|------------|-------------------------------------------------|------------|
| **Assets**               | ** ** | **useful lives**                           | ** ** |
|                     |       |                                            |       |
| Buildings                |       | 15 to 40 years                                  |       |
| Machinery  and equipment |       | 3 to 18 years                                   |       |
| Leasehold  improvements  |       | Lesser of the term of the lease or useful  life |       |

 

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** **

**Notes to Consolidated Financial Statements**

 

**2.****                       ****Summary of Significant Accounting Policies(Cont’d)**

** **

**(j)****              Goodwill**

 

Goodwill istested for impairment annually for all of the Company’s reporting units, ormore frequently if events or changes in circumstances indicate that the assetmight be impaired. The impairment test is carried out in two steps. In thefirst step, the carrying amount of the reporting unit is compared to its fairvalue. When the fair value of a reporting unit exceeds its carrying amount, thegoodwill of the reporting unit is considered not to be impaired and the secondstep is not required. The second step of the impairment test is carried outwhen the carrying amount of a reporting unit exceeds its fair value, in whichcase the implied fair value of the reporting unit’s goodwill is compared to itscarrying amount to measure the amount of the impairment, if any. When thecarrying amount of the reporting unit’s goodwill exceeds the implied fair valueof the goodwill, impairment is recognized in an amount equal to the excess andis presented as a separate item in the consolidated statement of income.

 

**(k)****          Income taxes**

 

The Companyfollows the asset and liability method of accounting for income taxes. Underthis method, future income tax assets and liabilities are recognized for theestimated future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities andtheir respective tax bases.

 

Future incometax assets and liabilities are measured using enacted or substantively enactedtax rates in effect for the year in which those temporary differences areexpected to be recovered or settled. The effect on future income tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment, or substantive enactment date. A valuation allowance isestablished, if necessary, to reduce any future income tax asset to an amountthat is more likely than not to be realized.

 

In the course of the Company’s operations,there are a number of uncertain tax positions due to the complexity of certaintransactions and the fact that related tax interpretations and legislation arecontinually changing. When a tax position is uncertain, the Company recognizesan income tax benefit or reduces an income tax liability only when it isprobable that the tax benefit will be realized in the future or that the incometax liability will be extinguished.

 

**(l)****              Stock-based compensation plans**

 

The Companyuses the fair value based method of accounting for all stock options granted toits employees, whereby a compensation expense is recognized over the vestingperiod of the options, with a corresponding increase to contributed surplus.The Company bases the accruals of compensation cost on the best availableestimate of the number of options that are expected to vest and revises thatestimate, if subsequent information indicates that actual forfeitures arelikely to differ from initial estimates. When stock options are exercised,capital stock is credited by the sum of the consideration paid by the employee,together with the related portion previously recorded in contributed surplus.

 

For theemployee share plans, the Company’s contribution on the employee’s behalf isrecognized as compensation expense. The contribution paid by the employee onthe purchase of stock is recorded as an increase to capital stock.

 

Deferred StockUnits (“DSUs”) are recognized in compensation expense and accrued liabilitiesas they are awarded. DSU are remeasured at each reporting period, untilsettlement, using the trading price of the Subordinate Voting Shares.

 

For DeferredPerformance Share Units (“DPSUs”), the Company’s matching contribution of 20%is recognized in compensation expense over the 3-year period during which it isearned, with a corresponding increase in contributed surplus.

 

**(m)****   Derivativefinancial and commodity instruments**

 

The Companyuses various derivative financial instruments to manage its exposure tofluctuations in foreign currency exchange rates, interest rates, and commoditypricing. The Company does not hold or use any derivative instruments forspeculative purposes. The Company documents all designated hedgingrelationships between derivatives and hedged items, its strategy for usinghedges and its risk-management objective. The Company assesses theeffectiveness of derivatives when the hedging relationship is put in place andon an ongoing basis. Effective January 1, 2007, under hedge accounting,the Company follows the accounting policies described in Note 2 (iii).

 

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**Notes to Consolidated Financial Statements**

 

**2.****                       ****Summary of Significant Accounting Policies(Cont’d)**

** **

**(m)****        Derivative financial and commodity instruments (cont’d)**

 

The Companyenters into foreign exchange forward contracts to hedge anticipated foreigndenominated sales and related receivables, debt and equipment purchases. Forthose designated as cash flow hedges, foreign exchange gains and losses arerecognized as an adjustment of revenues, financial expenses and cost ofequipment, respectively, when the hedging transaction is recorded. Forundesignated hedging relationships, gains or losses on the valuation of thederivative instruments at fair value are recognized in income as they arise andnot concurrently with the transactions being hedged.

 

The Companyhas entered into foreign exchange forward contracts to hedge its netinvestments in foreign subsidiaries. Foreign exchange translation gains andlosses were recorded as a translation adjustment in comprehensive income aswell as any realized or unrealized gain or loss on related derivativeinstruments.

 

The Companyenters into foreign exchange forward contracts and cross currency swaps tohedge foreign denominated asset exposures. Foreign exchange gains and lossesrelated to these assets and changes in the fair values of the derivativeinstruments are recorded in financial expenses.

 

The Companyenters into interest rate swaps in order to manage its interest rate exposureon its long-term debt. These swap agreements require the periodic exchange ofpayments without the exchange of the notional principal amount on which thepayments are based. The Company designates its interest rate hedge agreementsas fair value hedges of the underlying debt interest cost. Interest expense onthe debt is adjusted to include amounts payable or receivable under theinterest rate swaps.

 

The Companyalso enters into commodity swaps to manage a portion of its natural gas priceexposures. The Company designates a portion of its commodity swap agreements ashedges of its natural gas cost, under which the Company is committed toexchange, on a monthly basis, the difference between a fixed price and afloating indexed natural gas price.

 

Prior to 2007under hedge accounting, derivatives designated in qualified hedges were notrecognized until the corresponding hedged transaction affected net income.Derivative instruments that were ineffective in a hedging relationship or thatwere not designated in a hedge were reported on a marked-to-market basis in theconsolidated financial statements. Any changes in the fair values of thesederivative instruments were recorded in income.

 

Realized andunrealized gains or losses associated with derivative instruments previouslydesignated as hedges that have been terminated or have ceased to be effectiveprior to maturity are deferred as non-current assets or liabilities on thebalance sheet and recognized in income in the period in which the underlyinghedged transaction is recognized. In the event a designated hedged item issold, extinguished or has matured prior to the termination of the relatedderivative instrument, any realized or unrealized gains or losses on relatedderivative hedging instruments are recognized in income.

 

**(n)****           Employee future benefits**

 

**(i)****            Pension plans**

 

Pension plancosts are determined using actuarial methods and are funded throughcontributions determined in accordance with the projected benefit method prorated on service, which incorporates management’s best estimate of the futuresalary levels, other cost escalations, retirement ages of employees and otheractuarial factors.

 

The initial nettransition asset, prior service costs and amendments are amortized on astraight-line basis over the expected average remaining service lives of theactive employees covered by the plans, which ranges from approximately 11 to 14years. Cumulative unrecognized net actuarial gains and losses in excess of 10%of the greater of the benefit obligation or fair value of plan assets areamortized over the expected average remaining service life of active employeescovered by the plans.

 

For the purpose ofcalculating the expected return on plan assets, those assets are valued atmarket-related value, based on a combination of rigorous historical performanceanalysis and the forward-looking views of the financial markets as revealedthrough the yield on long-term bonds and the price-to-earnings ratios of themajor stock market indices.

 

21

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Table of Contents

 

**Notes to Consolidated Financial Statements**

 

**2.****                       ****Summary of Significant Accounting Policies(Cont’d)**

** **

**(n)****           Employee future benefits (cont’d)**

 

**(i)****            Pension plans (cont’d)**

 

When an eventgives rise to both a curtailment and a settlement, the curtailment is accountedfor prior to the settlement.

 

The Company alsoparticipates in a number of multiemployer defined benefit pension planscovering approximately 3,100 employees. These multiemployer plans are accountedfor following the standards on defined contribution plans as the Company hasinsufficient information to apply defined benefit plan accounting.

 

**(ii)****        Other postretirement benefits**

 

The Companydetermines the cost of other postretirement benefits using the accrued benefitmethod. These benefits, which are funded by the Company as they become due,include life insurance programs and medical benefits. The Company amortizes thecumulative unrecognized net actuarial gains and losses in excess of 10% of theprojected benefit obligation over the expected average remaining service livesof active employees covered by the plans, which ranges from approximately 5 to15 years.

 

**(o)****            Environmental expenditures**

 

Environmentalexpenditures that relate to current operations are expensed or capitalized asappropriate. Expenditures that relate to an existing condition caused by pastoperations and which are not expected to contribute to current or future operationsare expensed. Liabilities are recorded when environmental assessments and/orremedial efforts are likely, and when the costs, based on a specific plan ofaction in terms of the technology to be used and the extent of the correctiveaction required, can be reasonably estimated.

 

**(p)****            Impairment of long-lived assets**

 

The Companyreviews long-lived assets whenever events or changes in circumstances indicatethat the carrying amount of such assets may not be recoverable. An impairmentis recognized when the carrying amount of a group of assets held for useexceeds the sum of the undiscounted cash flows expected from its use andeventual disposition. Measurement of an impairment is based on the amount bywhich the carrying amount of a group of assets exceeds its fair value. Fairvalue is determined using accepted valuation techniques, such as quoted marketprices, when available, or an estimate of discounted future cash flows.

 

**(q)****            Asset retirement obligations**

 

Legalobligations associated with site restoration costs on the retirement ofproperty are recognized in the period in which they are incurred. Theobligations are initially measured at fair value and an equal amount isrecorded as other long-term assets. Over time, the discounted asset retirementobligations accrete due to the increase in the fair value resulting from thepassage of time. This accretion amount is charged to income. The initial costsare depreciated over the useful life of the related property or the remainingleasehold engagement when applicable.

 

**(r)****            Comparative figures**

 

Certaincomparative figures have been reclassified to conform to the current yearpresentation.

 

**(s)****            Future changes in accounting standards**

 

In December 2006,the CICA issued a new accounting standard, Section 1535, CapitalDisclosures, which requires the disclosure of both qualitative and quantitativeinformation that enables users of financial statements to evaluate the entity’sobjectives, policies and processes for managing capital. The new standardapplies to interim and annual financial statements relating to fiscal yearsbeginning on or after October 1, 2007.

 

In December 2006,the CICA issued two new accounting standards, Section 3862, FinancialInstruments – Disclosures, and Section 3863, Financial Instruments –Presentation, which require additional disclosures relating to financialinstruments. The new sections apply to interim and annual financial statementsrelating to fiscal years beginning on or after October 1, 2007.

 

22

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Table of Contents

 

**Notes to Consolidated Financial Statements**

 

**2.****                       ****Summary of Significant Accounting Policies(Cont’d)**

** **

**(s)****          Future changes in accounting standards (cont’d)**

 

In March 2007,the CICA issued a new accounting standard, Section 3031, Inventories,which provides more extensive guidance on the recognition and measurement ofinventories, and related disclosures. This new standard applies to interim andannual financial statements relating to fiscal years beginning on or after January 1,2008. The Company is currently evaluating the effect of this standard on itsconsolidated financial statements.

 

In January 2008,the CICA issued Section 3064, Goodwill and Intangible Assets, which willreplace Section 3062, Goodwill and Other Intangible Assets, and results inthe withdrawal of Section 3450, Research and Development Costs andEmerging Issues Committee (“EIC”) Abstract 27, Revenues and Expenditures duringthe Pre-operating Period, and amendments to Accounting Guideline (“AcG”) 11,Enterprises in the Development Stage. The standard provides guidance on therecognition of intangible assets in accordance with the definition of an assetand the criteria for asset recognition as well as clarifying the application ofthe concept of matching revenues and expenses, whether these assets areseparately acquired or internally developed. This standard applies to interimand annual financial statements relating to fiscal years beginning on or after October 1,2008. The Company is currently evaluating the effect of adopting this standard.

 

**3.**                        Impairmentof Assets, Restructuring and Other Charges (Amended)

** **

The following table details the charge forimpairment of assets, restructuring and other charges and pension settlementsand curtailments:

 
| ** **                                 | ** ** | **Note**   | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|----------|------------|----------|------------|
| Impairment  of assets                      | ** ** | ** ** |       | **$**      | **256.1**  |     | $          | 33.0     |       | $ | 53.7 |   |
| Restructuring  and other charges           | ** ** | ** ** |       | **42.7**   |       | 76.4     |       | 40.3     |       |
| Pension  settlements and curtailments      |       | 26         | ** ** | **4.8**    |       | 1.9      |       | 0.2      |       |
| ** **                                 |       |       |       | **$**      | **303.6**  |     | $          | 111.3    |       | $ | 94.2 |   |
|                                       |       |       | ** ** | ** ** |       |     |       |     |       |
| Discontinued  operations related to Europe |       | 29         | ** ** | **96.0**   |       | 45.1     |       | 70.9     |       |
| ** **                                 |       |       |       | **$**      | **207.6**  |     | $          | 66.2     |       | $ | 23.3 |   |

 

**(a)****            Impairment of assets**

 

During the firstthree quarters of 2007, impairment tests were triggered in North America, as aresult of the retooling plan and the relocation of existing presses into fewer,but larger and more efficient facilities and the Company recorded impairmentcharges of $71.7 million mainly on machinery and equipment. In Europe, the impairmenttest was triggered by the potential sale/merger of the European operations andthe impairment charges totalling $84.1 millionmainly on machinery and equipment was recorded.

 

In the fourthquarter of 2007, the Company completed its 2008 budget and impairment tests onspecific components were triggered due to industry pressure namely continuedprice pressure and volume declines. As a result, the Company concluded that thecarrying amount of certain long lived assets was not fully recoverable and non-cashasset impairment charges of $99.3 million in North America and $1.0 million inLatin America were recorded to write down the value of the long lived assets tothe estimated fair value. The impairment charge is mainly related to machineryand equipment.

 

23

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Table of Contents

 

**Notes to Consolidated Financial Statements**

 

**3.**                        Impairmentof Assets, Restructuring and Other Charges (Amended) (Cont’d)

** **

**(b)****            Restructuring and other charges**

 

The followingtable details the Company’s restructuring and other charges and the change inthe reserve for restructuring and other charges included in trade payables andaccrued liabilities:

 
| ** **                                       | ** ** | **2007  Initiatives** | ** ** | **2007  Prior Year  Initiatives** | ** ** | **Total**  | ** ** | **2006  Initiatives** | ** ** | **2006  Prior Year  Initiatives** | ** ** | **Total** | ** ** | **2005  Total** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|----------------------------------------|------------|------------|------------|-----------------------|------------|----------------------------------------|------------|-----------|------------|-----------------|------------|
| **Expenses**                                     |       |                  |       |                                   |       |       |       |                  |       |                                   |       |      |       |            |       |
| Workforce reduction                              | ** ** | **$**                 | **15.2**   | ** **                             | **$**      | **6.9**    | ** ** | **$**                 | **22.1**   |                                   | $          | 50.7      |       | $               | 7.5        |   | $ | 58.2 |   | $ | 26.5 |   |
| Leases and carrying costs for closed  facilities | ** ** | **11.1**              | ** ** | **14.5**                               | ** ** | **25.6**   |       | 12.9                  |       | 7.0                                    |       | 19.9      |       | 17.7            |       |
| ** **                                       | ** ** | **26.3**              | ** ** | **21.4**                               | ** ** | **47.7**   |       | 63.6                  |       | 14.5                                   |       | 78.1      |       | 44.2            |       |
| **Underspending**                                |       |                  |       |                                   |       |       |       |                  |       |                                   |       |      |       |            |       |
| Workforce reduction                              | ** ** | **—**            | ** ** | **(4.8**                               | **)**      | **(4.8**   | **)**      | —                |       | (1.3                                   | )          | (1.3      | )          | (2.9            | )          |
| Leases and carrying costs for  closed facilities | ** ** | **—**            | ** ** | **(0.2**                               | **)**      | **(0.2**   | **)**      | —                |       | (0.4                                   | )          | (0.4      | )          | (1.0            | )          |
| ** **                                       | ** ** | **—**            | ** ** | **(5.0**                               | **)**      | **(5.0**   | **)**      | —                |       | (1.7                                   | )          | (1.7      | )          | (3.9            | )          |
| **Payments**                                     |       |                  |       |                                   |       |       | ** ** |                  |       |                                   |       |      |       |            |       |
| Workforce reduction                              | ** ** | **(12.6**             | **)**      | **(32.1**                              | **)**      | **(44.7**  | **)**      | (21.1                 | )          | (12.5                                  | )          | (33.6     | )          | (29.5           | )          |
| Leases and carrying costs for  closed facilities | ** ** | **(11.0**             | **)**      | **(18.2**                              | **)**      | **(29.2**  | **)**      | (11.6                 | )          | (12.9                                  | )          | (24.5     | )          | (17.4           | )          |
| ** **                                       | ** ** | **(23.6**             | **)**      | **(50.3**                              | **)**      | **(73.9**  | **)**      | (32.7                 | )          | (25.4                                  | )          | (58.1     | )          | (46.9           | )          |
| **Net change**                                   | ** ** | **2.7**               | ** ** | **(33.9**                              | **)**      | **(31.2**  | **)**      | 30.9                  |       | (12.6                                  | )          | 18.3      |       | (6.6            | )          |
| Foreign currency changes                         | ** ** | **—**            | ** ** | **1.3**                                | ** ** | **1.3**    | ** ** | 0.2                   |       | 1.4                                    |       | 1.6       |       | (1.6            | )          |
|                                             | ** ** | ** **            | ** ** | ** **                             | ** ** | ** ** | ** ** |                  |       |                                   |       |      |       |            |       |
| Balance, beginning of year                       | ** ** | **—**            | ** ** | **46.9**                               | ** ** | **46.9**   | ** ** | —                |       | 27.0                                   |       | 27.0      |       | 35.2            |       |
| **Balance, end of year**                         | ** ** | **$**                 | **2.7**    | ** **                             | **$**      | **14.3**   | ** ** | **$**                 | **17.0**   |                                   | $          | 31.1      |       | $               | 15.8       |   | $ | 46.9 |   | $ | 27.0 |   |

 

**(i)****            2007 restructuring initiatives**

 

In 2007,restructuring initiatives related to the closure or downsizing of variousfacilities, mainly in the North American segment. The Company approved theclosure of the Lincoln, NE facility (Magazine group); the closure of Phoenix,AZ facility (Retail group); the closure of the Vancouver, BC facility(Canada) and the closure of the Sao Paulo facility (Latin America). There were also various headcountreductions across the Company. The total expected cost amounted to $29.3million of which $15.3 million was related to workforce reductions, and $14.0million for leases and carrying costs for closed facilities ($24.1 million inNorth America, $4.5 million in Europe and $0.7 million in Latin America). Thecompletion of these initiatives is expected by the end of 2008 for a total of$0.1 million in workforce reductions and $2.9 million in lease and carryingcosts for closed facilities.

 

**(ii)****        Prior years restructuring initiatives**

 

***2006restructuring initiatives***

 

The2006 restructuring initiatives were related to the closure or downsizing ofvarious facilities, mainly in the North American and European segments. TheCompany approved the closure of a facility in Quebec; the closure of printingand binding facilities in Illinois, both in the Catalog group; the closure ofthe Kingsport, Tennessee facility in the Book group; the closure of Red Bank,Ohio and the Brookfied, Wisconsin facilities in the Magazine group; the closureof the Strasbourg, France facility and employee terminations at the Lille,France facility. There were also various headcount reductions across theCompany. Management expects those initiatives to be completed by the end of2008 and supplemental costs of $2.5 million to be incurred in 2008 for leasesand closed facilities in North America and Europe.

 

***2005restructuring initiatives***

 

The2005 restructuring initiatives were related to the downsizing of operations inHelio Corbeil, France; the two phases of the downsizing operations in Corby,United Kingdom; the closure of a Canadian facility and other workforce reductionsacross the Company. No other charge is expected for these initiatives.

 

24

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Table ofContents

 

**Notes to Consolidated Financial Statements**

 

**4.****                       ****Financial Expenses (Amended)**

 
| ** **                                                                              | ** ** | **Note** | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------|------------|------------|------------|------------|------------|----------|------------|
| Interest on  long-term debt, convertible notes and secured financing                    |       |     |       | **$**      | **181.4**  |       | $          | 151.6    |       | $ | 119.4 |   |
| Prepayment  premium on the early redemption of debts                                    |       | 16       |       | **53.1**   | ** ** | **—** |       | —   |       |
| Bank and  other charges                                                                 |       |     |       | **11.6**   |       | 6.0        |       | 3.1      |       |
| Amortization  of deferred financing fees                                                |       |     |       | **6.6**    |       | 2.9        |       | 1.9      |       |
| Net (gain)  loss on foreign exchange and derivative financial instruments (a) (b)  |       |     |       | **(18.3**  | **)**      | (12.2      | )          | 2.2      |       |
| Exchange  loss from reductions of net investments in self-sustaining foreign operations |       |     |       | **—** | ** ** | 2.5        |       | —   |       |
|                                                                                    |       |     |       | **234.4**  | ** ** | 150.8      |       | 126.6    |       |
| Interest  capitalized to the cost of equipment                                          |       |     |       | **(5.7**   | **)**      | (16.6      | )          | (7.6     | )          |
|                                                                                    |       |     | ** ** | ** ** |       |       |       |     |       |
|                                                                                    |       |     | ** ** | **$**      | **228.7**  |       | $          | 134.2    |       | $ | 119.0 |   |
|                                                                                    |       |     |       | ** ** |       |       |       |     |       |
| Discontinued  operations related to Europe                                              |       | 29       |       | **49.8**   |       | 20.2       |       | 15.4     |       |
|                                                                                    |       |     | ** ** | **$**      | **178.9**  |       | $          | 114.0    |       | $ | 103.6 |   |

 

----

(a)          Duringthe year ended December 31, 2007, theCompany recorded a net loss of $76.0 million on derivative financialinstruments for which hedge accounting was not used and embedded derivatives not closely related to their host contracts (anet loss of $32.6 million in 2006 and a net gain of $50.7 million in 2005).

 

(b)         TheCompany recorded a net gain of $4.4 million on fair value hedges terminatedduring the year ended December 31, 2007.

 

25

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Table of Contents

 

**Notes to Consolidated Financial Statements**

 

**5.**                        IncomeTaxes (Amended)

** **

The domestic and foreigncomponents of income (loss) from continuing operations, before income taxes,are as follows:

 
| ** ** | ** ** | **Note** | ** ** | **2007**     | ** **   | **2006** | ** ** | **2005** | ** ** |
|------------|------------|----------|------------|--------------|--------------|----------|------------|----------|------------|
| Domestic   |       |     | ** ** | **$**        | **(133.6**   | **)**    | $          | (48.3    | )          | $ | 29.7 |   |
| Foreign    |       | 29       | ** ** | **(1,942.3** | **)**        | 129.9    |       | 212.7    |       |
| ** ** |       |     |       | **$**        | **(2,075.9** | **)**    | $          | 81.6     |       | $ | 242.4 |   |

 

Total income tax wasallocated as follows:

 
| ** **                     | ** ** | **Note**   | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|
| Continuing  operations         | ** ** | ** ** |       | **$**    | **(238.2** | **)**    | $          | (38.0    | )          | $ | 63.1 |   |
| Discontinued  operations       |       | 29         | ** ** | **$**    | **(12.0**  | **)**    | $          | 1.4      |       | $ | 1.6 |   |
| Shareholders’  equity:    |       |       |       |     | ** ** |     |       |     |       |
| Other  comprehensive income    | ** ** | ** ** |       | **9.0**  | ** ** | (1.3     | )          | (0.9     | )          |
| Dividends on  preferred shares | ** ** | ** ** |       | **2.6**  | ** ** | 3.0      |       | 4.0      |       |
| ** **                     |       |       |       | **$**    | (238.6     | )        | $          | (34.9    | )          | $ | 67.8 |   |

 

Income tax expense (recovery)attributable to income consists of:

 
| ** **                                   | ** ** | **Note**   | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005** | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|------------|------------|----------|------------|
| Current:                                     | ** ** | ** ** |       | ** ** | ** ** |       |       |     |       |
| Domestic                                     | ** ** | ** ** |       | **$**      | **1.4**    | ** ** | $          | 2.1      |       | $ | 23.4 |   |
| Foreign                                      |       |       |       | **4.2**    | ** ** | (40.9)     |       | 62.0     |       |
| ** **                                   |       |       |       | **5.6**    | ** ** | (38.8      | )          | 85.4     |       |
| Portion  included in discontinued operations |       | 6, 29      | ** ** | **0.2**    | ** ** | 0.1        |       | 22.3     |       |
| ** **                                   |       |       |       | **5.4**    | ** ** | (38.9      | )          | 63.1     |       |
| Future:                                      |       |       |       |       | ** ** |       |       |     |       |
| Domestic                                     | ** ** | ** ** |       | **(25.1**  | **)**      | (25.3      | )          | (5.1     | )          |
| Foreign                                      | ** ** | ** ** |       | **(230.7** | **)**      | 27.5       |       | (15.6    | )          |
| ** **                                   |       |       |       | **(255.8** | **)**      | 2.2        |       | (20.7    | )          |
| Portion  included in discontinued operations |       | 6, 29      | ** ** | **(12.2**  | **)**      | 1.3        |       | (20.7    | )          |
| ** **                                   |       |       |       | **(243.6** | **)**      | 0.9        |       | —   |       |
| ** **                                   |       |       |       | ** ** | ** ** |       |       |     |       |
| ** **                                   |       |       |       | **$**      | **(238.2** | **)**      | $          | (38.0    | )          | $ | 63.1 |   |

 

26

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**Table of Contents**

** **

**Notes to Consolidated Financial Statements**

** **

**5.**                        IncomeTaxes (Amended) (Cont’d)

** **

The following tablereconciles the difference between the domestic statutory tax rate and theeffective tax rate used by the Company in the determination of net income(loss) from continuing operations:

 
| ** **                                                                    | ** ** | **2007**   | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
|                                                                          | ** ** | ** ** |       |     |       |     |       |
| Domestic  statutory tax rate                                                  | ** ** | **33.1**   | **%**      | 33.1     | %          | 34.2     | %          |
|                                                                          |       |       | ** ** |     |       |     |       |
| Increase  (reduction) resulting from:                                         |       |       | ** ** |     |       |     |       |
| Change in  valuation allowance                                                | ** ** | **(1.5**   | **)**      | 10.5     |       | 1.2      |       |
| Effect of  foreign tax rate differences                                       | ** ** | **7.5**    | ** ** | (77.6    | )          | (18.4    | )          |
| Permanent  differences                                                        | ** ** | **0.5**    | ** ** | 1.0      |       | 1.5      |       |
| Changes in  enacted and average tax rates on cumulative temporary differences |       | **—** | ** ** | (2.4     | )          | —   |       |
| Large  corporation tax, minimum tax and other taxes                           |       | **—** | ** ** | 0.7      |       | 0.4      |       |
| Goodwill  impairment                                                          | ** ** | **(29.2**  | **)**      | —   |       | 0.3      |       |
| Other                                                                         | ** ** | **1.1**    | ** ** | (11.9    | )          | 6.8      |       |
| Effective  tax rate                                                           | ** ** | **11.5**   | **%**      | (46.6    | )%         | 26.0     | %          |

 

The tax effects ofsignificant items comprising the Company’s net future tax liability are asfollows:

 
| ** **                                                 | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                       |       |       |       |       |       |
| Future income tax assets:                   |       |       |       |       |       |
| Operating  loss carryforwards                              | ** ** | **$**      | **464.0**  | ** ** | $          | 315.7 |   |
| Tax credit  carryforwards                                  | ** ** | **14.7**   | ** ** | 19.0       |       |
| Accounts  receivable                                       | ** ** | **17.8**   | ** ** | 4.3        |       |
| Restructuring  reserves                                    | ** ** | **2.5**    | ** ** | 16.6       |       |
| Goodwill and  other assets                                 | ** ** | **22.8**   | ** ** | —     |       |
| Pension,  postretirement and workers compensation benefits | ** ** | **18.5**   | ** ** | —     |       |
| Non  deductible provisions                                 | ** ** | **50.9**   | ** ** | 53.6       |       |
| Interest  limitation                                       | ** ** | **53.7**   | ** ** | —     |       |
| Other                                                      | ** ** | **10.5**   | ** ** | 6.6        |       |
| ** **                                                 |       | **655.4**  | ** ** | 415.8      |       |
|                                                       |       |       | ** ** |       |       |
| Future  income tax liabilities:                            |       |       | ** ** |       |       |
| Property,  plant and equipment                             | ** ** | **(265.6** | **)**      | (388.1     | )          |
| Inventories                                                | ** ** | **(24.1**  | **)**      | (27.9      | )          |
| Goodwill and  other assets                                 | ** ** | **—** | ** ** | (68.2      | )          |
| Pension,  postretirement and workers compension benefits   | ** ** | **—** | ** ** | (1.3       | )          |
| Other                                                      | ** ** | **—** | ** ** | (1.5       | )          |
| ** **                                                 |       | **(289.7** | **)**      | (487.0     | )          |
|                                                       | ** ** | ** ** | ** ** |       |       |
| Valuation  allowance                                       | ** ** | **(459.1** | **)**      | (278.4     | )          |
| Net future  income tax liabilities                         | ** ** | **(93.4**  | **)**      | (349.6     | )          |
| Current  portion of:                                       |       |       | ** ** |       |       |
| Future  income tax assets                                  | ** ** | **28.6**   | ** ** | 40.6       |       |
| Future  income tax liabilities                             | ** ** | **(1.0**   | **)**      | (1.1       | )          |
| Long term  portion of:                                     |       |       | ** ** |       |       |
| Future  income tax assets                                  | ** ** | **11.2**   | ** ** | —     |       |
| Future  income tax liabilities                             | ** ** | **(132.2** | **)**      | (389.1     | )          |
| Future  income tax liabilities, net                        | ** ** | **$**      | **(93.4**  | **)**      | $          | (349.6 | ) |

 

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** **

**Notes to Consolidated Financial Statements**

 

**5.**                        IncomeTaxes (Amended) (Cont’d)

** **

The 2007 and 2006 amountsabove included a valuation allowance of $459.1 million and $278.4 million respectively,relating to loss carryforwards and other tax benefits available since theirrealization was not more likely than not. The increase in total valuationallowance for the year ended December 31, 2007 was mainly explained by$102.1 million allocated to income from operations. The net change in the totalvaluation allowance for the year ended December 31, 2006 was explained by$38.5 million allocated to income from operations, partly offset by a decreaseof $28.3 million due to a reorganization of the corporate structure.

 

Any subsequent recognition ofthe tax benefits resulting from a reduction in the valuation allowance forfuture tax assets as of December 31, 2007 will be recorded as a reductionof income tax expense.

 

At December 31, 2007,the Company had net operating loss carryforwards for income tax purposes of$1,381.8 million, of which $1,122.2 million can be carried forwardindefinitely, and $259.6 million expire between 2008 and 2027. An amount of$487.8 million, included in the net operating loss carryforwards, is subject torecapture should a reevaluation occur on the investment in Europe.

 

In the United States, theCompany had State net operating loss and State tax credit carryforwards net offederal tax benefits of approximately $37.5 million and $14.4 million,respectively. These loss and tax credit carryforwards expire between 2008 and2027. Limitations on the utilization of these tax assets may apply and theCompany has accordingly recorded a valuation allowance in the amount of $40.2 million.

 

The Company has notrecognized a future tax liability for the undistributed earnings of itssubsidiaries in the current and prior years, because the Company currently doesnot expect those unremitted earnings to reverse and become taxable to the Companyin the foreseeable future. Future income taxes will be recognized when theCompany expects that it will repatriate these undistributed earnings in ataxable manner, such as through receipt of dividends or sale of theinvestments. Such liability is not reasonably determinable at the present time.

 

**6.**                        DiscontinuedOperations

** **

In 2005, the Companycompleted the disposal of its North American non-core Commercial Printing Groupand the operating results and associated gain or loss on disposal of assetsrelated to these activities have been presented separately in the Company’sconsolidated statement of income as discontinued operations. The followingtransactions relating to the non-core Group have been concluded in 2005:

 

The Company soldits interest in a subsidiary and the operating assets of some of itssubsidiaries in Canada, for a total consideration of $52.0 million. The Companyrealized a loss amounting to $0.9 million ($5.2 million net of income tax). Areduction of $18.5 million relating to goodwill of the North American segmentwas recorded within discontinued operations. Following an adjustment to theselling price based on the November 2005 closing working capital, theCompany paid $2.5 million in March 2006 and no gain or loss resulted fromthis adjustment.

 

The Company soldthe operating assets of some units in the United States for a totalconsideration of $65.2 million comprised of $36.7 million of cash, $20.0million of preferred units of Matlet Group, LLC and $8.5 million in apromissory note receivable, which was received in full in March 2006. TheCompany realized a gain amounting to $4.1 million (a loss of $6.8 million netof income tax). A reduction of $24.4 million relating to goodwill of the NorthAmerican segment was recorded within discontinued operations. Following anadjustment of the selling price based on the November 2005 closing workingcapital, the Company paid $1.2 million and realized a loss of $1.6 million($1.0 million net of income tax) in the first quarter of 2006.

 

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** **

**Notes to Consolidated Financial Statements**

 

**7.**                        Earnings(Loss) Per Share (Amended)

** **

The following table setsforth the computation of basic and diluted earnings (loss) per share fromcontinuing operations:

 
| ** **                                                                      | ** ** | **2007**   | ** **   | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|--------------|----------|------------|----------|------------|
|                                                                            | ** ** | ** ** | ** **   |     |       |     |       |
| Net income  (loss) from continuing operations                                   | ** ** | **$**      | **(1,837.4** | **)**    | $          | 118.8    |       | $ | 179.7 |   |
|                                                                            | ** ** | ** ** |         |     |       |     |       |
| Net income  allocated to holders of preferred shares                            | ** ** | **22.2**   |         | 34.0     |       | 39.6     |       |
|                                                                            | ** ** | ** ** | ** **   |     |       |     |       |
| Income  (loss) from continuing operations available to holders of equity shares | ** ** | **$**      | **(1,859.6** | **)**    | $          | 84.8     |       | $ | 140.1 |   |
|                                                                            | ** ** | ** ** | ** **   |     |       |     |       |
| (In  millions)                                                                  | ** ** | ** ** | ** **   |     |       |     |       |
|                                                                            | ** ** | ** ** | ** **   |     |       |     |       |
| Weighted-average  number of equity shares outstanding                           | ** ** | **131.9**  | ** **   | 131.4    |       | 131.8    |       |
|                                                                            | ** ** | ** ** | ** **   |     |       |     |       |
| Income  (Loss) per share:                                                       | ** ** | ** ** | ** **   |     |       |     |       |
| Basic and  diluted                                                              | ** ** | **$**      | **(14.10**   | **)**    | $          | 0.65     |       | $ | 1.06 |   |

 

For the purpose ofcalculating diluted earnings (loss) per share, the effects of the convertiblenotes (redeemed in June 2007) and the effects of all stock options wereexcluded, since their inclusion was anti-dilutive for 2007, 2006 and 2005.

 

**8.**                        BusinessDisposals and Other

** **

In 2007, theCompany sold its investments in two facilities of its French operations fornominal cash consideration resulting in a net loss on disposal of $12.7 million(see Note 29).

 

During theyear 2007, the Company recorded a net loss on other assets of $14.8 million.

 

No significantdisposals occurred in 2006 and 2005.

 

**9.**                        Salesof Account Receivables

** **

**2007**

** **

In October 2007,the Company terminated its Canadian Securitization program. By December 31,2007, the Company completed the amortization process set out in the agreementgoverning the Canadian securitization program as all accounts receivablegenerated in Canada were now governed by the North American program describedbelow. In order to conclude the revised arrangement, CA$23.6 million ($24.3million) of receivables which remained outstanding were repurchased under theNorth American program.

 

In October 2007,the Company amended its U.S. program (the North American program) to includeaccounts receivable generated by its Canadian operations. The North AmericanProgram limit was then $408.0 million ($459.0 millionduring certain periods of the year.)

 

As of December 31, 2007the North American program does not meet certain criteria under accountingstandards to achieve sale treatment, therefore, the amount outstanding of$428.0 million is presented as secured financing. The accounts receivable underthe program serve to secure the financing. As at December 31, 2007, theaccounts receivable pledged totalled $605.4 million. Since the program ceasedto qualify as a sale of assets under accounting standards, fees payable underthe program are thereafter recorded as interest expense in the consolidatedstatement of income. Subsequent to the year end and following thefiling under creditor protection, the North American program was reimbursed inits entirety and, on January 23, 2008 the NorthAmerican program was terminated.

 

In October 2007,the Company commenced the liquidation of its European Securitization Program.By December 31, 2007 any amounts outstanding under this program had beenrepurchased thus completing the amortization process set out in the agreementgoverning the European securitization program.

 

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** **

**Notes to Consolidated Financial Statements**

 

**9.**                        Salesof Account Receivables (Cont’d)

** **

**2007 (cont’d)**

** **

On November 22,2007 the Company entered into a factoring program of its accounts receivable inFrance. Under this program (the Factoring program), the Company entered intoagreements to sell up to EUR47.0 million ($69.2 million)of selected receivables with limited recourse. As at December 31, 2007 theCompany has sold accounts receivable of EUR27.7 million ($40.7 million). Theagreement can be terminated by either parties upon one month’s notice.

 

TheFactoring program does not meet certain criteria under accounting standards toachieve sale treatment.  Accordingly, thefunds received under this program are presented as secured financing for anaggregate amount of EUR23.4 million ($34.5 million). The related accountsreceivable under the program serve to secure the financing. As at December 31,2007 the accounts receivable pledged under the Factoring program totalled $40.7million.

 

**2006**

** **

In2006, the U.S. securitization program (the “U.S. Program”) agreement limit was$408.0 million ($459.0 million during peak season). As at December 31,2006, the amount outstanding under the U.S. Program was $374.0 million.Consistent with its U.S. securitization agreement, the Company sold all of itsU.S. receivables to a wholly-owned subsidiary, Quebecor World Finance Inc.,through a true-sale transaction.

 

In2006, the Company sold, with limited recourse, a portion of its Canadianaccounts receivable on a revolving basis (the “Canadian Program”). The CanadianProgram limit was CA$135.0 million. As at December 31, 2006 the amountoutstanding under the Canadian Program was CA$89.0 million ($76.4 million).

 

In2006, the European securitization program (the “European Program”) had allowedthe Company to sell, with limited recourse, a portion of its accounts receivablefrom its Spanish and French facilities on a revolving basis. The EuropeanProgram limit was EUR153.0 million. As at December 31, 2006, the amountoutstanding under the European Program was EUR97.9 million ($129.1 million).

 

At December 31,2006, an aggregate amount of $802.5 million of accounts receivable had beensold under the three programs, of which $223.0 million were kept by the Companyas a retained interest, resulting in a net aggregate consideration of $579.5million on the sale. The retained interest was recorded in the Company’saccounts receivable, and its fair value approximated its cost, given theshort-term nature of the collection period of the accounts receivable sold. Therights of the Company on the retained interest were subordinated to the rightsof the investors under the programs. There was no recourse under the programson the Company’s other assets for failure of debtors to pay when due, otherthan the retained interest of the Company.

 

The Companyhad retained the responsibility for servicing, administering and collectingaccounts receivable sold. No servicing asset or liability had been recognized,since the fees the Company receives for servicing the receivables approximatethe related costs.

 

Securitizationfees and interest on secured financing varied based on commercial paper ratesin Canada and the United States and on Euribor in Europe and, generally, haveprovided a lower effective funding cost than available under the Company’s bankfacilities.

 

Proceeds fromrevolving sales between the securitization trusts and the Company in 2007totalled $3.1 billion ($4.3 billion in2006).

 

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** **

**Notes to Consolidated Financial Statements**

** **

**10.      Related Party Transactions**

** **

The Company entered into thefollowing transactions, which were concluded and accounted for at the exchangeamount with the parent company and its subsidiaries:

 
| ** **                                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Companies  under common control:              |       |     |       |     |       |     |       |
| Revenues                                      | ** ** | **$**    | **56.3**   |     | $          | 66.3     |       | $ | 64.9 |   |
| Selling,  general and administrative expenses | ** ** | **25.0** |       | 13.6     |       | 17.6     |       |
| Management  fees billed by Quebecor Inc.      | ** ** | **5.0**  |       | 4.8      |       | 4.5      |       |
|                                               |            |          |            |          |            |          |            |  |  |  |

 

In October 2007,the Company sold its participation in Nurun Inc to Quebecor Media Inc, bothcompanies under common control, for a cash consideration of CA$1.7 million($1.7 million), resulting in a gain of CA$1.2 million ($1.2 million). The transaction was realized atfair value.

 

In October 2007,the Company sold a property to a company under common control, Quebecor MediaInc., for consideration of CA$62.5million ($64.0 million). Simultaneously, the Company entered into a long-termlease of 17 years with QuebecorMedia Inc., to rent a portion of the property sold. Consideration for the twotransactions was settled by a cash receipt of CA$43.9 million ($44.9 million)on the date of the transactions and the Company assumed a net balance of sale,including interest, of CA$7.0 million ($7.2 million) receivable in 2013. The disposal of the property generated a gain ofCA$4.0 million ($4.1 million) which was deferred and will be amortized over thelease term. Inaddition, the Company signed a ten year manufacturing agreement with QuebecorMedia Inc for the printing of directories in Quebecor Media Inc. printinginstallations of Islington, Ontario and Mirabel, Quebec.

 

In June 2007,a real estate property was sold to a shareholder of the parent company at fairvalue of $1.3 million, established based on an independent estimate, resultingin a gain on disposal of $1.0 million which is included in selling, general andadministrative expenses.

 

In 2006, the Company transferredthe benefit of a deduction for Part VI.I tax to a company under commoncontrol for a consideration of CA$6.4 million ($5.5 million), recorded inreceivables from related parties. This reduced the Company’s available futureincome tax assets by CA$7.6 million ($6.5 million), and decreased thecontributed surplus by CA$1.2 million ($1.0 million). The transaction wasrecorded at the carrying amount. The 2006 transaction has been adjusted in2007, resulting in an increase of CA$0.4 million ($0.4 million) recorded incontributed surplus.

 

In March 2005, theCompany sold certain operating assets to Quebecor Media Inc., a company undercommon control, for a cash consideration of CA$3.3 million ($2.7 million). Thetransaction was recorded at the carrying amount and no gain or loss wasrecorded.

 

**31**

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** **

**Notes to Consolidated Financial Statements**

** **

**10.      Related Party Transactions (Cont’d)**

** **

In 2000, the Company enteredinto a strategic agreement with Nurun Inc. (“Nurun”). The agreement included acommitment from the Company to use the services of Nurun (informationtechnology and E-Commerce services) for a minimum of $40 million over afive-year period. In 2004, an addendum was made to the agreement, extending theterm for another five years from the date of the addendum. In addition, theminimum service revenues of $40 million committed to Nurun were modified toinclude services directly requested by the Company and its parent company andsubsidiaries, as well as business referred, under certain conditions, to Nurunby the Company and its affiliates. Finally, if the aggregate amount of theservice revenues for the term of the agreement is lower than the minimum of $40million, the Company has agreed to pay an amount to Nurun equal to 30% of thedifference between the minimum guaranteed revenues and the aggregate amount ofrevenues. As of December 31, 2007, the cumulative services rendered byNurun under this agreement amounted to $26.2 million.

 

**11.      Inventories**

 
| ** **                  | ** ** | **2007**  | ** ** | **2006** | ** ** |
|-----------------------------|------------|-----------|------------|----------|------------|
| Raw  materials and supplies | ** ** | **$**     | **241.7**  |     | $          | 234.0 |   |
| Work in  process            | ** ** | **126.4** |       | 122.7    |       |
| ** **                  |       | **$**     | **368.1**  |     | $          | 356.7 |   |

** **

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** **

**Notes to Consolidated Financial Statements**

** **

**12.**                   Property,Plant and Equipment

** **
| ** **                            | ** ** | **Cost**    | ** **  | **Accumulated****depreciation** | ** ** | **Net book  value** | ** ** |
|---------------------------------------|------------|-------------|-------------|---------------------------------|------------|---------------------|------------|
| December 31,  2007               |       |        |        |                            |       |                |       |
| Land                                  | ** ** | **$**       | **80.1**    | ** **                      | **$**      | **—**          | ** ** | **$** | **80.1** | ** ** |
| Buildings  and leasehold improvements | ** ** | **753.1**   | ** **  | **246.8**                       | ** ** | **506.3**           | ** ** |
| Machinery  and equipment              | ** ** | **4,219.6** | ** **  | **2,843.7**                     | ** ** | **1,375.9**         | ** ** |
| Projects  under development           | ** ** | **46.7**    | ** **  | **—**                      | ** ** | **46.7**            | ** ** |
| ** **                            | ** ** | **$**       | **5,099.5** | ** **                      | **$**      | **3,090.5**         | ** ** | **$** | **2,009.0** | ** ** |
| December 31,  2006               |       |        |        |                            |       |                |       |
| Land                                  |       | $           | 88.2        |                            | $          | —              |       | $ | 88.2 |   |
| Buildings  and leasehold improvements |       | 814.5       |        | 276.8                           |       | 537.7               |       |
| Machinery  and equipment              |       | 3,873.1     |        | 2,477.7                         |       | 1,395.4             |       |
| Projects  under development           |       | 266.1       |        | —                          |       | 266.1               |       |
|                                  |       | $           | 5,041.9     |                            | $          | 2,754.5             |       | $ | 2,287.4 |   |

 

As at December 31, 2007,the cost of property, plant and equipment and the corresponding accumulateddepreciation balance included amounts of $94.0 million ($60.9 million as at December 31,2006) and $29.4 million ($33.2 million as at December 31, 2006) respectively,for assets held under capital leases mainly for machinery and equipment.Depreciation of property, plant and equipment held under capital leasesamounted to $1.0 million in 2007 ($3.4 million in 2006, and $5.6 million in2005).

 

During 2007, the Companyconcluded a sale and leaseback transaction of machinery and equipment locatedat a facility in the United States. The transaction was considered to be a saleof assets with proceeds received of $14.5 million. Thesubsequent transaction consisted of a capital lease at a fair value of $12.2million. The transaction generated a loss on disposal of $2.8 million and adeferred gain of $2.3 million which is being amortized over the 7-year terms ofthe lease.

 

In the last quarter of2007, machinery and equipment with a fair value of $14.6 million weretransferred from an operating to capital lease. The total obligations amountedto $14.6 million payable over the 7-year term of the lease. This transactionhad no impact on the investing and financing section of the consolidatedstatements of cash flow. The transactions generated a loss on disposal of $2.9million and a deferred gain of $3.9 million which will be amortized over theterm of the lease.

 

During 2007, certain assets under operating lease were purchased for acash consideration of $74.8 million. The amount recorded in machinery andequipment was reduced by a provision of $14.0 million since the fair value ofthe equipment was lower than the cash consideration paid.

 

In October 2007,theCompany sold a property to a company under common control, as disclosed in Note10.

 

In March 2007,the Company concluded an agreement for the sale and leaseback of land andbuildings of facilities in North America. The transaction is considered to be asale of assets with proceeds of $34.2 million. The subsequent transactionconsisted of operating leases over the 15-year term of the lease. The disposalof these assets generated a gain of $13.6 million which was deferred and isbeing amortized over the term of the lease.

 

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**Notes to Consolidated Financial Statements**

** **

**13.      Goodwill**

** **

The changes in the carryingamount of goodwill for the years ended December 31 are as follows:

 
| ** **                          | ** ** | **Note** | ** ** | **North  America** | ** ** | **Europe** | ** ** | **Latin  America** | ** ** | **Total**    | ** ** |
|-------------------------------------|------------|----------|------------|--------------------|------------|------------|------------|--------------------|------------|--------------|------------|
| Balance,  December 31, 2004    |       |     |       | $                  | 2,198.3    |       | $          | 445.4              |       | $            | 8.2        |   | $ | 2,651.9 |   |
|                                |       |     |       |               |       |       |       |               |       |         |       |
| Goodwill  acquired                  |       |     |       | —             |       | 0.2        |       | —             |       | 0.2          |       |
| Business  disposals                 |       | 6        |       | (42.9              | )          | —     |       | —             |       | (42.9        | )          |
| Goodwill  impairment (a)            |       |     |       | —             |       | (243.0     | )          | —             |       | (243.0       | )          |
| Foreign  currency changes           |       |     |       | 1.3                |       | (61.7      | )          | (0.1               | )          | (60.5        | )          |
| Balance,  December 31, 2005    |       |     |       | $                  | 2,156.7    |       | $          | 140.9              |       | $            | 8.1        |   | $ | 2,305.7 |   |
|                                |       |     |       |               |       |       |       |               |       |         |       |
| Business  disposals                 |       |     |       | (0.4               | )          | (0.6       | )          | —             |       | (1.0         | )          |
| Foreign  currency changes           |       |     |       | —             |       | 19.1       |       | 0.5                |       | 19.6         |       |
| Balance,  December 31, 2006    |       |     |       | $                  | 2,156.3    |       | $          | 159.4              |       | $            | 8.6        |   | $ | 2,324.3 |   |
|                                |       |     | ** ** | ** **         | ** ** | ** ** |       | ** **         | ** ** | ** **   | ** ** |
| Goodwill  acquired                  |       |     | ** ** | **3.9**            | ** ** | **—** |       | **0.5**            | ** ** | **4.4**      | ** ** |
| Goodwill  impairment (b) (c)   |       |     | ** ** | **(1,823.2**       | **)**      | **(166.0** | **)**      | **(9.7**           | **)**      | **(1,998.9** | **)**      |
| Foreign  currency changes           |       |     | ** ** | **5.3**            | ** ** | **6.6**    |       | **0.6**            | ** ** | **12.5**     | ** ** |
| **Balance, December 31, 2007** |       |     | ** ** | **$**              | **342.3**  | ** ** | **$**      | **—**         | ** ** | **$**        | **—** | ** ** | **$** | **342.3** | ** ** |

 

----

(a)                      In 2005,the European reporting unit suffered from poor market conditions, namelycontinued price erosion and decreased volumes, as well as several productioninefficiencies and the loss of an important client. As a result, the Companyconcluded that the carrying amount of goodwill for the European reporting unitwas not fully recoverable and an impairment charge of $243.0 million was takenat December 31, 2005 (see Note 29).

 

(b)                     TheCompany completed its annual goodwill impairment testing in the third quarterof 2007. Taking into account financial information such as the potentialsale/merger of the European operations, management determined that the carryingvalue of goodwill for its European reporting unit was not recoverable and thatthe resulting impairment of such goodwill amounted to its entire carrying valueof $166.0 million at September 30, 2007 (See Note 29).

 

 (c)                   In thefourth quarter of 2007, the unsuccessful efforts of the Company to obtain newfinancing and its inability to conclude a proposed sale of its Europeanoperations combined with a decline in its stock prices triggered a requirementfor a goodwill impairment test related to the Company’s reporting units. As aresult, the Company concluded that the goodwill was impaired and a totalimpairment charge of $1,832.9 million was recorded for the North American andLatin America reporting units.

 

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**Notes to Consolidated Financial Statements**

** **

**14.      Restricted Cash**

** **

As at December 31,2007, the Company’s wholly owned captive insurance company had pledged $54.9million ($48.1 millionas at December 31, 2006) of cash as collateral for standby letters ofcredit issued in favour of a third party insurer for future estimated claimsrelating to U.S. Workers’ Compensation. The standby letter of credit and thecorresponding pledge agreement are renewable annually. The cash pledged againstthe letter of credit is intended for future use and is presented as restrictedcash under long-term assets in the Company’s consolidated balance sheet.

 

The Companyassessed the effects of the global asset-backed commercial paper liquiditycrisis on its investments and concluded that as at December 31, 2007, itresulted in no material impact to the Company’s consolidated financialstatements.

 

**15.      Bank Indebtedness**

** **

The Company has access tovarious credit facilities of up to $82.2 million. These facilities available inLatin America and in Europe are denominated in multiple currencies and arecancellable upon notice from the lending institutions. At December 31,2007, $73.2 million ($55.1 million in 2006) was drawn on these facilities. Asat December 31, 2006, the drawing on these facilities was classified aslong-term debt since the Company had the ability to refinance such debt on along-term basis (Note 16 (a)). There are no restrictive covenants on thesevarious credit facilities.

 

**16.      Long-Term Debt**

** **

**                                   **The Company has prepared thesefinancial statements on the assumption it continues as a going concern and hastherefore classified debt as current or long-term in compliance with the termsof the contracts at December 31, 2007.

** **

As discussed in Note 16(a) andbased on the waivers described herein, the Company was in compliance with allsignificant debt covenants at December 31, 2007. Since the Company has notobtained the $125.0 million of new financing, as had been required under theterms of the revolving bank facility and North American securitization programwaivers, the Company became in default under its revolving bank facility, itsEquipment financing facility and its North American securitization programsince January 16, 2008. Upon filing for credit protection on January 21,2008, the Company became in default under substantially all of its other debtagreements and it will affect their subsequent accounting classification (Note1).

 
| ** **                                                   | ** ** | **Note**   | ** ** | **Maturity** | ** ** | **2007**    | ** **  | **2006** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|--------------|------------|-------------|-------------|----------|------------|
| Revolving  bank facility and other short-term lines (a)      |       |       |       | 2008         | ** ** | **$**       | **643.1**   |     | $          | 97.1 |   |
| Senior Notes  4.875% and 6.125% (b)                          |       |       |       | 2008, 2013   | ** ** | **598.1**   |        | 597.9    |       |
| Senior Notes  8.42% and 8.52% (c)                            |       |       |       | 2010, 2012   | ** ** | **—**  |        | 231.5    |       |
| Senior Notes  9.75% (d)                                      |       |       |       | 2015         | ** ** | **400.0**   |        | 400.0    |       |
| Equipment  financing credit facility (e)                     |       |       |       | 2015         | ** ** | **168.5**   |        | 101.3    |       |
| Senior Notes  8.54% and 8.69% (c)                            |       |       |       | 2015, 2020   | ** ** | **—**  |        | 85.0     |       |
| Senior Notes  8.75% (f)                                      |       |       |       | 2016         | ** ** | **450.0**   |        | 450.0    |       |
| Senior  Debentures 6.50% (g)                                 |       |       |       | 2027         | ** ** | **3.2**     |        | 3.2      |       |
| Capital  leases (h)                                          |       |       |       | 2008-2016    | ** ** | **62.5**    |        | 24.9     |       |
| Other debts  (h)                                             |       |       |       | 2008-2022    | ** ** | **29.8**    |        | 23.8     |       |
| ** **                                                   |       | ** ** | ** ** | ** **   |       | **2,355.2** |        | 2,014.7  |       |
| Change in  fair value of debts for hedged interest rate risk | ** ** | ** ** | ** ** | ** **   |       | **(1.9**    | **)**       | —   |       |
| Adjustment  related to embedded derivatives                  | ** ** | ** ** | ** ** | ** **   |       | **9.4**     | ** **  | —   |       |
| Financing  fees, net of amortization                         | ** ** | ** ** | ** ** | ** **   |       | **(25.4**   | **)**       | —   |       |
| ** **                                                   |       | ** ** | ** ** | ** **   |       | **2,337.3** | ** **  | 2,014.7  |       |
| Less current  maturities                                     | ** ** | ** ** | ** ** | ** **   |       | **1,023.7** |        | 30.7     |       |
| ** **                                                   |       | ** ** | ** ** | ** **   |       | **$**       | **1,313.6** |     | $          | 1,984.0 |   |

 

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**Notes to Consolidated Financial Statements**

** **

**16.      Long-Term Debt (Cont’d)**

** **

(a)          As ofDecember 31, 2007, the Company had obtained waivers from its Bankingsyndicate and the sponsors of its North American securitization program until March 30,2008 from compliance with certain financial tests under the relevant agreementsin respect of the quarter ended December 31, 2007, in particular, themaximum Debt-to-EBITDA ratio of 4.50:1.00. These waivers (which are mirrored inthe Equipment financing credit facility - refer to (e)) were subject to anumber of conditions including: the Company having to obtain on or before January 15,2008, $125.0 million of new financing; to deliver on or before January 31,2008, a “Refinancing Transaction”, being comprised of commitments or otherarrangements satisfactory to the Company’s lenders which would have been usedto reduce the Company’s current credit facility to $500.0 million by February 29,2008 and further allow the repayment in full of the Company’s current creditfacility on or before June 30, 2008. The Company was not able to put inplace such refinancing transaction and on January 21, 2008, the Companywas granted creditor protection under CCAA in Canada and underChapter 11 in the United States (Note 1).

 

As at December 31, 2007and prior to the default described above, the total amount available under therevolving bank facility was $750.0 million ($1.0 billion in 2006). Therevolving bank facility bears interest at variable rates based on Bankers’Acceptances, LIBOR or prime rates. At December 31, 2007, of the $643.1million ($42.0 million in 2006) drawn on the facility, $22.7 million ($23.6million in 2006) was denominated in Canadian dollars and bore interest at 8.5%.The US drawings were at rates ranging from 8.4% to 10.0%. The Company paid feesfor the unused portion of $3.4 million in 2007 ($2.6 million in 2006). Aportion of the revolving bank facility is secured by a lien on assets in anamount of $135.6 million as at December 31, 2007. The revolving bankfacility has been classified as current maturities since its maturity is June 30,2008. As at December 31, 2006, the long-term debt included $55.1 millionthat was drawn on various credit facilities that were available in LatinAmerica, Europe and the United States (Note 15).

 

(b)         In November 2003,the Company issued, at a discount, unsecured Senior Notes for a principalamount of $600.0 million comprised of two tranches. The first tranche of$200.0 million matures on November 15, 2008 and the second tranche of$400.0 million matures on November 15, 2013. These Notes contain certainrestrictive covenants, such as maintaining its properties in good condition andpayment of taxes and claims. The first tranche of $200.0 million is classifiedas current maturities as its maturity is November 15, 2008.

 

(c)          On October 29,2007, the Company repaid all of its outstanding Senior Notes (8.42%, 8.52%,8.54% and 8.69%) for a redemption price of 100% of the outstanding principalamount of the Notes, plus the accrued and unpaid interest on the Senior Notesto the redemption date plus the applicable prepayment premium amount of $53.1million paid on the redemption date.

 

(d)         In December 2006,the Company issued unsecured Senior Notes for a principal amount of $400.0million maturing on January 15, 2015. The Notes contain certainrestrictive covenants, such as maintaining its properties in good condition andthe payment of taxes and claims.

 

(e)          In January 2006,the Company concluded an agreement for the Canadian dollar equivalent ofEUR136.2 million long-term committed equipment financing credit facility thatcould be drawn until October 2008. The facility is repayable in 17 semi-annualrepayments of CA$10.3 million, the first occurring in July 2007 and thelast scheduled to occur in July 2015. The facility bears interest at avariable rate. At December 31, 2007, the drawings under this facilityamounted to CA$165.3 million ($168.5 million) (CA$118.0 million ($101.3million) in 2006) and bear interest at 5.0%. This credit facility containscertain restrictive covenants, including the obligation to maintain certainfinancial ratios and is secured by a lien onassets in an amount of $34.4 million. As mentioned above, the Company hadobtained from its Banking syndicate a waiver until March 30, 2008 fromcompliance with certain financial covenants under the relevant agreements. Thistemporary elimination also applies to the financial covenants under theequipment financing facility. As a result of the events discussed in Note 1,the equipment financing facility has been classified as current maturitiessince at December 31, 2007 it was likely that the Company would not meetthe covenants within one year from the balance sheet date.

 

(f)            In March 2006,the Company issued unsecured Senior Notes for a principal amount of $450.0million maturing in March 2016. The Notes contain certain restrictivecovenants, such as maintaining its properties in good condition and the paymentof taxes and claims.

 

(g)          TheSenior Debentures due on August 1, 2027 were redeemable at the option ofthe holder at their par value on August 1, 2004. The Debentures containcertain restrictive covenants, such as maintaining its properties in goodcondition and the payment of taxes and claims.

 

36

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**Notes to Consolidated Financial Statements**

** **

**16.      Long-Term Debt (Cont’d)**

** **

(h)              Other debts and capital leases are partiallysecured by assets with a carrying value of $88.1 million. At December 31,2007, these debts and capital leases were bearing interest at rates rangingfrom 0.0% to 10.28%.

 

The Company has $23.5million ($20.1 million in 2006) of interim financing for printing presses andrelated equipment located in facilities in the United States which wereconverted into capital leases in January 2008. During 2007, $17.0 millionof the 2006 interim financing were converted into capital leases, generating aloss on disposal of $3.2 million and a deferred gain of $4.6 million which isbeing amortized over the 7-year term of the lease. The 2007 transactions had noimpact on the investing and financing activities of the consolidated statementsof cash flow.

 

At December 31, 2007,(prior to filing for creditor protection - Note 1) principal repayments onlong-term debt were planned as follows:

 
| 2008                 |   | $       | 1,016.6 |   |
|----------------------|--------|---------|---------|--------|
| 2009                 |   | 2.8     |    |
| 2010                 |   | 2.8     |    |
| 2011                 |   | 2.9     |    |
| 2012                 |   | 3.2     |    |
| 2013 and  thereafter |   | 1,264.4 |    |

 

At December 31, 2007,(prior to filing for creditor protection - Note 1) minimum capital leasepayments were planned as follows:

 
| ** **           | ** ** | **Principal** | ** ** | **Interest** | ** ** | **Payment** | ** ** |
|----------------------|------------|---------------|------------|--------------|------------|-------------|------------|
| 2008                 |       | $             | 7.1        |         | $          | 4.4         |       | $ | 11.5 |   |
| 2009                 |       | 7.6           |       | 3.6          |       | 11.2        |       |
| 2010                 |       | 8.0           |       | 3.1          |       | 11.1        |       |
| 2011                 |       | 9.4           |       | 2.5          |       | 11.9        |       |
| 2012                 |       | 8.9           |       | 2.0          |       | 10.9        |       |
| 2013 and  thereafter |       | 21.5          |       | 1.6          |       | 23.1        |       |
|                      |            |               |            |              |            |             |            |  |  |  |

 

**17.      Other Liabilities**

 
| ** **                                               | ** ** | **Note**   | ** ** | **2007** | ** ** | **2006**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| Pension  liability                                       |       | 26         | ** ** | **$**    | **89.0**   |       | $          | 79.9 |   |
| Postretirement  benefits                                 |       | 26         | ** ** | **70.1** |       | 71.0       |       |
| Workers’  compensation accrual                      | ** ** | ** ** |       | **47.3** |       | 45.9       |       |
| Derivative  financial instruments                        | ** ** | ** ** |       | **62.4** |       | 20.1       |       |
| Asset  retirement obligations                            | ** ** | ** ** |       | **14.7** |       | 12.2       |       |
| Reserve for  environmental matters                       | ** ** | ** ** |       | **8.1**  |       | 11.2       |       |
| Deferred  gain on property, plant and equipment disposal |       | 10,12      |       | **31.6** | ** ** | **—** |       |
| Other                                                    | ** ** | ** ** |       | **40.2** |       | 43.2       |       |
| ** **                                               |       |       |       | **$**    | **363.4**  |       | $          | 283.5 |   |

 

37

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**Table of Contents**

** **

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

** **

**18.      ConvertibleNotes**

 
| ** **                                   | ** ** | **Maturity** | ** ** | **2007** | ** ** | **2006**   | ** ** |
|----------------------------------------------|------------|--------------|------------|----------|------------|------------|------------|
| Convertible  senior subordinated notes 6.00% |       | 2007         |       | **$**    | **—** | ** ** | $          | 117.7 | ** ** |
|                                              |            |              |            |          |            |            |            |  |  |

 

In 2007, the Company redeemed all of its outstanding 6.00% Convertiblesenior subordinated notes (the “Convertible Notes”) for a redemption price of 100.6% of the outstandingprincipal amount of $119.5 million, plus accrued and unpaid interest at theredemption date. The additional amount paid on redemption of the ConvertibleNotes was a premium of $0.7 million recorded as financing expenses. A loss of $0.6 million relating to the debtcomponent was recorded as financing expenses and a gain of $15.9 millionrelating to the equity component was transferred from contributed surplus toretained earnings, both due to the difference between the net book value andthe fair value of the components at the time of redemption.

 

**19.      Capital Stock**

** **

**(a)****         ****Authorized**

 

***Equity shares:***

 

Multiple Voting Shares, authorized in an unlimitednumber, without par value, carrying ten votes per share, convertible at anytime into Subordinate Voting Shares on a one-to-one basis.

 

Subordinate Voting Shares, authorized in an unlimitednumber, without par value, carrying one vote per share.

 

***Preferred shares:***

 

Preferred shares, authorized in an unlimited number,without par value, issuable in series; the number of preferred shares in eachseries and the related characteristics, rights and privileges are to bedetermined by the Board of Directors prior to each issue. Each series ofPreferred Shares ranks pari passu with every other series of Preferred Shares.

 

The Series 2 Cumulative Redeemable FirstPreferred Shares may be converted at every fifth anniversary into Series 3Cumulative Redeemable First Preferred Shares under certain conditions.

 

The Series 3 Cumulative Redeemable FirstPreferred Shares are entitled to a fixed cumulative preferential cash dividendof CA$1.5325 per share per annum, payable quarterly from December 1, 2007to November 30, 2012, if declared. Thereafter, a new fixed cumulativepreferential cash dividend will be set by the Company for another five-yearperiod. On December 1, 2012, and at every 5th anniversary thereafter,these preferred shares may be converted into Series 2 CumulativeRedeemable First Preferred Shares under certain conditions.

 

The Series 4 Cumulative Redeemable FirstPreferred Shares were entitled to a fixed cumulative preferential cash dividendof CA$1.6875 per share per annum.

 

The Series 5 Cumulative Redeemable FirstPreferred Shares are entitled to a fixed cumulative preferential cash dividendof CA$1.725 per share per annum, payable quarterly, if declared. On and after December 1,2007, these preferred shares are redeemable at the option of the Company atCA$25.00, or with regulatory approval, the preferred shares may be convertedinto subordinate voting shares by the Company. On and after March 1, 2008,these preferred shares may be converted at the option of the holder into anumber of the Company’s Subordinate Voting Shares determined by dividingCA$25.00 together with all accrued and unpaid dividends on such shares by thegreater of (i) CA$2.00 and (ii) 95% of the weighted average tradingprice of the Subordinate Voting Shares on the Toronto Stock Exchange during a20-day reference period, subject to the right of the Company prior to theconversion date to redeem for cash or find substitute purchasers for suchpreferred shares.

 

38

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Tableof Contents

 

**Notes to ConsolidatedFinancial Statements**

** **

**19.      Capital Stock(Cont’d)**

** **

** (b)****      ****Issued and outstanding**

 
| ** **                                                                                    | ** ** | **December 31, 2007** | ** ** | **December 31, 2006** | ** **  | **December 31, 2005** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------------------------|-------------|---------------------------------|------------|
| **(Thousands of shares)**                                                                     | ** ** | **Number**                      | ** ** | **Amount**                      | ** **  | **Number**                      | ** ** | **Amount** | ** ** | **Number** | ** ** | **Amount** | ** ** |
|                                                                                          |       |                            |       |                            |        |                            |       |   |   | **(Revised,  see below)** | ** ** | **(Revised,  see below)** |   |
|                                                                                          |       |                            |       |                            |        |                            |       |   |   | ** ** | ** ** | ** ** |   |
| Multiple Voting Shares                                                                        | ** ** | **46,987**                      | ** ** | **$**                           | **93.5**    |                            | 46,987     |   | $ | 93.5 |   | 46,987 |   | $ | 93.5 |   |
| Subordinate Voting Shares                                                                     | ** ** | **85,585**                      | ** ** | **1,151.4**                     |        | 84,722                          |       | 1,146.4 |   | 83,981 |   | 1,138.5 |   |
| Redeemable First Preferred Shares -  Series 3  - Classified as Shareholders’ equity | ** ** | **12,000**                      | ** ** | **212.5**                       |        | 12,000                          |       | 212.5 |   | 12,000 |   | 212.5 |   |
| Total Capital stock                                                                           | ** ** | ** **                      |       | **$**                           | **1,457.4** |                            |       |   | $ | 1,452.4 |   |   |   | $ | 1,444.5 |   |
|                                                                                          |       |                            |       |                            |        |                            |       |   |   |   |   |   |   |
| Redeemable First Preferred Shares -  Series 4  - Classified as liability            |       | **—**                      |       | **$**                           | —      |                            | —     |   | $ | — |   | 8,000 |   | $ | 171.9 |   |
| Redeemable First Preferred Shares -  Series 5  - Classified as liability                 | ** ** | **7,000**                       | ** ** | **178.5**                       |        | 7,000                           |       | 150.2 |   | 7,000 |   | 150.5 |   |
| Total Preferred  Shares                                                                       | ** ** | ** **                      |       | **$**                           | **178.5**   |                            |       |   | $ | 150.2 |   |   |   | $ | 322.4 |   |

** **

**39**

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**Table of Contents**

** **

**Notes to Consolidated FinancialStatements**

** **

**19.      Capital Stock(Cont’d)**

** **

**(b)****         ****Issued and outstanding (cont’d)**

 

During 2007,22,500 Subordinate Voting Shares were issued under the Company’s stock optionplan (none in 2006 and 315,065 in 2005) and 840,853 Subordinate Voting Shareswere issued under the Company’s employee stock purchase plans (741,057 in 2006and 487,832 in 2005) for a total cash consideration of $5.0 million ($7.9million in 2006 and $16.3 million in 2005). Pursuant to the acquisition ofWorld Color Press in 1999, the Company issued 11,371 Subordinate VotingShares in 2005.

 

In December 2007, the Company received noticesin respect of 3,975,663 of 7,000,000 issued and outstanding Series 5Cumulative Redeemable First Preferred Shares requesting conversion into theCompany’s Subordinate Voting Shares on March 1, 2008. The Series 5Cumulative Redeemable First Preferred Shares are convertible into that numberof the Company’s Subordinate Voting Shares determined by dividing CA$25.00together with all accrued and unpaid dividends on such shares by the greater of(i) CA$2.00 and (ii) 95% of the weighted average trading price of theSubordinate Voting Shares on the Toronto Stock Exchange during the period oftwenty trading days ending on February 26, 2008 (Note 29). On December 1,2007, the Company announced that none of its Series 3 CumulativeRedeemable First Preferred Shares were converted into Series 2 CumulativeRedeemable First Preferred Shares.

 

In November 2007, because it might not havesatisfied the applicable capital adequacy test contained in the *Canada Business Corporations Act*, the Company announced thatit was suspending dividend payments on its Series 3 and Series 5Preferred Shares that were previously declared on November 7, 2007. As at December 31,2007, the dividends declared but unpaid on its Series 3 Preferred Sharesand Series 5 Preferred Shares amounted to CA$4.6 million ($4.7 million)and CA$3.0 million ($3.1 million), respectively. Following the suspension ofits dividend payment, no dividends were declared and arrears of dividends on Series 3and Series 5 Preferred Shares amounted to CA$1.5 million ($1.5 million)and CA$1.0 million ($1.0 million), respectively, which were recorded as aliability at December 31, 2007.

 

In June 2007, the Company reclassified the Series 5and Series 4 Cumulative Redeemable First Preferred Shares in the amount of$312.0 million as at January 1, 2005 from Capital stock ($244.1 million)and Accumulated other comprehensive income ($67.9 million) to preferred sharesclassified as liability in the balance sheet, to conform with accountingstandards related to such financial instruments (CICA Handbook section 3861).Since then dividends on these shares are presented in the consolidatedstatement of income as dividends on preferred shares classified as liability,for an amount of $9.8 million in 2007.

 

**(c)****         ****Share repurchases**

 

On April 18, 2006, the Company redeemed all ofits cumulative redeemable 6.75% First Preferred Shares, Series 4 at aredemption price of CA$25.00 per share plus accrued dividends for a totalconsideration of $175.9 million.

 

In 2005, the Company repurchased for cancellation atotal of 2,438,500 Subordinate Voting Shares following a Normal Course IssuerBid Program for a net cash consideration of CA$58.2 million ($46.6 million). Ofthe total consideration, $3.8 million was charged to Accumulatedother comprehensive income, $33.0 million to capitalstock and the excess of the price paid over the book value of the sharesrepurchased amounting to CA$12.3 million ($9.8 million) was charged toretained earnings.

 

**20.      Stock-BasedCompensation Plans**

** **

**(a)****         ****Employee share purchase plans**

 

The Employee Stock Purchase Plan gives eligibleemployees in the United States the opportunity to acquire shares of the Company’scapital stock for up to 4% of their gross salaries and to have the Companycontribute, on the employees’ behalf, a further amount equal to 17.5% of thetotal amount invested by the employee. The number of shares that may be issuedand sold under the plan is limited to 4,000,000 Subordinate Voting Shares,subject to adjustments in the event of stock dividends, stock splits andsimilar events. The total number of plan shares issued for employees was782,086 in 2007 (566,913 in 2006 and 333,646 in 2005), which represented compensationexpense amounting to $0.6 million in 2007 ($0.8 million in 2006 and $1.0million in 2005).

** **

**40**

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**Table of Contents**

** **

**Notes to ConsolidatedFinancial Statements**

** **

**20.      Stock-BasedCompensation Plans (Cont’d)**

** **

**(a)****         ****Employee share purchase plans (Cont’d)**

 

The Employee ShareInvestment Plan gives eligible employees in Canada the opportunity to subscribefor up to 4% of their gross salaries to purchase shares of the Company’scapital stock and to have the Company invest, on the employees’ behalf, afurther amount equal to 20% of the amount invested by the employee. In April 2007,a change was made to the plan to purchase the shares on the market, instead ofissuing shares from treasury.  The totalnumber of shares issued for employees was 58,767 in 2007 (174,144 in 2006 and154,186 in 2005), and 181,721 shares were purchased on the market, which representedcompensation expense amounting to CA$0.3 million ($0.3 million) in 2007 (CA$0.4million ($0.4 million) in 2006 and CA$0.6 million ($0.5 million) in 2005).

 

**(b)****         ****Stock option plan**

 

Under the stock option plan, 9,182,234 SubordinateVoting Shares out of a total of 11,000,000 remained reserved for planparticipants at December 31, 2007. Furthermore, 302,500 options wereoutstanding outside of the shares reserved under the Plan as InducementOptions. At December 31, 2007, a total of 6,942,451 options to purchaseSubordinate Voting Shares were outstanding. The subscription price of theoptions was equal to the arithmetical average of the closing prices of theSubordinate Voting Shares on the Toronto Stock Exchange for options priced inCanadian dollars, and on the New York Stock Exchange for options priced in U.S.dollars, for the five days immediately preceding the grant of the option.

 

For options granted since 2005, half of the optionsvest over four years and the other half vest upon attainment of specificperformance targets based on earnings per share (“EPS”) and share price growth.The options may be exercised during a period not exceeding six years from thedate they have been granted.

 

Options granted up to December 31, 2004, vestover four or five years.  Options may beexercised during a period not exceeding 10 years from the date they have beengranted.

 

In 2004, the Board of Directors approved a specialoption grant of 1,000,000 Subordinate Voting Shares of the Company. Theexercise price was equal to the share market price at the grant date and halfof the options vested over time and the other half upon attainment of specificperformance targets based on EPS and share price growth and vest over 4 years.

 

The weighted average fair value of options grantedduring the year was $4.02 ($2.58 in 2006 and $4.32 in 2005), and was estimatedusing binomial and trinomial option pricing models. The following weightedaverage assumptions were used:

 
| ** **              | ** ** | **2007**       | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------|------------|----------------|------------|------------|------------|------------|------------|
| Risk-free interest rate | ** ** | **4.78**       | **%**      | 4.45       | %          | 3.59       | %          |
| Dividend yield          | ** ** | **—**     | **%**      | 3.75       | %          | 2.93       | %          |
| Expected volatility     | ** ** | **32.71**      | **%**      | 33.44      | %          | 33.67      | %          |
| Expected life           | ** ** | **4.25 years** |       | 4.25 years |       | 4.25 years |       |

 

**During theyear, a compensation expense of $3.5 million ($4.5 million in 2006 and $1.1million in 2005) was recognized with a corresponding increase in contributedsurplus.**

** **

**41**

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**Table of Contents**

** **

**Notes to ConsolidatedFinancial Statements**

** **

**20.      Stock-BasedCompensation Plans (Cont’d)**

** **

**(b)****         ****Stock option plan (cont’d)**

 

The number of stock options outstanding fluctuated asfollows:

 
| ** **                       | ** ** | **2007**      | ** ** | **2006**                               | ** ** | **2005**    | ** ** |
|----------------------------------|------------|---------------|------------|----------------------------------------|------------|-------------|------------|
| ** **                       | ** ** | **Options**   | ** ** | **Weighted  average  exercise  price** | ** ** | **Options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Options** | ** ** | **Weighted  average  exercise  price** |   |
|                             | ** ** | ** **    | ** ** | ** **                             | ** ** |        |       |   |   |   |   |   |   |   |   |   |
| Balance, beginning of year       | ** ** | **7,772,300** | ** ** | **$**                                  | **19.70**  |        | 5,947,970  |   | $ | 23.45 |   | 4,542,045 |   | $ | 23.81 |   |
| Granted                          | ** ** | **100,000**   | ** ** | **11.78**                              |       | 2,314,500   |       | 10.45 |   | 1,930,120 |   | 20.57 |   |
| Exercised                        | ** ** | **(22,500**   | **)**      | **10.62**                              |       | —      |       | — |   | (315,065 | ) | 20.52 |   |
| Cancelled                        | ** ** | **(907,349**  | **)**      | **12.91**                              |       | (490,170    | )          | 21.12 |   | (209,130 | ) | 22.24 |   |
|                             | ** ** | ** **    | ** ** | ** **                             | ** ** |        |       |   |   |   |   |   |   |   |   |   |
| Balance, end of year             | ** ** | **6,942,451** | ** ** | **$**                                  | **23.47**  |        | 7,772,300  |   | $ | 19.70 |   | 5,947,970 |   | $ | 23.45 |   |
|                             |       |          |       |                                   |       |        |       |   |   |   |   |   |   |
| Options exercisable, end of year |       | **3,984,005** |       | **$**                                  | 25.90      |        | 3,041,159  |   | $ | 24.67 |   | 2,709,003 |   | $ | 24.92 |   |

 

The following table summarizes information aboutstock options outstanding and exercisable at December 31, 2007:

 
| ** **                                  | ** ** | **Options outstanding** | ** ** | **Options exercisable**  | ** ** |
|---------------------------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **                                  | ** ** | ** **                   | ** ** | **Weighted**                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | ** **                   | ** ** | **average**                   | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                                  | ** ** | ** **                   | ** ** | **remaining**                 | ** ** | **average** | ** ** | ** ** | ** ** | **average** | ** ** |
| ** **                                  | ** ** | **Number**                   | ** ** | **contractual**               | ** ** | **exercise** | ** ** | **Number** | ** ** | **exercise** | ** ** |
| **Range of exercise prices** | ** ** | **outstanding**              | ** ** | **life (in years)** | ** ** | **price** | ** ** | **exercisable** | ** ** | **price** | ** ** |
|                                        |       |                         |       |                          |       |   |   |   |   |   |   |
| $ 9.98 - $ 14.99        |       | 1,655,000                    |       | 4.53                          |       | $ |  11.46 |   | 514,892 |   | $ |  10.93 |   |
| $15.00 - $21.99                             |       | 683,112                      |       | 2.96                          |       | 19.91 |   | 306,330 |   | 19.89 |   |
| $22.00 - $31.99                             |       | 3,512,190                    |       | 4.06                          |       | 26.48 |   | 2,070,634 |   | 26.13 |   |
| $32.00 - $37.92                             |       | 1,092,149                    |       | 2.31                          |       | 34.19 |   | 1,092,149 |   | 34.19 |   |
|                                        |       | 6,942,451                    |       | 3.79                          |       | $ | 23.47 |   | 3,984,005 |   | $ | 25.90 |   |

 

**(c)****         ****Deferred stock unit plan**

 

The Deferred Stock Unit plan (“DSU plan”) is for thebenefit of the Company’s directors. Under the DSU plan, a portion of eachdirector’s compensation package is received in the form of units. The value ofa unit is based on the weighted average trading price of the Subordinate VotingShares. Subject to certain limitations, the units will be redeemed by theCompany when the director ceases to be a DSU participant. For the purpose ofredeeming units, the value of a unit shall correspond to the fair value of aSubordinate Voting Share on the date of redemption.

 

As of December 31, 2007, the number of unitsoutstanding under this plan was 554,718 (256,923 in 2006 and 215,447 in 2005),which represented a compensation expense (recovery) of $(1.3) million in 2007and negligible amounts in 2006 and 2005. The weighted average grant date fairvalue for units granted during the year was $4.18 ($10.55 in 2006 and $17.91 in2005).

 

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**Notes to ConsolidatedFinancial Statements**

** **

**20.      Stock-BasedCompensation Plans (Cont’d)**

** **

**d)****          ****Deferred performance share unit plan**

 

In January 2005, the Company put in place a newDeferred Performance Share Unit plan (“DPSU plan”). The DPSU plan is for thebenefit of the Company’s senior management, and key managers. Under the DPSUplan, for a portion of these employees it is mandatory to defer, while othershave the choice to defer, a portion of their annual bonus for a 3-year period,during which the amount will be indexed with the fair value of the SubordinateVoting Shares and with dividends. The Company also contributes, on theemployees’ behalf, a further amount equal to 20% of the bonus originallydeferred, which will be earned over the 3-year period. As of December 31,2007, 8,121units were outstanding underthe initial DPSU plan, which represented a negligible compensation expense in2007. The weighted average grant date fair value for units granted during theyear 2006 was $11.23.

 

The application of the DPSU plan was suspended forthe 2006 financial year, given that a special compensation arrangement wasimplemented for the year 2006. Under the special compensation arrangement, aportion of the annual bonus of eligible employees will be paid in cash anddetermined based upon the achievement of earnings before interest and taxestargets, and the other portion will be provided in the form of shares at theend of a 3-year period, as long as these eligible employees remain employed bythe Company. As of December 31, 2007, 316,513 units were outstanding underthe special DPSU plan, which represented a negligible compensation expense in2007. The weighted average grant date fair value for units granted during theyear was $11.12.

 

The application of the DPSU plan was also suspendedfor the year 2007, and no stock based compensation has replaced the DPSU planfor that period.

 

**21.      Accumulated Other Comprehensive Income**

** **

**The following table presents changes in thecarrying amount of accumulated other comprehensive income:**

 
| ** **                                                                | ** ** | **Note**   | ** ** | **Translation  adjustment**  | ** ** | **Cash flow  hedges** | ** ** | **Total** | ** ** |
|---------------------------------------------------------------------------|------------|------------|------------|------------------------------|------------|----------------------------|------------|-----------|------------|
|                                                                      |       |       |       | **(Revised,  Note 19)** |       |                       |       |      |       |
|                                                                      |       |       |       | ** **                   |       |                       |       |      |       |
| Balance, December 31, 2004                                           |       |       |       | $                            | (31.3      | )                          | $          | —    |       | $ | (31.3 | ) |
| Other comprehensive income (loss), net of  income taxes                   |       |       |       | (71.3                        | )          | —                     |       | (71.3     | )          |
| Balance, December 31, 2005                                           |       |       |       | $                            | (102.6     | )                          | $          | —    |       | $ | (102.6 | ) |
| Other comprehensive income, net of income  taxes                          |       |       |       | 20.0                         |       | —                     |       | 20.0      |       |
| Balance, December 31, 2006                                           |       |       |       | $                            | (82.6      | )                          | $          | —    |       | $ | (82.6 | ) |
| Change in accounting policy - Financial Instruments,  net of income taxes |       | 2          | ** ** | **—**                   | ** ** | **(7.0**                   | **)**      | **(7.0**  | **)**      |
| Other comprehensive income (loss), net of  income taxes                   | ** ** | ** ** | ** ** | **(104.8**                   | **)**      | **15.2**                   | ** ** | **(89.6** | **)**      |
| **Balance,  December 31, 2007**                                      | ** ** | ** ** | ** ** | **$**                        | **(187.4** | **)**                      | **$**      | **8.2**   | ** ** | **$** | **(179.2** | **)** |

** **

Over the next twelve months, the Companyexpects an estimated $1.7 million (net of income tax of $1.3 million) in netlosses in other comprehensive income as at December 31, 2007 to bereclassified to net income. The maximum length of time over which the Companyis hedging its exposure to the variability in future cash flows for anticipatedtransactions is 33 months.

 

Following the filing of creditor protectionunder the Insolvency Proceedings on January 21, 2008, substantially allderivative contracts were subsequentlyterminated by theircounterparties. The amount of any gainsand losses associated with derivative contracts designated as hedging itemsthat had previously been recognized in other comprehensive income as a resultof applying hedge accounting will be carried forward to be recognized in netincome in the same periodsduring which the hedged forecast transaction will occur.

 

43

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Tableof Contents

 

**Notesto Consolidated Financial Statements**

 

**22.         Income Taxes Components of OtherComprehensive Income**

** **

The following table presentsthe income taxes on components of Other Comprehensive Income:

 
| ** **                                                                                            | ** ** | **2007**   | ** ** | **2006** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|
|                                                                                                  | ** ** | ** ** |       |     |       |
| Unrealized (loss) gain on foreign currency  translation adjustment                                    | ** ** | **$**      | **(1.8**   | **)**    | $          | 1.3 |   |
| Unrealized net gain on derivative financial  instruments related to cash flow hedges                  | ** ** | **(3.7**   | **)**      | —   |       |
| Reclassification of realized net loss on  derivative financial instruments to the statement of income | ** ** | **(3.5**   | **)**      | —   |       |
| ** **                                                                                            |       | **$**      | **(9.0**   | **)**    | $          | 1.3 |   |

** **

**23.          Financial Instruments andConcentrations of Credit Risk**

** **

**(a)****         ****Fair value of financialinstruments**

 

The carrying values of cash and cash equivalents, accounts receivable,receivables (payables) from related parties, restricted cash, bankindebtedness, trade payables and accrued liabilities and short-term securedfinancing approximate their fair values because of the short-term nature of theseitems.

 

The following table summarizes the book value and fair value at December 31,2007 and 2006 of those financial instruments having a fair value different fromtheir book value as at December 31. The fair values of the financialliabilities are estimated based on discounted cash flows using year-end marketyields of similar instruments having the same maturity. The fair values of thederivative financial instruments are estimated using year-end market rates, andreflect the amount that the Company would otherwise receive or pay if theinstruments were closed out at these dates.

 
| ** **                         | ** ** | **2007**            | ** **   | **2006**            | ** ** |
|------------------------------------|------------|---------------------|--------------|---------------------|------------|
| ** **                         | ** ** | **Book Value** | ** **   | **Fair Value** | ** ** | **Book Value** | ** ** | **Fair Value** | ** ** |
|                               | ** ** | ** **          | ** **   | ** **          |       |   |   |   |   |
| Financial liabilities              | ** ** | ** **          | ** **   | ** **          | ** ** | ** ** |   |   |   |   |   |   |   |
| Long-term debt (1)                 | ** ** | **$**               | **(2,355.2** | **)**               | **$**      | **(2,018.7** | **)** | $ | (2,014.7 | ) | $ | (1,957.2 | ) |
| Convertible notes                  | ** ** | **—**          | ** **   | **—**          | ** ** | (117.7 | ) | (119.1 | ) |
| Preferred shares                   | ** ** | **(178.5**          | **)**        | **(112.4**          | **)**      | (150.2 | ) | (145.7 | ) |
|                               |       |                |         |                | ** ** |   |   |   |   |
| Derivative financial instruments   |       |                |         |                | ** ** |   |   |   |   |
| Interest rate swap agreements      | ** ** | **(2.7**            | **)**        | **(2.7**            | **)**      | — |   | (7.5 | ) |
| Foreign exchange forward contracts | ** ** | **(48.8**           | **)**        | **(48.8**           | **)**      | (12.7 | ) | (15.5 | ) |
| Commodity swaps                    | ** ** | **(6.2**            | **)**        | **(6.2**            | **)**      | (1.4 | ) | (13.7 | ) |

** **

----

(1) including current portion

** **

**44**

----

**Table of Contents**

** **

**Notes to Consolidated Financial Statements**

** **

**23.          Financial Instruments andConcentrations of Credit Risk (Cont’d)**

** **

**(b)****         ****Foreign exchange risk management**

 

The Company entered into foreign exchange forward contracts to hedge thesettlement of foreign denominated sales and related receivables, equipmentpurchases, debt, and other assets.

 

The notional amounts of outstanding contracts at year-end, presented bycurrency, are included in the table below:

 
| **Currencies  (sold / bought)** | ** **                         | **2007**   | ** **                         |
|-------------------------------------------|------------------------------------|------------|------------------------------------|
|                                      | **Notional amounts (1)** |       | **Average rate ****(2)** |   |
|                                      |                               |       |                               |   |   |
| $ / CA                                    |                               |       |                               |   |   |
| Less than 1 year                          | ** **                         | **$**      | **12.6**                           | ** ** | **0.8880** | ** ** |
| Between 1 and 3  years                    | ** **                         | **31.8**   | ** **                         | **0.9017** | ** ** |
|                                      |                               |       |                               |   |   |
| CA / $                                    |                               |       |                               |   |   |
| Between 1 and 3  years                    | ** **                         | **265.0**  | ** **                         | **1.1412** | ** ** |
| Over 3 years                              | ** **                         | **100.0**  | ** **                         | **1.1280** | ** ** |
|                                      |                               |       |                               |   |   |
| EUR / $                                   |                               |       |                               |   |   |
| Less than 1 year                          | ** **                         | **44.1**   | ** **                         | **0.7023** | ** ** |
|                                      |                               |       |                               |   |   |
| GBP / EUR                                 |                               |       |                               |   |   |
| Less than 1 year                          | ** **                         | **7.6**    | ** **                         | **0.6987** | ** ** |
|                                      | ** **                         | ** ** | ** **                         | ** ** | ** ** |
| Other                                     | ** **                         | ** ** | ** **                         | ** ** | ** ** |
| Less than 1 year                          | ** **                         | **62.9**   | ** **                         | **—** | ** ** |
| ** **                                |                               | $          | **524.0**                          |   | **—** |   |

 

----

(1)           Transactionsin foreign currencies are translated using the closing exchange rate as at December 31,2007.

(2)           Rates were expressed as the number of units of thecurrency sold for the currency bought.

 

**(c)****         ****Interest rate risk management**

 

The Company entered into interest rate swaps to manage its interest rateexposure. The Company is committed to exchange, at specific intervals, thedifference between the fixed and floating interest rate calculated by referenceto the notional amounts.

 

The amounts of outstanding contracts at December 31, 2007 areincluded in the table below:

 
| **Maturity**       | ** ** | **Notional amount** | ** ** | **Pay / Receive** | ** **                            | **Fixed Rate** | ** ** | **Floating Rate** |
|--------------------|------------|---------------------|------------|-------------------|---------------------------------------|----------------|------------|-------------------|
|               |       |                |       |              |                                  |           |       |              |
| November 2008 |       | $                   | 200.0      |              | Company pays floating/ receives fixed |           | 4.875      | %                 | Libor 3 months/plus 1.53%-1 .58% |
|                    |            |                     |            |                   |                                       |                |            |                   |  |

** **

**45**

----

**Table of Contents**

** **

**Notes to Consolidated Financial Statements**

** **

**23.          Financial Instruments andConcentrations of Credit Risk (Cont’d)**

** **

**(d) Commodity risk**

 

The Company entered into commodity swap agreements to manage a portionof its North American natural gas exposure. The Company is committed toexchange, on a monthly basis, the difference between a fixed price and afloating natural gas price index calculated by reference to the notionalamounts.

 

The amounts of outstanding contracts at year-end are included in thetable below:

 
| **Countries / Unit**  | ** **                 | **2007**   | ** **                          |
|---------------------------------|----------------------------|------------|-------------------------------------|
|                            | **Notional quantity** |       | **Average price ****(1)** |   |
|                            |                       |       |                                |   |   |
| Canada / millions of Gigajoules | ** **                 | ** ** | ** **                          | ** ** | ** ** |
| Less than 1 year                | ** **                 | **0.8**    | ** **                          | **$** | **8.09** | ** ** |
| Between 1 and 3 years           | ** **                 | **0.5**    | ** **                          | **$** | **8.23** | ** ** |
|                            |                       |       |                                |   |   |
| US / millions of MMBTU          |                       |       |                                |   |   |
| Less than 1 year                | ** **                 | **4.0**    | ** **                          | **$** | **8.85** | ** ** |
| Between 1 and 3 years           | ** **                 | **2.8**    | ** **                          | **$** | **8.72** | ** ** |

 

----

(1) Transactions inforeign currencies are translated into dollars using the closing exchange rateas at December 31.

 

**(e)****         ****Credit risk**

 

The Company is exposed to credit losses resulting from defaults bycounterparties when using financial instruments. When the Company enters intoderivative financial instruments, the counterparties (either foreign orCanadian) must have at least a rating of A or its equivalent on long-termunsecured term debt from at least two rating agencies (Standard & Poor’s,Moody’s or DBRS) and are subject to concentration limits. The Company does notforesee any failure by the counterparties in meeting their obligations and therisk is considered immaterial.

 

The Company, in the normal course of business, continuously monitors thefinancial condition of its customers and reviews the credit history of each newcustomer. At December 31, 2007, no customer balance represents a significantportion of the Company’s consolidated accounts receivable. The Companyestablishes an allowance for doubtful accounts that corresponds to the specificcredit risk of its customers, historical trends and other information on thestate of the economy.

 

The Company believes that the product and geographic diversity of itscustomer base is instrumental in reducing its credit risk, as well as theimpact on the Company of fluctuations in local market or product-line demand.The Company has long-term contracts with most of its largest customers. Thesecontracts usually include price adjustment clauses based on the cost of paperand ink. The Company does not believe that it is exposed to an unusual level ofcustomer credit risk.

 

**24.          Supplementary Cash Flow Information**

** **

Cash and cash equivalents consist of:

 
| ** **       | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash             | ** ** | **$**    | **49.2**   |     | $          | 13.2     |       | $ | 11.7 |   |
| Cash equivalents |       | **11.9** |       | 4.6      |       | 6.6      |       |
|             |       | **$**    | **61.1**   |     | $          | 17.8     |       | $ | 18.3 |   |

 
| ** **                                                  | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Interest payments                                           | ** ** | **$**    | **127.6**  |     | $          | 140.0    |       | $ | 112.9 |   |
| Dividends paid on preferred shares  classified as liability | ** ** | **5.7**  |       | —   |       | —   |       |
| Income tax paid (net of refund)                             | ** ** | **(9.4** | **)**      | 32.0     |       | 39.3     |       |
|                                                             |            |          |            |          |            |          |            |  |  |  |

** **

**46**

----

**Table of Contents**

** **

**Notes to Consolidated Financial Statements**

** **

**25.          Commitments, Contingencies andGuarantees**

** **

**(a)****         ****Leases**

 

The Company rents premises and machinery and equipment under operatingleases, which expire at various dates up to 2022 and for which minimum leasepayments total $339.2 million.

 

Annual minimum payments under these leases are as follows:

 
| 2008                 |   | $    | 95.9   |   |
|----------------------|--------|------|--------|--------|
| 2009                 |   | 60.7 |   |
| 2010                 |   | 40.8 |   |
| 2011                 |   | 27.0 |   |
| 2012                 |   | 23.6 |   |
| 2013 and  thereafter |   | 91.2 |   |

 

Rental expenses for operating leases were $89.1 million, $71.4 millionand $84.5 million for the years 2007, 2006 and 2005 respectively.

 

**(b)****         ****Machinery and equipment**

 

As at December 31, 2007, the Company had commitments to purchase 2new presses for its North American and European segments for a total amount of$18.1 million, of which $10.5 million was already disbursed and the remainingamount of $7.6 million is due to be paid in 2008. The Company also concludedagreements related to other equipment expenditures for its European and NorthAmerican segments. Future payments related to these commitments will amount toapproximately $27.1 million in 2008 and $2.0 million in 2009.

 

**(c)****         ****Environment**

 

The Company is subject to various laws, regulations and governmentpolicies principally in North America, Europe and Latin America, relating tohealth and safety, to the generation, storage, transportation, disposal andenvironmental emissions of various substances, and to environment protection ingeneral. The Company believes it is in compliance with such laws, regulations andgovernment policies, in all material respects. Furthermore, the Company doesnot anticipate that maintaining compliance with such environmental statuteswill have a material adverse effect upon the Company’s competitive orconsolidated financial position.

 

**(d)****         ****Guarantees**

 

Significant guarantees the Company has provided to third parties includethe following:

 

***Operating leases***

The Company has guaranteed a portion of the residual values of certainof its assets under operating leases with expiry dates in 2008 and 2009, forthe benefit of the lessor. If the fair value of the assets, at the end of theirrespective lease terms, is less than the residual value guarantee, then theCompany must, under certain conditions, compensate the lessor for a portion ofthe shortfall. The maximum exposure in respect of these guarantees is $13.2million. As at December 31, 2007 the Company has recorded a liability of$4.8 million associated with these guarantees.

 

***Business and real estatedisposals***

In connection with certain disposals of businesses or real estate, theCompany has provided customary representations and warranties whose terms rangein duration and may not be explicitly defined. The Company has also retainedcertain liabilities for events that have occurred prior to the sale, relatingto tax, environmental, litigation and other matters. Generally, the Company hasindemnified the purchasers in the event that a third party asserts a claimagainst the purchaser that relates to a liability retained by the Company.

 

These types of indemnification guarantees typically extend for a numberof years. The nature of these indemnification agreements prevents the Companyfrom estimating the maximum potential liability that it could be required topay to guaranteed parties. These amounts are dependent upon the outcome offuture contingent events, the nature and likelihood of which cannot bedetermined at this time.

 

47

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Tableof Contents

 

**Notesto Consolidated Financial Statements**

 

**25.          Commitments, Contingencies andGuarantees (Cont’d)**

** **

**(d)****         ****Guarantees (cont’d)**

 

Historically, the Company has not made any significant indemnificationpayments under such agreements and no amount has been accrued in theconsolidated balance sheet with respect to these indemnification guarantees asat December 31, 2007. The Company continues to monitor the conditions thatare subject to guarantees and indemnifications to identify whether it isprobable that a loss has occurred, and would recognize any such losses underany guarantees or indemnifications when those losses are probable andestimable.

 

***Debt agreements***

Under the terms of certain debt agreements, the Company has guaranteed theobligation of some of its U.S. subsidiaries. In this context, the Company wouldhave to indemnify the other parties against changes in regulation relative towithholding taxes, which would occur only if the Company was to make thepayments on behalf of some of its U.S. subsidiaries. These indemnificationsextend for the term of the related financings and do not provide any limit onthe maximum potential liabilities. The nature of the indemnification agreementsprevents the Company from estimating the maximum potential liability it couldbe required to pay. However, the majority of the obligations to which suchguarantees apply contain make-whole provisions which effectively limit theexposure associated with such an occurrence. Moreover, within the currentstructure of the transactions, the Company is not exposed to such liabilities.As such, the Company has not accrued any amount in the consolidated balancesheet with respect to this item.

 

***Irrevocable standby letters ofcredit***

The Company and certain of its subsidiaries have granted irrevocablestandby letters of credit, issued by high rated financial institutions, tothird parties to indemnify them in the event the Company does not perform itscontractual obligations. As of December 31, 2007, the guaranteeinstruments amounted to $69.7 million. The Company has not recorded anyadditional liability with respect to these guarantees, as the Company does notexpect to make any payments in excess of what is recorded in the Company’sfinancial statements. The guarantee instruments mature at various dates infiscal 2008.

 

48

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Table of Contents

 

**Notesto Consolidated Financial Statements**

 

**26.          Pension and Other PostretirementBenefits (Amended)**

** **

The Company maintains defined benefit and contribution pension plans forits employees. The effective dates of the most recent actuarial valuations forfunding purposes were between April 2005 and December 2007, and thedate of the next required actuarial valuation ranges between January 2008and December 2009.

 

The Company provides postretirement benefits to eligible employees. Thecosts of these benefits are accounted for during the employees’ active serviceperiod.

 

The following tables are based on a September 30th measurementdate. The tables provide a reconciliation of the changes in the plan’s benefitobligations and fair value of plan assets for the fiscal years ended December 31,2007 and December 31, 2006, and a statement of the funded status as at December 31,2007 and 2006:

 
| ** **                                    | ** ** | **Pension Benefits  2007** | ** ** | **Pension Benefits  2006** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                                    |       | **North  America**              |       | **Europe**                      |       | **Total** |   | **North  America** |   | **Europe** |   | **Total** |   |
| **Changes in benefit  obligations**           |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Benefit obligation, beginning of year         | ** ** | **$**                           | **920.3**  | ** **                      | **$**      | **121.6** | ** ** | **$** | **1,041.9** |   | $ | 1,014.2 |   | $ | 97.7 |   | $ | 1,111.9 |   |
| Service cost                                  | ** ** | **10.7**                        | ** ** | **1.9**                         | ** ** | **12.6** |   | 32.6 |   | 1.6 |   | 34.2 |   |
| Interest cost                                 | ** ** | **50.7**                        | ** ** | **6.3**                         | ** ** | **57.0** |   | 53.6 |   | 5.1 |   | 58.7 |   |
| Plan participants’ contributions         | ** ** | **3.0**                         | ** ** | **1.4**                         | ** ** | **4.4** |   | 3.6 |   | 1.4 |   | 5.0 |   |
| Plan amendements                              | ** ** | **—**                      | ** ** | **(3.4**                        | **)**      | **(3.4** | **)** | 3.0 |   | — |   | 3.0 |   |
| Curtailment gain                              | ** ** | **(5.7**                        | **)**      | **—**                      | ** ** | **(5.7** | **)** | (61.9 | ) | (2.7 | ) | (64.6 | ) |
| Settlement gain                               | ** ** | **(1.5**                        | **)**      | **(2.3**                        | **)**      | **(3.8** | **)** | — |   | — |   | — |   |
| Actuarial gain                                | ** ** | **(41.2**                       | **)**      | **(10.1**                       | **)**      | **(51.3** | **)** | (37.3 | ) | 7.5 |   | (29.8 | ) |
| Benefits paid                                 | ** ** | **(101.7**                      | **)**      | **(4.2**                        | **)**      | **(105.9** | **)** | (87.1 | ) | (2.9 | ) | (90.0 | ) |
| Foreign currency changes                      | ** ** | **50.0**                        | ** ** | **3.5**                         | ** ** | **53.5** | ** ** | (0.4 | ) | 13.9 |   | 13.5 |   |
| Benefit obligation, end of year               | ** ** | **$**                           | **884.6**  | ** **                      | **$**      | **114.7** | ** ** | **$** | **999.3** | ** ** | $ | 920.3 |   | $ | 121.6 |   | $ | 1,041.9 |   |
| **Changes in plan assets**                    |       |                            |       |                            |       |   | ** ** |   |   |   |   |   |   |
| Fair value of plan assets, beginning of  year | ** ** | **$**                           | **655.4**  | ** **                      | **$**      | **65.3** | ** ** | **$** | **720.7** | ** ** | $ | 615.8 |   | $ | 51.2 |   | $ | 667.0 |   |
| Actual return on plan assets                  | ** ** | **70.3**                        | ** ** | **5.5**                         | ** ** | **75.8** | ** ** | 38.9 |   | 4.7 |   | 43.6 |   |
| Employer contributions                        | ** ** | **56.9**                        | ** ** | **5.1**                         | ** ** | **62.0** | ** ** | 84.6 |   | 3.3 |   | 87.9 |   |
| Plan participants’ contributions         | ** ** | **3.0**                         | ** ** | **1.4**                         | ** ** | **4.4** | ** ** | 3.6 |   | 1.4 |   | 5.0 |   |
| Benefits paid                                 | ** ** | **(101.7**                      | **)**      | **(4.2**                        | **)**      | **(105.9** | **)** | (87.1 | ) | (2.9 | ) | (90.0 | ) |
| Settlement loss                               | ** ** | **(1.5**                        | **)**      | **—**                      | ** ** | **(1.5** | **)** | — |   | — |   | — |   |
| Foreign currency changes                      | ** ** | **38.9**                        | ** ** | **0.9**                         | ** ** | **39.8** | ** ** | (0.4 | ) | 7.6 |   | 7.2 |   |
| Fair value of plan assets, end of year        | ** ** | **$**                           | **721.3**  | ** **                      | **$**      | **74.0** | ** ** | **$** | **795.3** | ** ** | $ | 655.4 |   | $ | 65.3 |   | $ | 720.7 |   |
| **Reconciliation of funded  status**          |       |                            |       |                            |       |   | ** ** |   |   |   |   |   |   |
| Funded status                                 | ** ** | **$**                           | **(163.3** | **)**                           | **$**      | **(40.7** | **)** | **$** | **(204.0** | **)** | $ | (264.9 | ) | $ | (56.3 | ) | $ | (321.2 | ) |
| Unrecognized net transition asset             | ** ** | **0.2**                         | ** ** | **(2.5**                        | **)**      | **(2.3** | **)** | (0.3 | ) | (2.8 | ) | (3.1 | ) |
| Unrecognized past service cost (benefit)      | ** ** | **17.1**                        | ** ** | **(3.5**                        | **)**      | **13.6** |   | 16.2 |   | — |   | 16.2 |   |
| Unrecognized actuarial loss                   | ** ** | **189.1**                       | ** ** | **27.6**                        | ** ** | **216.7** |   | 272.1 |   | 40.3 |   | 312.4 |   |
| Adjustment for fourth quarter contributions   | ** ** | **9.8**                         | ** ** | **—**                      | ** ** | **9.8** |   | 5.4 |   | — |   | 5.4 |   |
| Net amount recognized                         | ** ** | **$**                           | **52.9**   | ** **                      | **$**      | **(19.1** | **)** | **$** | **33.8** |   | $ | 28.5 |   | $ | (18.8 | ) | $ | 9.7 |   |

 

49

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Tableof Contents

 

**Notesto Consolidated Financial Statements**

 

**26.          Pension and Other PostretirementBenefits (Amended) (Cont’d)**

 
| ** **                                    |       | **Postretirement   Benefits** |       |
|-----------------------------------------------|------------|-------------------------------|------------|
| ** **                                    |       | **2007**                      |       | **2006** |   |
|                                          |       |                          |       |   |   |
| **Changes in benefit  obligations**           |       |                          |       |   |   |
| Benefit obligation, beginning of year    | ** ** | **$**                         | **64.8**   |   | $ | 69.4 |   |
| Service cost                                  | ** ** | **1.2**                       |       | 1.3 |   |
| Interest cost                                 | ** ** | **3.3**                       |       | 3.7 |   |
| Plan participants’ contributions         | ** ** | **1.4**                       |       | 2.1 |   |
| Actuarial gain                                | ** ** | **(4.0**                      | **)**      | (5.2 | ) |
| Benefits paid                                 | ** ** | **(6.4**                      | **)**      | (6.5 | ) |
| Foreign currency changes                      | ** ** | **2.0**                       | ** ** | — |   |
|                                          | ** ** | ** **                    |       |   |   |
| Benefit obligation, end of year               | ** ** | **$**                         | **62.3**   |   | $ | 64.8 |   |
| ** **                                    |       |                          |       |   |   |
| **Changes in plan assets**                    |       |                          |       |   |   |
| Fair value of plan assets, beginning of  year | ** ** | **$**                         | **—** |   | $ | — |   |
| Employer contributions                        | ** ** | **5.0**                       |       | 4.4 |   |
| Plan participants’ contributions         | ** ** | **1.4**                       |       | 2.1 |   |
| Benefits paid                                 | ** ** | **(6.4**                      | **)**      | (6.5 | ) |
|                                          | ** ** | ** **                    |       |   |   |
| Fair value of plan assets, end of year        | ** ** | **$**                         | **—** |   | $ | — |   |
| ** **                                    |       |                          |       |   |   |
| **Reconciliation of funded  status**          |       |                          |       |   |   |
| Funded status                                 | ** ** | **$**                         | **(62.3**  | **)** | $ | (64.8 | ) |
| Unrecognized past service cost (benefit)      | ** ** | **(12.1**                     | **)**      | (14.1 | ) |
| Unrecognized actuarial loss                   | ** ** | **3.0**                       | ** ** | 6.9 |   |
| Adjustment for fourth quarter contributions   | ** ** | **1.3**                       | ** ** | 1.0 |   |
|                                          | ** ** | ** **                    | ** ** |   |   |
| Net amount recognized                         | ** ** | **$**                         | **(70.1**  | **)** | $ | (71.0 | ) |

** **

Included in the above benefit obligation and fair value of plan assetsat year-end are the following amounts in respect of plans that are not fullyfunded:

 
|                          |       | **Pension Benefits  2007** |       | **Pension Benefits  2006** |       |
|-------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
|                          |       | **North  America**              | ** ** | **Europe**                      | ** ** | **Total** | ** ** | **North America** | ** ** | **Europe** | ** ** | **Total** |   |
|                          |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Benefit  obligation           | ** ** | **$**                           | **(840.2** | **)**                           | **$**      | **(114.7** | **)** | **$** | **(954.9** | **)** | $ | (920.3 | ) | $ | (121.6 | ) | $ | (1,041.9 | ) |
| Fair  value of plan assets    | ** ** | **672.2**                       | ** ** | **74.0**                        | ** ** | **746.2** | ** ** | 655.4 |   | 65.3 |   | 720.7 |   |
|                          |       | ** **                      | ** ** | ** **                      | ** ** | ** ** | ** ** |   |   |   |   |   |   |
| Funded  status - plan deficit | ** ** | **$**                           | **(168.0** | **)**                           | **$**      | **(40.7** | **)** | **$** | **(208.7** | **)** | $ | (264.9 | ) | $ | (56.3 | ) | $ | (321.2 | ) |

 
| ** **                    | ** ** | **Postretirement  Benefits** | ** ** |
|-------------------------------|------------|------------------------------|------------|
| ** **                    | ** ** | **2007**                     | ** ** | **2006** | ** ** |
|                          |       |                         |       |   |   |
| Benefit  obligation           | ** ** | **$**                        | **(62.3**  | **)** | $ | (64.8 | ) |
| Fair  value of plan assets    | ** ** | **—**                   | ** ** | — |   |
|                          |       |                         | ** ** |   |   |
| Funded  status - plan deficit | ** ** | **$**                        | **(62.3**  | **)** | $ | (64.8 | ) |

 

50

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**Notesto Consolidated Financial Statements**

** **

**26.          Pensionand Other Postretirement Benefits (Amended) (Cont’d)**

** **

The following tables provide the amounts recognized in the consolidatedbalance sheets:

 
| ** **                | ** ** | ** ** | ** ** | **Pension Benefits  2007** | ** ** | **Pension Benefits  2006** | ** ** |
|---------------------------|------------|------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                | ** ** | **Note**   | ** ** | **North America**               | ** ** | **Europe**                      | ** ** | **Total** | ** ** | **North America** | ** ** | **Europe** | ** ** | **Total** | ** ** |
|                      |       |       | ** ** | ** **                      | ** ** | ** **                      | ** ** | ** ** |   |   |   |   |   |   |   |
| Accrued benefit liability |       | 17         | ** ** | **$**                           | **(67.4**  | **)**                           | **$**      | **(21.6** | **)** | **$** | **(89.0** | **)** | $ | (58.1 | ) | $ | (21.8 | ) | $ | (79.9 | ) |
| Accrued benefit asset (1) | ** ** | ** ** | ** ** | **120.3**                       | ** ** | **2.5**                         | ** ** | **122.8** |   | 86.6 |   | 3.0 |   | 89.6 |   |
|                      | ** ** | ** ** | ** ** | ** **                      | ** ** | ** **                      | ** ** | ** ** |   |   |   |   |   |   |   |
| Net amount recognized     | ** ** | ** ** | ** ** | **$**                           | **52.9**   | ** **                      | **$**      | **(19.1** | **)** | **$** | **33.8** |   | $ | 28.5 |   | $ | (18.8 | ) | $ | 9.7 |   |

 

----

(1)          Included in otherassets.

 
| ** **                 | ** ** | ** ** | ** ** | **Postretirement   Benefits** | ** ** |
|----------------------------|------------|------------|------------|-------------------------------|------------|
|                       | ** ** | **Note**   | ** ** | **2007**                      | ** ** | **2006** | ** ** |
|                       |       |       |       |                          |       |   |   |
| Accrued  benefit liability |       | 17         | ** ** | **$**                         | **(70.1**  | **)** | $ | (71.0 | ) |
|                       |       |       |       |                          | ** ** |   |   |
| Net  amount recognized     | ** ** | ** ** |       | **$**                         | **(70.1**  | **)** | $ | (71.0 | ) |

 

The plan assets held in trust at the measurement date and their weightedaverage allocations were as follows:

 
| **Asset category** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------|------------|----------|------------|----------|------------|
|                    |       |     |       |     |       |
| Equity securities  | ** ** | **64**   | **%**      | 65       | %          |
| Debt securities    | ** ** | **33**   | ** ** | 33       | ** ** |
| Others                  | ** ** | **3**    | ** ** | 2        | ** ** |

 

In 2007, at the measurement date, the plan assets included equitysecurities of the Company and related parties for a total amount of $0.4million.

 

51

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**Table of Contents**

** **

**Notesto Consolidated Financial Statements**

** **

**26.          Pension and Other PostretirementBenefits (Amended) (Cont’d)**

** **

The following tables provide the components of net periodic benefitcost:

 
| ** **                                                                                                                                     | ** ** | **Pension Benefits****2007** | ** ** | **Pension Benefits****2006** | ** ** | **Pension Benefits    2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                     |       | **North  America**                |       | **Europe**                        |       | **Total**                         |       | **North****America** |   | **Europe** |   | **Total** |   | **North  America** |   | **Europe** |   | **Total** |   |
| ** **                                                                                                                                     |       |                              |       |                              |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Defined  benefit plans**                                                                                                                     |       |                              |       |                              |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Service  cost                                                                                                                                  | ** ** | **$**                             | **10.7**   | ** **                        | **$**      | **1.9**                           | ** ** | **$** | **12.6** |   | $ | 32.6 |   | $ | 1.6 |   | $ | 34.2 |   | $ | 31.5 |   | $ | 3.7 |   | $ | 35.2 |   |
| Interest  cost                                                                                                                                 | ** ** | **50.7**                          | ** ** | **6.3**                           | ** ** | **57.0**                          |       | 53.6 |   | 5.1 |   | 58.7 |   | 54.7 |   | 5.2 |   | 59.9 |   |
| Actual  return on plan assets                                                                                                                  | ** ** | **(70.3**                         | **)**      | **(5.5**                          | **)**      | **(75.8**                         | **)**      | (38.9 | ) | (4.7 | ) | (43.6 | ) | (57.4 | ) | (7.4 | ) | (64.8 | ) |
| Actuarial  (gain) loss                                                                                                                         | ** ** | **(47.7**                         | **)**      | **(10.1**                         | **)**      | **(57.8**                         | **)**      | (33.9 | ) | 7.5 |   | (26.4 | ) | 70.3 |   | 6.6 |   | 76.9 |   |
| Plan  amendments                                                                                                                               | ** ** | **—**                        | ** ** | **(3.4**                          | **)**      | **(3.4**                          | **)**      | 3.0 |   | — |   | 3.0 |   | — |   | — |   | — |   |
| Curtailment  (gain) loss                                                                                                                       | ** ** | **(0.1**                          | **)**      | **—**                        | ** ** | **(0.1**                          | **)**      | 0.1 |   | (2.8 | ) | (2.7 | ) | 3.7 |   | — |   | 3.7 |   |
| Settlement  loss                                                                                                                               | ** ** | **12.9**                          | ** ** | **(2.4**                          | **)**      | **10.5**                          | ** ** | 3.3 |   | — |   | 3.3 |   | 3.4 |   | — |   | 3.4 |   |
| Benefit  cost before adjustments to recognize the long-term nature of the plans                                                                | ** ** | **(43.8**                         | **)**      | **(13.2**                         | **)**      | **(57.0**                         | **)**      | 19.8 |   | 6.7 |   | 26.5 |   | 106.2 |   | 8.1 |   | 114.3 |   |
| Difference  between expected return and actual return on plan assets                                                                           | ** ** | **20.9**                          | ** ** | **1.3**                           | ** ** | **22.2**                          | ** ** | (8.2 | ) | 1.0 |   | (7.2 | ) | 10.6 |   | 3.5 |   | 14.1 |   |
| Difference  between actuarial (gain) loss recognized for the year and actual actuarial  (gain) loss on accrued benefit obligation for the year | ** ** | **60.2**                          | ** ** | **12.3**                          | ** ** | **72.5**                          | ** ** | 51.1 |   | (6.2 | ) | 44.9 |   | (57.1 | ) | (5.1 | ) | (62.2 | ) |
| Difference  between amortization of past service cost (benefit) for the year and actual  plan amendments for the year                          | ** ** | **1.6**                           | ** ** | **3.4**                           | ** ** | **5.0**                           | ** ** | (1.9 | ) | — |   | (1.9 | ) | 1.4 |   | (0.7 | ) | 0.7 |   |
| Amortization  of transitional asset                                                                                                            | ** ** | **(0.5**                          | **)**      | **(0.3**                          | **)**      | **(0.8**                          | **)**      | (0.5 | ) | (0.4 | ) | (0.9 | ) | (0.5 | ) | (0.3 | ) | (0.8 | ) |
| Net  periodic cost                                                                                                                             | ** ** | **38.4**                          | ** ** | **3.5**                           | ** ** | **41.9**                          | ** ** | 60.3 |   | 1.1 |   | 61.4 |   | 60.6 |   | 5.5 |   | 66.1 |   |
| **Defined  contribution plans**                                                                                                                | ** ** | **28.9**                          | ** ** | **—**                        | ** ** | **28.9**                          |       | 17.6 |   | — |   | 17.6 |   | 11.4 |   | — |   | 11.4 |   |
| Total  periodic benefit cost                                                                                                                   | ** ** | **$**                             | **67.3**   | ** **                        | **$**      | **3.5**                           | ** ** | **$** | **70.8** |   | $ | 77.9 |   | $ | 1.1 |   | $ | 79.0 |   | $ | 72.0 |   | $ | 5.5 |   | 77.5 |   |
|                                                                                                                                                |            |                                   |            |                                   |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Notesto Consolidated Financial Statements**

 

**26.          Pension and Other Postretirement Benefits (Amended)(Cont’d)**

 
| ** **                                                                                                                                     | ** ** | **Postretirement  Benefits** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                     |       | **2007**                     | ** ** | **2006** |   | **2005** |   |
| ** **                                                                                                                                     |       | ** **                   | ** ** |   |   |   |   |
| **Defined benefit plans**                                                                                                                      |       | ** **                   | ** ** |   |   |   |   |
| Service cost                                                                                                                                   | ** ** | **$**                        | **1.2**    | ** ** | $ | 1.3 |   | $ | 1.1 |   |
| Interest cost                                                                                                                                  | ** ** | **3.3**                      | ** ** | 3.7 |   | 3.9 |   |
| Actuarial (gain) loss                                                                                                                          | ** ** | **(4.0**                     | **)**      | (5.2 | ) | 8.8 |   |
| Plan amendments                                                                                                                                | ** ** | **—**                   | ** ** | — |   | (3.5 | ) |
| Curtailment (gain) loss                                                                                                                        | ** ** | **—**                   | ** ** | — |   | (0.3 | ) |
| Benefit cost before adjustments to  recognize the long-term nature of the plans                                                                | ** ** | **0.5**                      | ** ** | (0.2 | ) | 10.0 |   |
| Difference between actuarial (gain) loss  recognized for the year and actual actuarial (gain) loss on accrued benefit  obligation for the year | ** ** | **4.2**                      | ** ** | 6.1 |   | (8.1 | ) |
| Difference between amortization of past  service cost (benefit) for the year and actual plan amendments for the year                           | ** ** | **(2.1**                     | **)**      | (2.0 | ) | 1.6 |   |
|                                                                                                                                           | ** ** | ** **                   | ** ** |   |   |   |   |
| Total periodic benefit cost                                                                                                                    | ** ** | **$**                        | **2.6**    | ** ** | $ | 3.9 |   | $ | 3.5 |   |

** **

In 2006, the Company modified its defined benefit plans for certainemployees in Canada and in the United States, and created a definedcontribution Group Registered Retirement Savings Plan (“Group RRSP”) foremployees in Canada. As of October 1, 2006, affected employees in Canadahad the choice to adhere to the Group RRSP, or to continue to participate inthe modified plan, while future employees automatically adhered to the new GroupRRSP. As a result, a $3.8 million curtailment charge was recorded in 2006.For employees in the United States, one of the defined benefit plans was frozenon October 1, 2006, and an improved defined contribution plan has beenoffered to employees. As a result, a $5.5 million curtailment gain was recordedin 2006.

 

The 2007 pension benefit costs included a settlement loss of $4.8million (settlement loss of $1.9 million in 2006 and settlements andcurtailments due to downsizing of $0.2 million in 2005), as described in Note3, a settlement loss of $8.0 million for lump sum payments, offset by asettlement gain of $2.3 million for plant closures.

 

The defined contribution pension plan benefit cost includedcontributions to multiemployer plans of $6.6 million for the year ended December 31,2007 ($7.1 million in 2006 and $6.8 million in 2005), and a charge of $1.0million for multiemployer plans due to a plant closure in 2006. No charge formultiemployer plans due to plant closures was recorded in 2007.

 

The total cash amount paid or payable for employee future benefits forall plans, consisting of cash contributed by the Company to its funded pensionplans, cash payment directly to beneficiaries for its unfunded other benefitplans and cash contributed to its defined contribution plans, was $100.3million for the year ended December 31, 2007 ($110.3 million in 2006and $72.7 million in 2005).

 

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** **

**Notes to Consolidated Financial Statements**

** **

**26.          Pension and Other PostretirementBenefits (Amended) (Cont’d)**

** **

The required quarterly minimum funding contributions for the fourthquarter of 2007, in the amount of approximately $10.0 million, were due on January 15,2008. For cash management reasons, the required amount of approximately $5.1million was paid on January 15, 2008 and the remaining amount was to bepaid on February 15, 2008. However, the remaining amount was not approvedby the Monitor (Note 1) and was therefore not paid on that date. A motionauthorizing the payment of approximately $4.9 million was submitted to theCourt on March 20, 2008 and subsequently paid. The financial impact on thelate payment is interest penalties of approximately $0.1 million.

 

The weighted average assumptions used in the measurement of the Company’sbenefit obligation and cost are as follows:

 
| ** **                                          | ** ** | **Pension  Benefits** |       | **Postretirement  Benefits** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|------------------------------|------------|
| ** **                                          | ** ** | **2007**              | ** ** | **2006**                     | ** ** | **2005** |   | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                |       | ** **            | ** ** |                         |       |   |   | ** ** | ** ** |   |   |   |   |
| Accrued benefit  obligation as of December 31: |       | ** **            | ** ** |                         |       |   |   | ** ** | ** ** |   |   |   |   |
| Discount rate                                       | ** ** | **6.0**               | **%**      | 5.6                          | %          | 5.4 | % | **6.2** | **%** | 5.8 | % | 5.6 | % |
| Rate of  compensation increase                      | ** ** | **3.4**               | **%**      | 3.4                          | %          | 3.4 | % | **—** | ** ** | — |   | — |   |
|                                                |       | ** **            | ** ** |                         |       |   |   | ** ** | ** ** |   |   |   |   |
| Benefit costs  for years ended December 31:    |       | ** **            | ** ** |                         |       |   |   | ** ** | ** ** |   |   |   |   |
| Discount rate                                       | ** ** | **5.6**               | **%**      | 5.4                          | %          | 6.0 | % | **5.8** | **%** | 5.6 | % | 6.1 | % |
| Expected return  on plan assets                     | ** ** | **7.5**               | **%**      | 7.6                          | %          | 7.6 | % | **—** | ** ** | — |   | — |   |
| Rate of  compensation increase                      | ** ** | **3.4**               | **%**      | 3.4                          | %          | 3.4 | % | **—** | ** ** | — |   | — |   |

 

The assumed health care cost trend rate used in measuring the accumulatedpostretirement benefit obligation was 8.5% at the end of 2007 (8.5% at the endof 2006 and 8.2% at the end of 2005) and is expected to decrease gradually to5.0% by 2011 and remain at that level thereafter. A one percentage point changein assumed health care cost trend would have the following effects:

 
| ** **                           | ** ** | **Postretirement Benefits** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|
| **Sensitivity analysis**        | ** ** | **1% increase**             | ** ** | **1% decrease** | ** ** |
|                                 |       |                             |       |   |   |
| Effect on service and interest costs |       | $                                | 0.4        |   | $ | (0.4 | ) |
| Effect on benefit obligation         |       | 4.8                              |       | (4.1 | ) |
|                                      |            |                                  |            |  |  |  |  |

 

**27.          Segmented Information (Amended)**

** **

The Company operates in the printing industry. During the second quarterof 2008, management modified the Company’s reportable segments to reflect thesale of the European operations (see Note 29). The revised reporting structureincludes two segments, North America and Latin America. These segments aremanaged separately, since they all require specific market strategies. TheCompany assesses the performance of each segment based on operating incomebefore impairment of assets, restructuring and other charges and goodwillimpairment charge (“Adjusted EBIT”).

 

Accounting policies relating to each segment are identical to those usedfor the purposes of the consolidated financial statements and intersegmentsales are made at fair value. Management of financial expenses and income taxexpense is centralized and, consequently, these expenses are not allocatedamong the segments. Revenues by geographic area are based on where the sellingorganization is located.

 

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**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**27.          Segmented Information (Amended) (Cont’d)**

** **

The following is a summary of the segmented information for the Company’scontinuing operations:

 
| ** **                           | ** ** | **North  America ****(1)** | ** **  | **Latin  America** | ** ** | **Other**  | ** ** | **Inter-  Segment** | ** ** | **Total**    | ** ** |
|--------------------------------------|------------|---------------------------------|-------------|--------------------|------------|------------|------------|---------------------|------------|--------------|------------|
|                                 |       |                            |        |               |       |       |       |                |       |         |       |
| **Revenues**                         |       |                            |        |               |       |       |       |                |       |         |       |
| **2007**                             | ** ** | **$**                           | **4,373.7** | ** **         | **$**      | **284.8**  | ** ** | **$**               | **0.5**    | ** **   | **$**      | **(4.5** | **)** | **$** | **4,654.5** | ** ** |
| 2006                                 |       | 4,821.7                         |        | 239.3              |       | 0.7        |       | (0.8                | )          | 5,060.9      |       |
| 2005                                 |       | 4,881.1                         |        | 241.7              |       | 0.5        |       | (2.9                | )          | 5,120.4      |       |
| **Depreciation and amortization**    |       |                            |        |               |       |       |       |                |       |         |       |
| **2007**                             | ** ** | **237.1**                       | ** **  | **12.7**           | ** ** | **0.3**    | ** ** | **—**          | ** ** | **250.1**    | ** ** |
| 2006                                 |       | 242.8                           |        | 10.8               |       | 0.6        |       | —              |       | 254.2        |       |
| 2005                                 |       | 235.8                           |        | 10.5               |       | 1.0        |       | —              |       | 247.3        |       |
| **Impairment of assets**             |       |                            |        |               |       |       |       |                |       |         |       |
| **2007**                             | ** ** | **171.0**                       | ** **  | **1.0**            | ** ** | **—** | ** ** | **—**          | ** ** | **172.0**    | ** ** |
| 2006                                 |       | 30.5                            |        | 0.5                |       | —     |       | —              |       | 31.0         |       |
| 2005                                 |       | 8.9                             |        | 0.3                |       | —     |       | —              |       | 9.2          |       |
| **Restructuring and other  charges** |       |                            |        |               |       |       |       |                |       |         |       |
| **2007**                             | ** ** | **34.7**                        | ** **  | **0.9**            | ** ** | **—** | ** ** | **—**          | ** ** | **35.6**     | ** ** |
| 2006                                 |       | 34.5                            |        | 0.7                |       | —     |       | —              |       | 35.2         |       |
| 2005                                 |       | 13.7                            |        | 0.4                |       | —     |       | —              |       | 14.1         |       |
| **Goodwill impairment charge**       |       |                            |        |               |       |       |       |                |       |         |       |
| **2007**                             | ** ** | **1,823.2**                     | ** **  | **9.7**            | ** ** | **—** | ** ** | **—**          | ** ** | **1,832.9**  | ** ** |
| 2006                                 |       | —                          |        | —             |       | —     |       | —              |       | —       |       |
| 2005                                 |       | —                          |        | —             |       | —     |       | —              |       | —       |       |
| **Adjusted EBIT**                    |       |                            |        |               |       |       |       |                |       |         |       |
| **2007**                             | ** ** | **164.9**                       | ** **  | **13.2**           | ** ** | **(24.8**  | **)**      | **—**          | ** ** | **153.3**    | ** ** |
| 2006                                 |       | 257.8                           |        | 10.0               |       | (6.0       | )          | —              |       | 261.8        |       |
| 2005                                 |       | 353.5                           |        | 13.0               |       | 2.8        |       | —              |       | 369.3        |       |
| **Operating income (loss)**          |       |                            |        |               |       |       |       |                |       |         |       |
| **2007**                             | ** ** | **(1,864.0**                    | **)**       | **1.6**            | ** ** | **(24.8**  | **)**      | **—**          | ** ** | **(1,887.2** | **)**      |
| 2006                                 |       | 192.8                           |        | 8.8                |       | (6.0       | )          | —              |       | 195.6        |       |
| 2005                                 |       | 330.9                           |        | 12.3               |       | 2.8        |       | —              |       | 346.0        |       |
|                                      |            |                                 |             |                    |            |            |            |                     |            |              |            |  |  |  |  |  |

 

----

(1) Includes Revenues amounting to $857.2 million($893.3 million in 2006 and $912.2 million in 2005)

 

55

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** **

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**27.          Segmented Information (Amended) (Cont’d)**

** **

The following is a summary of the segmented information for the Company:

 
| ** **                                         | ** ** | **North  America** | ** ** | **Europe** | ** ** | **Latin  America** | ** ** | **Other**  | ** ** | **Inter-  Segment** | ** ** | **Total**   | ** ** |
|----------------------------------------------------|------------|--------------------|------------|------------|------------|--------------------|------------|------------|------------|---------------------|------------|-------------|------------|
| ** **                                         |       |               |       |       |       |               |       |       |       |                |       |        |       |
| **Additions  to property, plant and equipment(1)** |       |               |       |       |       |               |       |       |       |                |       |
| **2007**                                           | ** ** | **251.5**          | ** ** | **64.6**   | ** ** | **3.5**            | ** ** | **1.4**    | ** ** | **—**          | ** ** | **321.0**   | ** ** |
| 2006                                               |       | 207.9              |       | 75.5       |       | 29.1               |       | 1.3        |       | —              |       | 313.8       |       |
| 2005                                               |       | 286.4              |       | 103.3      |       | 4.1                |       | 0.2        |       | —              |       | 394.0       |       |
| **Property, plant and equipment****(1) (2)**  | ** ** | ** **         | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** | ** **          | ** ** | ** **  | ** ** |
| **2007**                                           | ** ** | **1,413.8**        | ** ** | **475.5**  | ** ** | **111.7**          | ** ** | **8.0**    | ** ** | **—**          | ** ** | **2,009.0** | ** ** |
| 2006                                               |       | 1,625.3            |       | 544.7      |       | 111.5              |       | 5.9        |       | —              |       | 2,287.4     |       |
| **Goodwill(1)**                                    | ** ** | ** **         |       |       |       |               | ** ** | ** ** |       |                | ** ** | ** **  | ** ** |
| **2007**                                           | ** ** | **342.3**          |       | **—** |       | **—**         | ** ** | **—** |       | **—**          | ** ** | **342.3**   | ** ** |
| 2006                                               |       | 2,156.3            |       | 159.4      |       | 8.6                |       | —     |       | —              |       | 2,324.3     |       |
| **Total assets(1)**                                | ** ** | ** **         | ** ** | ** ** | ** ** | ** **         | ** ** | ** ** | ** ** | ** **          | ** ** | ** **  | ** ** |
| **2007**                                           | ** ** | **2,885.2**        | ** ** | **891.5**  | ** ** | **290.5**          | ** ** | **95.8**   | ** ** | **—**          | ** ** | **4,163.0** | ** ** |
| 2006                                               |       | 4,551.9            |       | 910.6      |       | 263.5              |       | 97.4       |       | —              |       | 5,823.4     |       |

 

----

(1)          Including both continued anddiscontinued operations.

(2)          Property, plant and equipmentamounting to $173.2 million ($233.2 million in 2006) for Canada.

 

The Company carries out international commercial printing operations,and offers to its customers a broad range of print and related communicationservices, such as retail inserts, magazines, catalogs, books, directories,logistics, direct mail, pre-media and other value-added services.

 

Revenues by print service are as follows:

 
| ** **                                 | ** ** | **Note**   | ** ** | **2007**    | ** **        | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------|------------|------------|------------|-------------|-------------------|------------|------------|------------|------------|
|                                       |       |       |       |        |              |       |       |       |       |   |   |   |   |   |   |
| Retail inserts                        |       |       |       | **$**       | ** 1,632.7** |       | **28.7**   | **%**      | $          | 1,730.6 |   | 28.5 | % | $ |  1,717.5 |   | 27.3 | % |
| ** **                                 | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Magazine                                   | ** ** | ** ** | ** ** | **1,479.2** | ** **        | **26.0**   |       | 1,581.2    |       | 26.0 |   | 1,671.2 |   | 26.6 |   |
|                                       | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| Catalogs                                   | ** ** | ** ** | ** ** | **926.6**   | ** **        | **16.3**   |       | 1,012.9    |       | 16.6 |   | 1,027.6 |   | 16.4 |   |
|                                       | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| Books                                      | ** ** | ** ** | ** ** | **560.7**   | ** **        | **9.9**    |       | 628.3      |       | 10.3 |   | 691.4 |   | 11.0 |   |
|                                       | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| Directories                                | ** ** | ** ** | ** ** | **390.4**   | ** **        | **6.8**    |       | 390.8      |       | 6.4 |   | 390.6 |   | 6.2 |   |
|                                       | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| Logistics                                  | ** ** | ** ** | ** ** | **266.2**   | ** **        | **4.7**    |       | 263.0      |       | 4.3 |   | 248.5 |   | 4.0 |   |
|                                       | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| Direct mail                                | ** ** | ** ** | ** ** | **205.1**   | ** **        | **3.6**    |       | 222.4      |       | 3.7 |   | 206.8 |   | 3.3 |   |
|                                       | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| Pre-media and other value-added services   | ** ** | ** ** | ** ** | **227.3**   | ** **        | **4.0**    |       | 257.1      |       | 4.2 |   | 329.7 |   | 5.2 |   |
|                                       | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| ** **                                 | ** ** | ** ** | ** ** | **$**       | **5,688.2**       | ** ** | **100.0**  | **%**      | $          | 6,086.3 |   | 100.0 | % | $ | 6,283.3 |   | 100.0 | % |
| ** **                                 | ** ** | ** ** | ** ** | ** **  | ** **        | ** ** |       |       |       |   |   |   |   |   |   |
| Discontinued  operations related to Europe |       | 29         | ** ** | **1,033.7** |              |       |       | 1,025.4    |       |   |   | 1,162.9 |   |   |   |
|                                       |       |       | ** ** | ** **  |              |       |       |       |       |   |   |   |   |   |   |
| ** **                                 |       |       |       | **$**       | **4,654.5**       |       |       |       | $          | 5,060.9 |   |   |   | $ | 5,120.4 |   |   |   |

 

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**28.**                               SignificantDifferences Between Generally Accepted Accounting Principles In Canada and theUnited States

** **

The Company’s consolidated financial statements have been prepared inaccordance with Canadian generally accepted accounting principles (“GAAP”),which differ in some respects from those applicable in the United States. Thefollowing are the significant differences in accounting principles as they pertainto the consolidated financial statements.

 

**(a)****         ****Reconciliation ofnet income (loss) and earnings (loss) per share**

 

The application of GAAP in the United States would have the followingeffects on net income (loss) as reported:

 
| ** **                                                                                       | ** ** | **2007**   | ** **   | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------|--------------|----------|------------|----------|------------|
| ** **                                                                                       | ** ** |       | ** **   |     |       |     |       |
| **Net  income (loss), as reported in the consolidated statements of income per GAAP  in Canada** | ** ** | **$**      | **(2,200.4** | **)**    | $          | 28.3     |       | $ | (162.6 | ) |
|                                                                                             |       |       | ** **   |     |       |     |       |
| Adjustments:                                                                                     |       |       | ** **   |     |       |     |       |
| Convertible senior subordinated notes  (a) (i)                                              |       | **2.9**    | ** **   | 2.2      |       | 3.5      |       |
| Hedge accounting (a) (ii)                                                                   |       | **6.2**    | ** **   | (5.1     | )          | (15.5    | )          |
| Reduction of a net investment in a foreign  operation (a) (iii)                             |       | **—** | ** **   | 2.5      |       | —   |       |
| Sale leaseback of property (a) (v)                                                          |       | **(1.4**   | **)**        | —   |       | —   |       |
| Dividends on preferred shares classified as  liabilities (b) (iii)                          |       | **9.8**    | ** **   | —   |       | —   |       |
| Income taxes (a) (vi)                                                                       |       | **(41.5**  | **)**        | 1.9      |       | 5.1      |       |
| ** **                                                                                       | ** ** | ** ** | ** **   |     |       |     |       |
| **Net  income (loss), as adjusted per GAAP in the United States**                                | ** ** | **$**      | **(2,224.4** | **)**    | $          | 29.8     |       | $ | (169.5 | ) |
| ** **                                                                                       | ** ** | ** ** | ** **   |     |       |     |       |
| Net income allocated to holders of  preferred shares                                             |       | **32.6**   | ** **   | 34.0     |       | 39.6     |       |
|                                                                                             |       | ** ** | ** **   |     |       |     |       |
| Net income (loss) per GAAP in the United  States available to holders of equity shares           |       | **$**      | **(2,257.0** | **)**    | $          | (4.2     | )          | $ | (209.1 | ) |
|                                                                                             |       | ** ** | ** **   |     |       |     |       |
| Weighted average number of equity shares  outstanding (in millions):                             |       |       | ** **   |     |       |     |       |
| Basic and diluted                                                                                |       | **131.9**  | ** **   | 131.4    |       | 131.8    |       |
|                                                                                             |       | ** ** | ** **   |     |       |     |       |
| Earnings (loss) per share as adjusted per  GAAP in the United States:                            |       |       | ** **   |     |       |     |       |
| Basic and diluted                                                                                |       | **$**      | **(17.11**   | **)**    | $          | (0.03    | )          | $ | (1.59 | ) |

 

**(i)****           ****Convertible senior subordinatednotes**

 

Under GAAP in Canada, the equity component ofthe convertible notes is recorded under shareholders’ equity as contributedsurplus. The difference between the carrying amount of the debt component andits face value is amortized as imputed interest to income over the life of theconvertible senior subordinated note. Regarding the repurchase of convertiblenotes, the Company is required to allocate the consideration paid onextinguishment to the liability and equity components of the convertible notesbased on their fair values at the date of the transaction. The amount of gain(loss) relating to the liability element is recorded to income and thedifference between the carrying amount and the amount considered to be settledrelating to the conversion option element is treated as an equity transaction.Under GAAP in the United States, the allocation to equity is not permitted, noimputed interest is needed in relation to the equity component and the gain(loss) on repurchase is recorded through income in the period ofextinguishment. In June 2007, the Company redeemed all of its outstandingsenior notes. As a result the convertible feature portion which was previouslyreported as contributed surplus is reported to retained earnings for GAAP inCanada.

 

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** **

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**28.**                   SignificantDifferences Between Generally Accepted Accounting Principles In Canada and theUnited States (Cont’d)

** **

**(a)**          **Reconciliation of netincome (loss) and earnings (loss) per share (cont’d)**

 

**(ii)****                 ****Accounting for derivativeinstruments and hedging activities**

 

Under GAAP in United States, Statement ofFinancial Accounting Standards No.133, ‘‘Accounting for Derivative Instrumentsand Hedging Activities’’ (“SFAS 133”) establishes accounting and reportingstandards for derivative instruments and hedging activities and requires thatall derivatives be recorded as either assets or liabilities in the balancesheet at fair value. In accordance with SFAS 133, for derivative instrumentsdesignated as fair value hedges by the Company, such as certain interest rateswaps and forward exchange contracts, changes in the fair values of thesederivative instruments are substantially offset in the statement of income bychanges in the fair values of the hedged items.

 

For derivative instruments designated as cashflow hedges by the Company, such as certain forward exchange contracts andnatural gas swap contracts, the effective portions of these hedges are reportedin other comprehensive income (loss) until it is recognized in income duringthe same period in which the hedged item affects income, while the currentineffective portions of these hedges are recognized in the statement of incomeeach period.

 

Under GAAP in Canada prior to January 1,2007, derivative financial instruments were accounted for on an accrual basis.Realized and unrealized gains and losses were deferred and recognized in incomein the same period and in the same financial statement category as the incomeor expense arising from the corresponding hedged positions. Since January 1,2007, the standards for hedge accounting under Canadian GAAP have beenharmonized to those prescribed by SFAS 133 and the differences recognized inprior periods have been eliminated.

 

Certain embedded derivatives, such as earlyprepayment options included in some of the Company’s borrowing agreements, donot meet the criteria to be considered closely related to their host contractsand are required to be recorded separately at their fair values with changesrecognized to earnings, for GAAP in Canada. Under GAAP in the United States,these embedded derivatives are considered to be clearly and closely related tothe underlying debt and changes to their fair values are not recorded toearnings.

 

**(iii)****             ****Reduction of a net investment ina foreign operation**

 

Under GAAP in Canada, a gain or lossequivalent to a proportionate amount of the exchange gain or loss accumulatedin the translation adjustment has to be recognized in income when there hasbeen a reduction of a net investment in a foreign operation. Under GAAP in theUnited States, a gain or loss should only be recognized in income in the caseof a substantial or complete liquidation, a sale or partial sale of a netinvestment in a foreign operation.

 

**(iv)****                ****Stock-based compensation**

 

Effective January 1, 2003, the Companybegan accounting for its stock-based compensation expense using the fair valuebased method by adopting the requirements of CICA Handbook Section 3870, “Stock-basedcompensation and other stock-based payments” under GAAP in Canada and theStatement of Financial Accounting Standards (“SFAS”) No. 123, “Accountingfor Stock-Based Compensation” under GAAP in the United States. As a result,there is no difference in stock-based compensation accounting since January 1,2003, except for the accounting of stock options granted prior to 2003 orstock-based compensation accounting rules applied prior to fiscal year2003. Furthermore, the adoption by the Company of the new SFAS No. 123(revised) on January 1, 2006 did not result in any additional differencebetween GAAP in Canada and in the United States.

 

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** **

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**28.**                               SignificantDifferences Between Generally Accepted Accounting Principles In Canada and theUnited States (Cont’d)

** **

**(a)**          Reconciliationof net income (loss) and earnings (loss) per share (cont’d)

** **

**(v)****          ****Sale l****easeback transactions**

 

For Canadian GAAP purposes, the Company uses the sale-leasebackmethod of accounting forsales and leaseback transactions that transfer substantially all the risks andrewards of ownership to the buyer-lessor, whereby a sale is recorded, the asset is removedfrom the balance sheet, and the leaseback is accounted for as an operating or acapital lease when certain criteria are met. Any gain on sale is generallydeferred and amortized over the lease term. Profit is recognized to the extent that the gainexceeds the net present value of the minimum lease payments.  A loss on the sale is recognized immediatelyif the sale and leasebacktransaction is established above fair value and the excess of the sales priceover fair value should be deferred and amortized over the lease term.

 

Under GAAP in the United States, if the criteria for sale and leasebackaccounting are met, any profit or loss on a sale consummated at fair value isgenerally deferred and amortized in proportion to the amortization of theleased asset for a capital lease and in proportion to the related gross rentalcharges for an operating lease. In evaluating whether the criteria for sale andleaseback accounting are met under US GAAP, any form of continuinginvolvement with the property, other than a normal leaseback, precludes therecognition of a sale and results in accounting for the transaction as afinancing and the property continues to be shown as anasset of the Company until the conditions for sales recognition are met.

 

As a result of these differences, gain that wasdeferred under Canadian GAAP at the date of a sale andleaseback transaction completed during 2007 with a company under commoncontrol was reversed under US GAAP. The difference in net income is comprisedof the amortization related to reinstated property and imputed interestcalculated on the borrowing recorded under US GAAP as compared to leasepayments recognized under Canadian GAAP.

 

**(vi)****      ****Income taxes**

 

Thisadjustment represents the tax impact of United States GAAP differences.

 

**(b)**          Effect on consolidated balance sheets

 

The application of GAAP in the United Stateswould have the following effects on the consolidated balance sheets, asreported:

 
| ** **                                                                       | ** ** | **2007**     | ** ** | **2006**          | ** ** |
|----------------------------------------------------------------------------------|------------|--------------|------------|-------------------|------------|
| ** **                                                                       | ** ** | **Canada**   | ** ** | **United States** | ** ** | **Canada** | ** ** | **United States** | ** ** |
| Assets                                                                           |       |         |       |              |       |   |   |   |   |
| Receivables from related parties  (a) (v)                                   | ** ** | **$**        | **20.5**   | ** **        | **$**      | **14.8** |   | $ | 20.3 |   | $ | 20.3 |   |
| Current future income taxes (a) (vi)                                        | ** ** | **28.6**     | ** ** | **30.5**          |       | 40.6 |   | 50.7 |   |
| Property, plant and equipment (a) (v)                                       | ** ** | **2,009.0**  | ** ** | **2,067.0**       |       | 2,287.4 |   | 2,287.4 |   |
| Other assets (a) (ii) (v) (b) (i) (iv)                  | ** ** | **202.3**    | ** ** | **94.7**          |       | 224.2 |   | 134.6 |   |
|                                                                             |       |         |       |              |       |   |   |   |   |
| Liabilities and Shareholders’ Equity                                        |       |         |       |              |       |   |   |   |   |
| Trade payables and accrued liabilities  (a) (ii) (b) (i) (v) | ** ** | **994.8**    | ** ** | **1,006.3**       |       | 942.4 |   | 971.1 |   |
| Income and other taxes payable (b) (v)                                      | ** ** | **39.8**     | ** ** | **12.7**          |       | 39.7 |   | 39.7 |   |
| Current future income taxes (a) (vi)                                        | ** ** | **1.0**      | ** ** | **1.0**           |       | 1.1 |   | 0.4 |   |
| Long-term debt  (a) (ii) (b) (iv)                                 | ** ** | **1,313.6**  | ** ** | **1,329.8**       |       | 1,984.0 |   | 1,981.7 |   |
| Long-term debt payable to a related party  (a) (v)                          | ** ** | **—**   | ** ** | **44.9**          |       | — |   | — |   |
| Other liabilities (a) (ii) (v) (b) (i) (v)              | ** ** | **363.4**    | ** ** | **489.7**         |       | 283.5 |   | 512.1 |   |
| Long-term future income taxes (a) (vi)                                      | ** ** | **132.2**    | ** ** | **102.6**         |       | 389.1 |   | 297.8 |   |
| Convertible notes (a) (i)                                                   | ** ** | **—**   | ** ** | **—**        |       | 117.7 |   | 120.5 |   |
| Preferred shares (b) (iii)                                                  | ** ** | **178.5**    | ** ** | **—**        |       | 150.2 |   | — |   |
| Capital stock (b) (ii) (iii)                                           | ** ** | **1,457.4**  | ** ** | **1,543.0**       |       | 1,452.4 |   | 1,538.0 |   |
| Contributed surplus (a) (i) (iv)                                       | ** ** | **102.1**    | ** ** | **101.9**         |       | 114.1 |   | 98.1 |   |
| Retained earnings (deficit)  (a) (b) (ii) (iii)                   | ** ** | **(1,813.3** | **)**      | **(1,819.6**      | **)**      | 398.3 |   | 437.4 |   |
| Accumulated other comprehensive income  (loss) (c)                               | ** ** | **(179.2**   | **)**      | **(275.3**        | **)**      | (82.6 | ) | (286.4 | ) |
|                                                                                  |            |              |            |                   |            |  |  |  |  |  |  |  |  |

 

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**28.**                              SignificantDifferences Between Generally Accepted Accounting Principles In Canada and theUnited States (Cont’d)

** **

**(b)****              ****Effect on consolidated balance sheets (cont’d)**

 

**(i)****                ****Pension and post-retirement plans**

 

Under GAAP inthe United States, Statement No. 158, Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans (“SFAS 158”) was issued in 2006and requires the recognition in the balance sheet of the over- or unfundedpositions of defined benefit pension and other post-retirement plans, alongwith a corresponding non-cash adjustment, which is recorded in the accumulatedother comprehensive loss.

 

Under GAAP inCanada, a company is not required to recognize the over- or unfunded positions.

 

**(ii)****            ****Share issue costs**

 

Under GAAP inthe United States, share issue costs are deducted from the value proceeds ofthe capital stock issued. Under GAAP in Canada, share issue costs are includedin the Retained earnings in the year incurred.

 

**(iii)****        ****Preferred shares**

 

Under CanadianGAAP, the Series 4 and Series 5 Cumulative Redeemable First PreferredShares are presented as liability in the balance sheet. Under GAAP in theUnited States, these preferred shares are classified as equity.  As a result, dividends on preferred sharesclassified as liability which are recorded to income under Canadian GAAP arerecorded to equity under GAAP in the United States.

 

**(iv)****           ****Deferred Financing Fees**

 

Under GAAP inthe United States, debt issuance costs are capitalized as an asset andamortized over the term of the debt. Canadian GAAP does not permit an entity toclassify debt issuance costs as deferred charges but instead requirescapitalized financing fees to be deducted from the amortized cost of the debt.

 

**(v)****               ****Income taxes**

 

On January 1,2007, the Company adopted the provisions of the Financial Accounting StandardsBoard (FASB) Interpretation No. 48, Accounting for Uncertainty in IncomeTaxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109,Accounting for Income Taxes, and prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Thisinterpretation also provides guidance as to de-recognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.

 

Therewas no change in the income tax reserves of the Company at January 1,2007, upon the adoption of FIN 48. At adoption, the Company had approximately$38.7 million of gross unrecognized income tax benefits (“UTBs”).

 

UnderCanadian GAAP, current and long-term tax reserves on income and non-incomebased taxes are recorded under income tax payable and future tax liabilities,respectively. Under FIN 48, the liability for unrecognized benefits shall notbe combined with deferred tax liabilities or assets.

 

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** **

**28.**                              SignificantDifferences Between Generally Accepted Accounting Principles In Canada and theUnited States (Cont’d)

** **

**(c)****              ****Comprehensive income**

 

Theapplication of GAAP in the United States would have the following effects onthe consolidated statements of comprehensive income:

 
| ** **                                                                                                          | ** ** | **2007**   | ** **   | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------|--------------|------------|------------|------------|------------|
| ** **                                                                                                          | ** ** | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** |
| Comprehensive  income (loss), as reported in the consolidated statements of comprehensive  income per Canadian GAAP |       | **$**      | **(2,290.0** | **)**      | $          | 48.3       |       | $ | (233.9 | ) |
|                                                                                                                | ** ** | ** ** | ** **   |       |       |       |       |
| Adjustments  to net income (loss) as per (a) above                                                             | ** ** | **(24.0**  | **)**        | 1.5        |       | (6.9       | )          |
|                                                                                                                | ** ** | ** ** | ** **   |       |       |       |       |
| Adjustments  to other comprehensive income:                                                                         |       | ** ** | ** **   |       |       |       |       |
| Gain (loss)  on hedging activities                                                                                  | ** ** | **—** | ** **   | (21.4      | )          | (24.3      | )          |
| Pension and  other post-retirement benefits (b) (i)                                                            | ** ** | **115.3**  | ** **   | 1.3        |       | (23.8      | )          |
| Foreign  currency translation (a) (iii) (b) (iii)                                                    | ** ** | **18.8**   | ** **   | (44.6      | )          | 10.5       | )          |
| Income taxes  (a) (vi)                                                                                         | ** ** | **(35.9**  | **)**        | 0.7        |       | 4.0        |       |
|                                                                                                                | ** ** | ** ** | ** **   |       |       |       |       |
| Comprehensive  income (loss), as adjusted per GAAP in the United States                                             | ** ** | **$**      | **(2,215.8** | **)**      | $          | (14.2      | )          | $ | (274.4 | ) |

 

**(d)****               Accumulated other comprehensive income**

 

Theapplication of GAAP in the United States would have the following effects onaccumulated other comprehensive income:

 
| ** **                                                                        | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Accumulated  other comprehensive income (loss), as reported per GAAP in Canada    |       | ** ** | ** ** |       |       |
|                                                                              | ** ** | **$**      | **(179.2** | **)**      | $          | (82.6 | ) |
| Adjustments:                                                                      |       | ** ** | ** ** |       |       |
| Derivative  hedging instruments (a) (ii)                                     | ** ** | **—** | ** ** | (15.2      | )          |
| Pension and  postretirement benefits (b) (i)                                 | ** ** | **(209.5** | **)**      | (324.8     | )          |
| Foreign  currency translation                                                     | ** ** | **53.6**   | ** ** | 34.8       |       |
| Income taxes  (a) (vi)                                                       | ** ** | **59.8**   | ** ** | 101.4      |       |
|                                                                              | ** ** | ** ** | ** ** |       |       |
| Accumulated  other comprehensive (loss), as adjusted per GAAP in theUnited States |       | **$**      | **(275.3** | **)**      | $          | (286.4 | ) |

 

**(e)****               Statements of cash flow**

 

Theadjustments to comply with GAAP in the United States for the years ended December 31,2007, 2006, and 2005 would have no effect on net cash and cash equivalentsprovided by operating activities, cash provided by (used in) financingactivities, and cash used in investing activities.

 

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**29.****                             ****Subsequent Events (Amended)**

 

**(a)****               Conversion of Series 5 Cumulative Redeemable First PreferredShares into Subordinate Voting Shares**

 

On March 1, 2008, 3,975,663 Series 5Cumulative Redeemable First Preferred Shares were each converted into 12.93125Subordinate Voting Shares. Consequently, approximately 51.4 million newSubordinate Voting Shares were issued by the Company.

 

On June 1, 2008, 517,184 Series 5Cumulative Redeemable First Preferred Shares were each converted into 13.146875Subordinate Voting Shares.  Consequently,approximately 6.8 million new Subordinate Voting Shares were issued by theCompany.

 

On September 1, 2008, 744,124 Series 5Cumulative Redeemable First Preferred Shares were each converted into 13.3625Subordinate Voting Shares. Consequently approximately 9.9 million newSubordinate Voting Shares were issued by the Company.

 

On December 1,2008, 66,601 Series 5 Preferred Shares were each converted into 13.578125Subordinate Voting Shares. Consequently approximately 0.9 million newSubordinate Voting Shares were issued by the Company.

 

**(b)****               Specific Stock Based Compensation Plans Cancelled**

 

In January 2008,the Company cancelled the employee stock purchase plan in the United States andthe employee share investment plan in Canada for eligible employees. In February 2008,the Company terminated the deferred stock unit plan for the benefit of theCompany’s directors.

 

**(c)****               Discontinued operations**

 

The consolidatedStatement of income and notes 1, 3, 4, 5, 7, 26 and 27 have been amended forthe UK and Europe discontinued operations that occurred January 28, 2008and June 26, 2008.

 

Europe

On June 26,2008, the Company sold its European operations to a subsidiary of HomberghHoldings B.V. (“HHBV”). The total consideration for the Company was€52.2 million ($82.1 million) in cash and a €21.5 million five-yearnote bearing interest at 7% per year, which is carried in other assets at itsfair value of €14.1 million ($22.3 million). The net cash proceeds weremainly used by the Company to repay the DIP Term Loan. This transactionresulted in a loss on disposal of $653.3 million in 2008, including thecumulative translation adjustment impact and is presented as part of the netloss from discontinued operations in the results of 2008.

 

United Kingdom

On January 28,2008, the Company abandoned its UK subsidiary, Quebecor World PLC (“QWP”),based in Corby, and placed it into administration. As a result, the Companyceased to have control or significant influence over QWP as the ability todetermine strategic, operating, investing and financing policies wastransferred to the administrators. The administrators ceased to operate QWP on February 15,2008, and all of QWP’s long-lived assets, primarily buildings and machinery andequipment, will be liquidated. On November 27, 2008 the administratorsfiled a Notice to Move from administration to Creditors’ Voluntary Liquidation,resulting in termination of the administration and commencement of a creditorsvoluntary liquidation. As a result, the Company recorded an impairment chargeof $32.0 million (including the write-down of an intercompany receivable)in the first quarter of 2008. The Company is an unsecured creditor for itsintercompany receivable of $28.0 million from QWP and in 2008, the Companyhas written down the receivable to its estimated amount recoverable of$5.0 million.

 

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**29.****                             ****Subsequent Events (Amended) (Cont’d)**

 

**(c)****               Discontinued operations related to Europe (cont’d)**

 

**Summary of discontinued operations related to Europe and UK as at December 31**

 
| ** **                                                   | ** ** | **Note**   | ** ** | **2007**    | ** **  | **2006**   | ** ** | **2005** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-------------|-------------|------------|------------|----------|------------|
| Operating  revenues                                          | ** ** | ** ** |       | **$**       | **1,033.7** | ** ** | $          | 1,025.4  |       | $ | 1,162.9 |   |
|                                                         | ** ** | ** ** |       | ** **  | ** **  |       |       |     |       |
| Operating  expenses:                                         |       |       |       | ** **  | ** **  |       |       |     |       |
| Cost of  sales                                               | ** ** | ** ** |       | **939.6**   | ** **  | 922.1      |       | 1,032.1  |       |
| Selling,  general and administrative                         | ** ** | ** ** |       | **75.4**    | ** **  | 62.8       |       | 79.5     |       |
| Securitization  fees                                         | ** ** | ** ** |       | **7.8**     | ** **  | 6.4        |       | 6.2      |       |
| Depreciation  and amortization                               | ** ** | ** ** |       | **61.4**    | ** **  | 54.4       |       | 56.9     |       |
| Impairment  of assets, restructuring and other charges       |       | 3          | ** ** | **96.0**    | ** **  | 45.1       |       | 70.9     |       |
| Goodwill  impairment charge                                  |       | 13         | ** ** | **166.0**   | ** **  | —     |       | 243.0    |       |
| ** **                                                   |       |       |       | **1,346.2** | ** **  | 1,090.8    |       | 1,488.6  |       |
| Operating  loss                                              | ** ** | ** ** |       | **(312.5**  | **)**       | (65.4      | )          | (325.7   | )          |
| Financial  expenses                                          |       | 4          | ** ** | **49.8**    | ** **  | 20.2       |       | 15.4     |       |
| Net loss  before income taxes and loss on business disposals | ** ** | ** ** |       | **(362.3**  | **)**       | (85.6      | )          | (341.1   | )          |
| Income taxes                                                 |       | 5          | ** ** | **(12.0**   | **)**       | 2.6        |       | (12.7    | )          |
|                                                         |       |       | ** ** | ** **  | ** **  |       |       |     |       |
| Net loss  before loss on business disposals                  | ** ** | ** ** |       | **(350.3**  | **)**       | (88.2      | )          | (328.4   | )          |
| Loss on  business disposals, net of tax                      |       | 8          | ** ** | **(12.7**   | **)**       | —     |       | —   |       |
| Net loss  from discontinued operations                       | ** ** | ** ** |       | **$**       | **(363.0**  | **)**      | $          | (88.2    | )          | $ | (328.4 | ) |

 

**Summary of assets and liabilities sold and abandoned**

** **
| ** **                                       | ** ** | **September 30, 2008** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                       | ** ** | ** **                       | ** ** |
| Assets sold  and abandoned:                      |       |                             |       |
| Cash and  cash equivalents                       | ** ** | **$**                            | **32.6**   | ** ** |
| Non-cash  operating working capital              | ** ** | **135.5**                        | ** ** |
| Property,  plant and equipment                   | ** ** | **482.8**                        | ** ** |
| Other assets                                     | ** ** | **5.2**                          | ** ** |
|                                             | ** ** | ** **                       | ** ** |
| Liabilities  sold and abandoned:                 |       |                             |       |
| Secured Financing                                | ** ** | **98.0**                         | ** ** |
| Long-term  debt                                  | ** ** | **14.3**                         | ** ** |
| Other  liabilities                               | ** ** | **28.1**                         | ** ** |
| Future  income taxes                             | ** ** | **5.4**                          | ** ** |
|                                             | ** ** | ** **                       | ** ** |
| **Net assets**                                   | ** ** | **$**                            | **510.3**  | ** ** |
| ** **                                       | ** ** | ** **                       | ** ** | ** ** |
| Effect of  cumulative translation adjustment     | ** ** | **$**                            | **273.3**  | ** ** |
| Proceeds:                                        |       |                             |       |
| Cash                                             | ** ** | **$**                            | **82.1**   | ** ** |
| Note  receivable                                 | ** ** | **22.3**                         | ** ** |
| Transaction  fees                                | ** ** | **(6.1**                         | **)**      |
|                                             | ** ** | **$**                            | **98.3**   | ** ** |
|                                             | ** ** | ** **                       | ** ** |
| **Net loss on business disposals and abandoned** | ** ** | **$**                            | **685.3**  | ** ** |

 

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**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**29.****                             ****Subsequent Events (Amended) (Cont’d)**

 

**(d)****               Related party transactions**

 

Quebecor Inc. (“Quebecor”),directly and through a wholly-owned subsidiary, holds 75.5% of the outstandingvoting interests in Quebecor World. As a result, Quebecor has the power todetermine many matters requiring shareholder approval, including the electionof directors and the approval of significant corporate transactions. Theinterests of Quebecor may conflict with the interests of other holders of QuebecorWorld equity and debt securities. However, the Court has exempted QuebecorWorld from the requirement to hold an annual meeting of shareholders until suchtime as the Company emerges from the Insolvency Proceedings (see Note 1). Inaddition, any fundamental transaction or proposed change to Quebecor World’sorganizational documents would require Court approval. Consequently, eventhough Quebecor currently holds 75.5% of the Company’s outstanding votinginterests, it is unlikely that Quebecor will be able to exercise its votesduring the Insolvency Proceedings in order to change the composition of theBoard of Directors or cause fundamental changes in the affairs andorganizational documents of the Company.

 

During the secondquarter of 2008, the Company acquired all rights, title and interest to anaircraft previously leased by the Company from a third party and subsequentlysold it to Quebecor Media Inc. The transaction was done at fair value based ontwo independent appraisals; the Company received a cash consideration of$20.3 million, resulting in a gain on disposal of $9.9 million.

 

On October 1,2008, as part of the review of contracts (see Note 1) the Company repudiated a10 year manufacturing agreement with subsidiaries of Quebecor Media Inc. thatwas entered during October of 2007 for the printing of directories,representing a maximum of $11.5 million of purchases per year. Following thisrepudiation, the subsidiaries of Quebecor Media Inc. filed a claim against theCompany, for an amount of $46.7 million.

 

As part of the Canadianclaims procedure described in Note 1, the Company has received claims fromQuebecor and certain of its subsidiaries (“Quebecor Group of Companies”),including the claim of $46.7 million related to the repudiation indicated above.As at the date hereof, it is not possible to determine the accuracy andcompleteness of the other claims that were filed, whether or not such claimswill be disputed and whether or not such claims will be subject to discharge inthe Insolvency Proceedings.  These claims will be analyzed as part of theclaims process described in Note 1.

 

There are other motionsfiled by the Company to recover certain assets from the Quebecor Group ofCompanies.  The Company does not believe that the resolution of these claimswill have a material adverse effect upon the Company’s consolidated financialposition.

 

The Company received lettersfrom Pierre Karl Péladeau, Érik Péladeau (Vice-Chairman of the Board), JeanNeveu and Jean La Couture (Chairman of the Audit Committee) advising that theyhave resigned from the Board of Directors. These directors also serve on theboard of Quebecor Inc. and Quebecor Media Inc., and have determined that, as aresult of the claims that have been filed by the Quebecor Group of Companies aspart of Quebecor World’s court protected restructuring process, theirresignations are advisable.

 

**(e)****              ****2008****restructuring****initiatives**

 

During the thirdquarter of 2008, there were various workforce reductions across North America.In the first half of 2008, there were restructuring initiatives in NorthAmerica related to the closures of North Haven, CT and Magog, QC facilities, asignificant downsizing of the Islington, ON facility and various workforcereductions across North America. The total cost expected for these initiativesis $42.4 million, of which $30.9 million is for workforce reduction and $11.5million is for leases and carrying costs for closed facilities. Theseinitiatives are expected to be completed by the end of 2008.

 

**(f)****                ****2008****Goodwill**

 

During the fourthquarter of 2008 triggering events occurred that may impact the carrying valueof goodwill. Should the goodwill not be recoverable the resulting impairmentmay amount to be as much as it’s carrying value. The Company is currentlyassessing the impact of such events.

 

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# **MANAGEMENT’S DISCUSSION AND ANALYSIS AMENDED**

# ** **

## FOR THEYEAR ENDED DECEMBER 31, 2007

 

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## TABLE OFCONTENTS AMENDED

 
| **Subject**                                                   | ** ** | **Page**   |
|---------------------------------------------------------------|------------|------------|
| ** **                                                    | ** ** | ** ** |
| Introduction                                                  |       | 3          |
|                                                          |       |       |
| 1.  Creditor protection and restructuring                     |       | 4          |
|                                                          |       |       |
| 2.  Discontinued operations                                   |       | 9          |
|                                                          |       |       |
| 3. Financial review                                           |       | 9          |
| 3.1  Annual review                                            |       | 10         |
| 3.2  Forth quarter review                                     |       | 13         |
| 3.3  Quarterly trends                                         |       | 15         |
| 3.4  Segment results                                          |       | 17         |
| 3.5 Impairment of assets and restructuring initiatives        |       | 18         |
| 3.6 Impairment of goodwill                                    |       | 19         |
|                                                          |       |       |
| 4. Liquidity and capital resources                            |       | 23         |
| 4.1  Operating activities                                     |       | 23         |
| 4.2  Financing activities                                     |       | 23         |
| 4.3  Investing activities                                     |       | 25         |
|                                                          |       |       |
| 5.  Financial position                                        |       |       |
| 5.1  Free cash flow                                           |       | 25         |
| 5.2 Financial ratios, financial covenants and credit  ratings |       | 25         |
| 5.3 Contractual cash obligations                              |       | 26         |
|                                                          |       |       |
| 6. Off-balance sheet arrangements and other  disclosures      |       | 27         |
| 6.1 Off-balance sheet arrangements                            |       | 30         |
| 6.2 Derivative financial instruments                          |       | 30         |
| 6.3 Related party transactions                                |       | 31         |
| 6.4 Outstanding share data                                    |       | 32         |
| 6.5 Controls and procedures                                   |       | 33         |
|                                                          |       |       |
| 7. Critical accounting estimates and accounting policies      |       | 36         |
| 7.1 Critical accounting estimates                             |       | 36         |
| 7.2 Change in accounting policy                               |       | 39         |
| 7.3  Reclassification                                         |       | 40         |
| 7.4 Recent accounting developments                            |       | 41         |
|                                                          |       |       |
| 8. Risk  factors                                              |       | 41         |
| 8.1  Primary risk factors                                     |       | 41         |
| 8.2  Other risk factors                                       |       | 42         |
|                                                          |       |       |
| 9. Additional information                                     |       | 52         |

 

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**Introduction**

** **

The following is a discussion ofthe consolidated financial condition and results of operations of QuebecorWorld Inc. (the “Company” or “Quebecor World”) for the years ended December 31,2007 and 2006, and it should be read together with the Company’s consolidatedfinancial statements. The annual consolidated financial statements andManagement’s Discussion and Analysis (“MD&A”) have been reviewed by theCompany’s Audit Committee and approved by its Board of Directors. Thisdiscussion contains forward-looking information that is qualified by referenceto, and should be read together with, the discussion regarding forward-lookingstatements that is part of this document. Management determines whether or notinformation is “material” based on whether it believes a reasonable investor’sdecision to buy, sell or hold securities in the Company would likely beinfluenced or changed if the information were omitted or misstated.

 

**Presentation of financial information**

** **

Financial data have beenprepared in conformity with Canadian generally accepted accounting principles (“CanadianGAAP”).

 

The Company reports on certainnon-GAAP measures that are used by management to evaluate performance ofbusiness segments. These measures used in this discussion and analyses do nothave any standardized meaning under Canadian GAAP. When used, these measuresare defined in such terms as to allow the reconciliation to the closestCanadian GAAP measure. Numerical reconciliations are provided in Figure 6. Itis unlikely that these measures could be compared to similar measures presentedby other companies.

 

The Company’s reporting currencyis the U.S. dollar, and its functional currency is the Canadian dollar.

 

**Forward-looking statements (Amended)**

** **

This MD&A includes “forward-lookingstatements” that involve risks and uncertainties. All statements other thanstatements of historical facts included in this MD&A, including statementsregarding the prospects of the industry, and prospects, plans, financialposition and business strategy of the Company, may constitute forward-lookingstatements within the meaning of the U.S. Private Securities Litigation ReformAct of 1995 and Canadian securities legislation and regulations.Forward-looking statements generally can be identified by the use offorward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”,“anticipate”, “plan”, “foresee”, “believe” or “continue” or the negatives ofthese terms or variations of them or similar terminology. Although the Companybelieves that the expectations reflected in these forward-looking statementsare reasonable, it can give no assurance that these expectations will prove tohave been correct. Forward-looking statements do not take into account theeffect that transactions or non-recurring or other special items announced oroccurring after the statements are made have on the Company’s business. Forexample, they do not include the effect of dispositions, acquisitions, otherbusiness transactions, asset write-downs or other charges announced oroccurring after forward-looking statements are made. Investors and others arecautioned that undue reliance should not be placed on any forward-lookingstatements.

 

For more information on therisks, uncertainties and assumptions that would cause the Company’s actualresults to differ from current expectations, please also refer to the Company’spublic filings available at www.sedar.com, www.sec.gov andwww.quebecorworld.com. In particular, further details and descriptions of theseand other factors are disclosed in the section “Risk factors” in this MD&Aand in the Company’s 2007Annual Information Form.

 

Unless mentioned otherwise, theforward-looking statements in this MD&A reflect the Company’s expectationsas of April 28, 2008 date at which they have been approved, and aresubject to change after this date. The Company expressly disclaims anyobligation or intention to update or revise any forward-looking statements,whether as a result of new information, future events or otherwise, unlessrequired by the applicable securities laws.  For the purpose of furnishing of theCompany’s form  40-F to the Securitiesand Exchange Commission, Sections 1, 2, 3.5, 3.6, 6.3, 6.4 and 6.5 of thisMD&A have been updated to reflect the disposition of the Company’s Europeanoperations that occurred on June 26, 2008 and other subsequent events to December 15,2008.

 

Quebecor World and 53 U.S. subsidiaries (the “U.S.subsidiaries” and, collectively with the Company, the “Applicants”). arecurrently subject to Court protection under the *Companies’Creditors Arrangement Act* (Canada) (“CCAA”), and the U.S.subsidiaries have filed petitions under Chapter 11 of the U.S. Bankruptcy Code(“Chapter 11”).

 

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### **1.**                   Creditor protection and restructuring (Amended)

### ** **

On January 21,2008 (the “Filing Date”), Quebecor World Inc. (“Quebecor World” or the “Company”)obtained an order (the “Initial Order”) from the Quebec Superior Court (the “Court”)granting creditor protection under the Companies’ Creditors Arrangement Act(the “CCAA”) for itself and for 53 U.S. subsidiaries (the “U.S.Subsidiaries” and, collectively with the Company, the “Applicants”). On thesame date, the U.S. subsidiaries filed a petition under Chapter 11 of the U.S.Bankruptcy Code (“Chapter 11”) in the U.S. Bankruptcy Court for the SouthernDistrict of New York (the “U.S. Bankruptcy Court”). The proceedings under theCCAA are hereinafter referred to as the “Canadian Proceedings”, the proceedingsunder Chapter 11 are hereinafter referred to as the “U.S. Proceedings” andthe Canadian Proceedings and the U.S. Proceedings are hereinafter collectivelyreferred to as the “Insolvency Proceedings”. The Company’s Latin Americansubsidiaries are not subject to the Insolvency Proceedings. In addition, priorto their disposition as discussed below, the European subsidiaries werenot subject to the Insolvency Proceedings. Pursuant to the InsolvencyProceedings, the Applicants are provided with the authority to, among otherthings, continue operating the Applicants’ business (subject to court approvalfor certain activities), file with the Court and submit to creditors a plan ofcompromise or arrangement under the CCAA (the “Plan”) and operate an orderlyrestructuring of the Applicants’ business and financial affairs, in accordancewith the terms of the Initial Order. Ernst & Young Inc. (the “Monitor”)has been appointed by the Court as Monitor in the Canadian Proceedings.Pursuant to the terms of the orders made in the Insolvency Proceedings, asamended, the Monitor was appointed to monitor the business and financialaffairs of the Applicants and, in connection with such role, the Initial Orderimposes a number of duties and functions on the Monitor, including, but notlimited to, assisting the Applicants in connection with their restructuring andreporting to the Court on the state of the business and financial affairs ofthe Applicants and on developments in the Insolvency Proceedings, as theMonitor considers appropriate. Reference should be made to the Initial Order fora more complete description of the duties and functions of the Monitor.

 

Chapter 11provides for all actions and proceedings against the U.S. Subsidiaries to bestayed during the continuation of the U.S. Proceedings. The Initial Order alsoprovides for a general stay, and, pursuant to subsequent orders of the Courtrendered on February 19, 2008, May 9, 2008, July 18, 2008, September 29,2008 and December 12, 2008 respectively, this stay period was extendedfirst to May 12, 2008 and then subsequently to July 25, 2008, September 30,2008, December 14, 2008 and March 1, 2009 in Canada. The stay periodis subject to further extensions as the Court may deem appropriate. Theapplicable stays generally preclude parties from taking any actions against theApplicants. The purpose of the stay period and the Insolvency Proceedings is toprovide the Applicants the opportunity to stabilize their operations andbusinesses and to develop a business plan, all with a view to proposing a Plan.Any such Plan will be subject to approval by affected creditors, as well as theCourt approval.

 

The Company becamein default under its revolving bank facility, its equipment financing creditfacility and its North American securitization program on January 16,2008. On January 24, 2008 pursuant to the Insolvency Proceedings, anamount of $417.6 million, including fees, was paid in order to terminate theNorth American securitization program.

 

The InsolvencyProceedings also triggered defaults under substantially all of the Applicants’other debt obligations. Generally, the Insolvency Proceedings have stayedactions against the Applicants, including actions to collect pre-filingindebtedness or to exercise control over any of the Applicants’ property. As aresult of the stay, the Applicants have ceased making payments of interest andprincipal on substantially all of their pre-petition debt obligations. Theorders granted in the Insolvency Proceedings have provided the Applicants withthe authority, among other things: (a) to pay outstanding and futureemployee wages, salaries and benefits; (b) to make rent payments underexisting arrangements payable after the Filing Date; and (c) to honourobligations to customers.

 

The Applicants arein the process of developing comprehensive business and financial plans, whichwill serve as a basis for discussions with stakeholders, with the advice andguidance of their financial advisors and the Monitor. The Applicants presentedtheir confidential business plan (the “Business Plan”) to the *Ad Hoc* Bondholder Group, the Bank Syndicate and the OfficialCommittee of Unsecured Creditors (collectively, the “Committees”) at thebeginning of June 2008. An overview of the Applicants’ five-year BusinessPlan was presented as well as details related to each of the major businesssegments. The Business Plan that was presented will serve as a basis fordiscussions with the creditor constituencies in anticipation of the formulationof a Plan or Plans of reorganization and, subject to receipt of necessaryapprovals from affected creditors, the Court and the U.S. Bankruptcy Court, theApplicants will implement one or more Plans. There can be no assurance,however, that a Plan or Plans of reorganization will be proposed by theApplicants, supported by the Applicants’ creditors or confirmed by the Courtand the U.S. Bankruptcy Court, or that any such Plan or Plans will beconsummated.

 

Another importantstep in the Company’s restructuring activities has been the sale of the Company’sEuropean operations to a subsidiary of Hombergh Holdings B.V. (“HHBV”), aNetherlands-based investment group (Note 29). On June 17, 2008, the Courtand the U.S. Bankruptcy Court approved the proposed sale transaction, whichclosed on June 26, 2008. Under the terms of the agreement, the Companyreceived €52.2 million in cash at closing. HHBV issued a 

 

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€21.5 millionfive-year note bearing interest at 7% per year payable to Quebecor World. Thesale was made substantially on an “as is, where is” basis.

 

Should the stayperiod and any subsequent extensions thereof, if granted, not be sufficient todevelop and present a Plan or should the Plan not be accepted by affectedcreditors and, in any such case, the Applicants lose the protection of the stayof proceedings, substantially all debt obligations of the Applicants will thenbecome due and payable immediately, creating an immediate liquidity crisiswhich would in all likelihood lead to the liquidation of the Applicants’assets. Failure to implement a Plan and obtain sufficient exit financing withinthe time granted by the Court and the U.S. Bankruptcy Court will also result insubstantially all of the Applicants’ debt obligations becoming due and payableimmediately, which would in all likelihood lead to the liquidation of theApplicants’ assets.

 

As detailed inNote 29 of the financial statements, the Company’s UK subsidiary was placedinto administration on January 28, 2008.

 

**On September 29, 2008, the Courtauthorized the Company to conduct a claims procedure for the identification,resolution and barring of claims against Quebecor World. The Canadian claimsprocedure contemplates that any person with any claim against the Company ofany kind or nature**arising prior to January 21, 2008, and any claim arising on or afterJanuary 21, 2008, that arose further to the repudiation, termination orrestructuring of any contract, lease, employment agreement or other agreement (“RestructuringClaim”), with the exception of certain excludedclaims, were to file its claim with the Monitor on or prior to December 5,2008 (the “Claims Bar Date”) or no later than the 30th day followingthe receipt of a written notice advising such creditor to file a Proof of Claimin relation to a Restructuring Claim.

** **

**Pursuant to orders entered by the U.S.Bankruptcy Court, the U.S. Subsidiaries filed their schedule of assets andliabilities and a statement of financial affairs on July 18, 2008. On September 29,2008, concurrently with the order granted by the Court with respect to theCanadian claims procedure, the U.S. Bankruptcy Court authorized the U.S.Subsidiaries to conduct a claims procedure setting December 5, 2008 as thebar date by which all creditors of the U.S. Subsidiaries were to file proofs oftheir respective claims and interests against the U.S. Subsidiaries.**

** **

**As at the date hereof, it is not possibleto determine the extent of the claims that were filed, whether or not such claimswill be disputed and whether or not such claims will be subject to discharge inthe Insolvency Proceedings. It is also not possible at this time to determinewhether to establish any additional liabilities in respect of claims. TheApplicants are beginning to review all claims filed and begin the claimsreconciliation process. In connection with the review and reconciliationprocess, the Applicants will also determine the additional liabilities, if any,that should appropriately be established in respect of such claims.**

** **

On September 29,2008, the Court granted an order lifting the stay of proceedings for the solepurpose of permitting certain of the noteholders to file a paulian action(namely, an action by which a creditor who suffers prejudice through ajuridical act made by its debtor in fraud of its rights seeks to obtain adeclaration that the act may not be set up against it) against, *inter alia*, the Company, contesting the opposability ofsecurity granted by Quebecor World and certain of its subsidiaries in September andOctober 2007 to the lenders under its revolving bank facility andequipment financing facility at such time. The order expressly provides that,immediately following the issuance and service of the paulian action, allfurther proceedings with respect to such paulian action be immediately stayeduntil further order of the Court.

 

Furthermore, on September 29,2008, the Company was authorized by the Court to enter into a share purchaseagreement providing for the sale to Bandhu Industrial Resources Private Limitedof its interest in TEJ Quebecor Printing Limited (“TQPL”), which operates aprinting facility located in Gurgaon, India. On November 20, 2008 theCompany proceeded with the share sale transaction, resulting in a total net considerationpayable to the Company of $0.15 million. The transaction also included a loansettlement agreement with respect to certain loans owing by TQPL to the Companyand master release and indemnity agreements between the purchaser and theCompany concerning its liabilities in relation to TQPL and the printingfacility.

 

On September 30,2008, the Monitor commenced a case under Chapter 15 of the U.S. Bankruptcy Codeon behalf of the Company in the U.S. Bankruptcy Court. The Monitor soughtrecognition of the Company’s CCAA proceeding as a foreign main proceeding andenforcement in the US of the Claims Procedure Order of the Court dated September 29,2008. On November 14, 2008, the US Bankruptcy Court for the SouthernDistrict of New York entered an order recognizing the Company’s CCAA proceedingas a “foreign main proceeding” and made the Canadian claims procedure order of September 29,2008 enforceable in the US. This relief facilitates the claims administrationprocess for the Company and applies only to Quebecor World. It does not affectthe claims procedures for the Company’s subsidiaries that are subject toproceedings under Chapter 11 of the US Bankruptcy Code.

 

On December 17,2007, the Board of Directors of Quebecor World appointed Jacques Mallette asPresident and Chief Executive Officer in order to execute the business plan ofthe Company.

 

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On April 29,2008, the Company announced the appointment of Randy Benson as ChiefRestructuring Officer reporting to the Restructuring Committee of the Board ofDirectors. His mandate is principally to assist the Company to develop arestructuring plan with a view to quickly emerge from creditor protection as astrong company in its industry.

 

On July 28,2008, Jeremy Roberts was appointed Chief Financial Officer of the Company. Mr. Robertswas previously Senior Vice President, Corporate Finance and Treasurer.

 

**Contributing factors**

 

Quebecor World’sfinancial performance has suffered in the past few years, especially withrespect to its European operations, which were funded, in part, with cash flowsgenerated by the North American operations, as a result of a combination offactors, including declining prices and sales volume, and temporarydisturbances and inefficiencies caused by a major retooling and restructuringof its printing operations initiated in 2004. The combination of significantcapital investments and continued operating losses, principally as a result ofits European operations, resulted in increased financing needs. During the lastquarter of 2007, it was also necessary for the Company to repurchase certainsenior notes in order to avoid breaching certain financial ratios, while alsofacing a reduction in amounts available under its revolving bank facility.

 

Other eventsfurther hindered the Company’s efforts to improve its balance sheet andfinancial position. First, on November 20, 2007, Quebecor World announcedthe withdrawal of a refinancing plan previously announced on November 13,2007 due to adverse financial market conditions. Second, on December 13,2007, Quebecor World announced that it would not be able to consummate apreviously announced transaction to sell/merge its European operations, whichotherwise would have resulted in proceeds being paid to Quebecor World.

 

On December 31,2007, the Company obtained a waiver from its bank syndicate lenders and fromthe sponsors of its North American securitization program, subject to thesatisfaction of certain conditions and refinancing milestones, includingobtaining $125 million in new financing by January 15, 2008. On January 16,2008, the Company failed to satisfy the conditions and refinancing milestonesset by the bank syndicate lenders, which resulted in the Company and certain ofits subsidiaries being in default of its obligations under its revolving bankfacility, its equipment financing credit facility and its North Americansecuritization program.

 

As a result of theunsuccessful efforts of the Company to obtain new financing, the inability atthe time to conclude the first proposed sale of its European operations and theoperational demands of the Company, by mid-January 2008, the Company was experiencinga severe lack of liquidity and concluded it no longer had the ability to meetobligations which were falling due.

 

**Basis of presentation and goingconcern issues**

 

These financialstatements have been prepared using the same Canadian GAAP as applied by theCompany prior to the Insolvency Proceedings. While the Applicants have filedfor and been granted creditor protection, these financial statements continueto be prepared using the going concern concept, which assumes that the Companywill be able to realize its assets and discharge its liabilities in the normalcourse of business for the foreseeable future. The Insolvency Proceedingsprovide the Company with a period of time to stabilize its operations andfinancial condition and develop a Plan. During the period, Debtor-In-Possession(“DIP”) financing has been approved by the Court and the U.S. Bankruptcy Courtand is available, subject to borrowing conditions, as described below.Management believes that these actions make the going concern basisappropriate. However, it is not possible to predict the outcome of theseproceedings and, as such, realization of assets and discharge of liabilities issubject to significant uncertainty. Accordingly, substantial doubt exists as towhether the Company will be able to continue as a going concern. Further, it isnot possible to predict whether the actions taken in any restructuring willresult in improvements to the financial condition of the Company sufficient toallow it to continue as a going concern. If the going concern basis is notappropriate, adjustments will be necessary to the carrying amounts and/orclassification of assets and liabilities, and to the expenses in thesefinancial statements.  Except as disclosedin note 29, the financial statements do not reflect any adjustments related tosubsequent events related to conditions that arose subsequent to December 31,2007.

 

The accompanying financial statements do not purportto reflect or provide for the consequences of the Insolvency Proceedings. Inparticular, such financial statements do not purport to show: (a) as toassets, their realizable value on a liquidation basis or their availability tosatisfy liabilities; (b) as to pre-petition liabilities, the amounts thatmay be allowed for claims or contingencies, or the status and priority thereof;(c) as to shareholders accounts, the effect of any changes that may bemade in the capitalization of the Company; or (d) as to operations, theeffect of any changes that may be made in its business.

 

While the Companyis under creditor protection, it will make adjustments to the financialstatements to isolate assets, liabilities, revenues, and expenses related tothe reorganization and restructuring activities so as to distinguish theseevents and transactions from those associated with the ongoing operation of thebusiness. Further, claims allowed arising under the Insolvency Proceedings maybe recorded as liabilities and presented separately on the consolidated 

 

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balance sheets. Ifa restructuring occurs and there is substantial realignment of the equity andnon-equity interests in the Company, the Company will be required, underCanadian GAAP, to adopt “fresh start” reporting. Under fresh start reporting,the Company would undertake a comprehensive re-evaluation of its assets andliabilities based on the reorganization value as established and confirmed inthe Plan. The financial statements do not present any adjustments that may berequired during the period that the Company remains under creditor protection,or that may be required under fresh start reporting.

 

In accordance withCanadian GAAP appropriate for a going concern, property, plant and equipment iscarried at cost less accumulated amortization and any impairment losses andthey are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of such assets may not be recoverable.Goodwill is carried at cost less any impairment losses. Goodwill is tested forimpairment annually and between annual tests when an event or circumstanceoccurs that more likely than not reduces the fair value of a reporting unitbelow its carrying amount. The series of events that led the Company to theInsolvency Proceedings and the events since then triggered impairment tests forits property, plant and equipment, and goodwill. The Company made assumptions,such as expected growth, maintaining customer base and achieving costsreductions, about the future cash flows expected from the use of its assets.There can be no assurance that expected future cash flows will be realized orwill be sufficient to recover the carrying amount of long lived assets orgoodwill.

 

The preparation offinancial statements in conformity with Canadian GAAP requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the dates ofthe consolidated financial statements and the reported amounts of revenues andexpenses during the reporting periods. The Insolvency Proceedings materiallyaffect the degree of uncertainty associated with the measurement of many amountsin the financial statements. More specifically, it could impact therecoverability tests and fair value assumptions used in the impairment test ofproperty, plant and equipment, and goodwill, the valuation of future income taxassets and of contract acquisition costs.

 

In light of the Insolvency Proceedings, it is unlikely that the Company’sexisting Multiple Voting Shares, Redeemable First Preferred Shares andSubordinate Voting Shares will have any material value following the approvalof a Plan. There is a risk such shares could be cancelled.

 

**DIP financing**

 

On January 21,2008, the Court approved a Senior Secured Superpriority DIP Credit Agreement(as subsequently amended by amendments dated January 25, 2008, February 26,2008, March 27, 2008 and August 5, 2008, the “DIP Credit Agreement”)between Quebecor World Inc. and Quebecor World (USA) Inc., adebtor-in-possession under the U.S. Proceedings and a petitioner under theCanadian Proceedings, as Borrowers, Credit Suisse, as Administrative Agent, InitialIssuing Bank and Initial Swing Line Lender, General Electric CapitalCorporation and GE Canada Finance Holding Company, as Collateral Agent, MorganStanley Senior Funding, Inc., and Wells Fargo Foothill, LLC, asCo-Syndication Agents, and Wachovia Bank, N.A., as Documentation Agent.

 

The DIP financingis comprised of both a revolving credit facility with sub-facilities forCanadian dollar borrowings, swing line loans and issuance of letters of creditfor an aggregate maximum commitment of the lenders of $400 million (the “RevolvingDIP Facility”) bearing interest at variable rates based on Base rate, orEurodollar rate, Canadian Banker’s Acceptance rate or Canadian prime rate, plusapplicable margins and a $600 million term loan (“DIP Term Loan”), bearinginterest at variable rates based on Base rate, or Eurodollar rate, plusapplicable margins, which was fully drawn immediately following the InitialOrder and the interim order of the U.S. Bankruptcy Court, dated January 23,2008 (the “Interim DIP Order”). Amounts borrowed under the DIP Term Loan andrepaid or prepaid may not be re-borrowed. Under the Revolving DIP Facility, theavailability of funds is determined by a borrowing base based on percentages ofeligible receivables and inventory. The unused portion of the Revolving DIPFacility is subject to a commitment fee of 0.50% per annum. From the date ofthe Interim DIP Order up to the date of the final order of the U.S. BankruptcyCourt dated April 1, 2008 (the “Final DIP Order”), the maximum availabilityunder the Revolving DIP Facility was $150 million. By the entry of the FinalDIP Order by the U.S. Bankruptcy Court, the maximum availability under theRevolving DIP Facility became $400 million. On June 30, 2008, the Companyrepaid $74.5 million on the DIP Term Loan. As at December 12, 2008 theCompany had drawn an aggregate amount of $551.9 million on the DIP Term Loanand Revolving DIP Facility.

 

The DIP CreditAgreement contains certain restrictive financial covenants which were met as ofSeptember 30, 2008.

 

The Revolving DIPFacility and DIP Term Loan are secured by a perfected lien on, and securityinterest in, all present and after-acquired property of Quebecor World, theU.S. Subsidiaries subject to the U.S. Proceedings and certain subsidiaries inLatin America. The liens are junior to the liens securing the Company’ssyndicated revolving bank facility with Royal Bank of Canada as administrativeagent and its equipment financing credit facility with Société Générale(Canada) as lender up to an aggregate amount of $170 million, which was grantedprior to the Filing Date to the extent such liens are valid, perfected and notvoidable. The Revolving DIP Facility and DIP Term Loan are also guaranteed bysubstantially all of the Company’s direct and indirect North Americansubsidiaries and certain foreign subsidiaries.

 

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The Revolving DIPFacility and DIP Term Loan mature on the earliest to occur of (a) July 21,2009 and (b) the substantial consummation of a Plan. The DIP CreditAgreement may be prepaid or accelerated upon the occurrence of an event ofdefault and contains mandatory prepayments including, among other things, thenet proceeds of certain asset sales, issuance of certain debt and certainextraordinary receipts.

 

Should the Courtdismiss the Insolvency Proceedings or enter any order granting relief from thestays provided for thereunder, this would constitute an event of default underthe DIP Credit Agreement and the debt could become due and payable immediately,which would, in all likelihood, lead to the liquidation of all the Applicants’assets.

 

The DIP CreditAgreement provides for various restrictions on, among other things, the abilityof the Company and its subsidiaries to incur additional debt, secure such debt,make investments, dispose of their assets (including pursuant to sale andleaseback transactions and sales of receivables under securitization programs)and make capital expenditures. Each of these transactions would require theconsent of a majority of the Company’s DIP lenders if they exceed certainthresholds set forth in the DIP Credit Agreement, and may, in certaincases, require the consent of the Monitor and/or the Courts.

 

The Court limits the amounts of funding available for its Latin Americasubsidiaries to $10 million, in addition to a $5 million amount forsubsidiaries that are not Applicants. As of December 12, 2008, $10 millionwas utilized to fund Latin America subsidiaries, while a supplemental $3million was used to fund Latin America subsidiaries and other non-Applicantsubsidiaries. The Company is considering the future needs of its subsidiariesand will request additional funding flexibility from its creditors, ifrequired.

 

### **2.**                   Discontinued operations (Amended)    

### ** **

Over the years,the European operations faced difficult market conditions including lowercustomer demand, shifting consumer preferences to electronic media, and greaterprice competition due to industry overcapacity, growing presence of low costcompetitors in Eastern Europe and Asia, and traditional competitors operatingat marginal cost. These factors, in addition to the deterioration of Europeanfinancial performance impacted by excess printing capacity in Europe, initiateda strategic review of the Company’s European operations. Management concludedthat the European operations were non-strategic to the Company’s core businessin the Americas, given the uncertainty of the long-term profitability of theEuropean operations and the negative returns in spite of new investments madeby the Company over the last several years.

 

On June 17,2008, the Court and the U.S. Bankruptcy Court approved the proposed sale transactionof Quebecor World’s European operations to HHBV, a Netherlands based investmentgroup, which closed on June 26, 2008.

 

The sale of theCompany’s European operations is an important step in the restructuringactivities of the Company as it provides liquidity and eliminates the need forthe Company to provide continuing financial support to its European operations,enabling it to exit creditor protection in North America as a stronger playerin its industry.

 

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### **3**.                   Financial review

### ** **

This sectionwas not updated to reflect the sale of the European operations, described in Section 2.

 

The Company assesses performance based onoperating income before impairment of assets, restructuring and other chargesand goodwill impairment charge (“Adjusted EBIT”, (Figure 6)). The followingoperating analyses are before impairment of assets, restructuring and othercharges and goodwill impairment charge, except where otherwise indicated. Thereview focuses only on continuing operations.

 

**Revenue by Print Service - Worldwide ($ millions)**

For the quarter and the year ended December31 (Continuing Operations)

 

****

** **

**Figure 1**

 

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**3.1**** ****Annual review**

 

Thefollowing selected three-year consolidated financial information has beenderived from and should be read in conjunction with the consolidated financialstatements of Quebecor World for the three-year period ended December 31,2007. Certain comparative information has been reclassified on a basisconsistent with the 2007 presentation.

 

**SelectedAnnual Information (Continuing Operations)**

($ millions, except pershare data)

 
| ** **                                    |       | **Years ended December 31** |        |
|-----------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                    |       | **2007**                                   | ** **  | **2006** | ** ** | **2005** |   |
| **Consolidated Results**                      |       |                                       |        |   |   |   |   |
| Revenues                                      | ** ** | **$**                                      | **5,688.2** | ** ** | $ | 6,086.3 |   | $ | 6,283.3 |   |
| Adjusted EBITDA                               | ** ** | **461.9**                                  | ** **  | 579.9 |   | 688.7 |   |
| Adjusted EBIT                                 | ** ** | **90.1**                                   | ** **  | 241.5 |   | 357.5 |   |
| IAROC                                         | ** ** | **303.6**                                  | ** **  | 111.3 |   | 94.2 |   |
| Goodwill impairment charge                    | ** ** | **1,998.9**                                | ** **  | — |   | 243.0 |   |
| Operating income (loss)                       | ** ** | **(2,212.4**                               | **)**       | 130.2 |   | 20.3 |   |
| Net income (loss) from continuing  operations | ** ** | **(2,200.4**                               | **)**       | 30.6 |   | (148.8 | ) |
| Net income (loss)                             | ** ** | **(2,200.4**                               | **)**       | 28.3 |   | (162.6 | ) |
|                                          |       |                                       | ** **  |   |   |   |   |
| **Financial Position**                        |       |                                       | ** **  |   |   |   |   |
| Total assets (1)                              | ** ** | **4,163.0**                                | ** **  | 5,823.4 |   | 5,700.4 |   |
| Total indebtedness (2)                        | ** ** | **2,890.9**                                | ** **  | 2,132.4 |   | 1,855.1 |   |
|                                          |       |                                       | ** **  |   |   |   |   |
| **Per Share Data**                            |       |                                       | ** **  |   |   |   |   |
| Earnings (loss)                               |       |                                       | ** **  |   |   |   |   |
| Basic and diluted                             | ** ** | **(16.85**                                 | **)**       | (0.03 | ) | (1.43 | ) |
| Adjusted diluted                              | ** ** | **(0.58**                                  | **)**       | 0.64 |   | 0.98 |   |
| Dividends on preferred shares                 | ** ** | **1.44**                                   | ** **  | 1.46 |   | 1.33 |   |
| Dividends on preferred shares liability       | ** ** | **1.77**                                   | ** **  | — |   | — |   |
| Dividends on equity shares                    | ** ** | **—**                                 | ** **  | 0.30 |   | 0.56 |   |
|                                               |            |                                            |             |  |  |  |  |  |  |  |

 

**Figure 2**

 

IAROC: Impairment of assets, restructuring andother charges

Adjusted: Defined as before IAROC and beforegoodwill impairment charge

 

----

| (1) | 2006  and 2005 amounts have been revised. See Note 2 to Consolidated financial  statements.                                                                                                                                                       |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Total  indebtedness include Long term debt less change in fair value of debts for  hedged interest rate risk, adjustment related to embedded derivatives and  financing fees plus Bank indebtedness plus Secured financing and Convertible notes. |

 

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**Year 2007**

 

**Impact of Foreign Currency**

($ millions)

 
| ** **                                              | ** ** | **Periods ended December 31, 2007** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                              | ** ** | **Three months**                                   | ** ** | **Twelve months** | ** ** |
|                                                    |       |                                                    |       |   |   |
| Foreign currency favorable impact on revenues           |       | $                                                       | 70.8       |   | $ | 151.5 |   |
|                                                    |       |                                                    |       |   |   |
| Foreign currency unfavorable impact on operating income |       | $                                                       | (0.5       | ) | $ | (4.8 | ) |

 

**Figure 3**

 

The Company’s consolidated revenues for 2007were $5.69 billion, down 6.6% from $6.09 billion in 2006. Excluding the impactof currency translation, revenues were $5.54 billion for 2007, down 9.0%compared to 2006. The situation is due mainly to decrease in volumes, papersales and continued price pressures, as further discussed in the “Segmentresults” section. In 2007, Adjusted EBIT was $90.1 million, down 62.7% from $241.5million in 2006. Adjusted EBIT margin was 1.6% for 2007, down from 4.0% in2006.

 

Paper sales, excluding the effect of currencytranslation, decreased by 15.7% in 2007, compared to 2006. Although thevariance in paper sales has an impact on revenues, it has little impact onoperating income because the cost is generally passed on to the customer. Mostof the Company’s long-term contracts with its customers includeprice-adjustment clauses based on the cost of materials in order to minimizethe effects of fluctuation in the price of paper.

 

Cost of sales for 2007 was $4.78 billion, a6.5% decrease compared to $5.11 billion in 2006. The decrease is explainedmostly by lower paper sales, as a result of large clients that are nowsupplying their own paper and a decrease in labor costs. Gross profit marginwas 15.9% for 2007 compared to 16.0% in 2006. Currency translation had a slightpositive impact on gross profit margin for the year 2007.

 

Selling, general and administrative expensesfor 2007 were $454.5 million, higher by 15.4% compared to $393.8 million in2006. Excluding the unfavorable impact of currency translation of $13.8million, selling, general and administrative expenses increased by 11.9%compared to last year. The increase is due in part to investments in continuousimprovement programs, charges related to strategic initiatives as well asfinancial advisory fees incurred to find solutions to the Company’s liquiditychallenges.

 

Depreciation and amortization expenses were$311.5 million in 2007 compared with $308.6 million in 2006. Excluding theimpact of currency translation, depreciation and amortization remainedessentially flat in 2007 compared to last year. The replacement anddecommissioning of underperforming assets by investments in state-of-the-artprinting technology has mostly offset the decrease in depreciation andamortization expenses caused by plant closures, impairment of long-lived assetsas well as sale and leaseback agreements onbuildings and equipments.

 

In 2007, the Company sold its investments intwo facilities of its French operation, for nominal cash consideration,resulting in a net loss on disposal of $12.7 million. In addition, the Companyrecorded, during the fourth quarter, a net loss of $14.8 million on thedisposal of other assets. There has been no significant disposal of assets in2006.

 

Securitization fees decreased $8.1 million,for a total of $22.9 million for 2007 compared to $31.0 million in 2006. Thedecrease was mainly due to lower usage of the programs, in part due to theamortization of the European program during the fourth quarter, and thesecuritization and factoring programs fees presented in financial expensesfollowing the inclusion of the secured financing on the balance sheet,partially offset by higher interest rates underlying the program fees.Servicing revenues and expenses did not have a significant impact on theCompany’s results.

 

For the year 2007, the Company recorded IAROCof $303.6 million, compared to $111.3 million last year. On a year-to-datebasis, the charge was mainly related to the impairment of long-lived assets inEurope and North America and to the closure and consolidation of facilities inNorth America as well as workforce reductions. Finally, the Company recordedpension settlement charges related to prior year initiatives. These measuresare described in the “Impairment of assets and restructuring initiatives”section.

 

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Quebecor World completed its annual goodwillimpairment test in the third quarter of 2007. As a result, management concludedthat, taking into account financial information such as the proposed sale andmerger of its European operations, the entire carrying amount of goodwill forthe European reporting unit was not recoverable and as such, a pre-taximpairment charge of $166.0 million was taken at the end of the third quarter.

 

In the fourth quarter of 2007, theunsuccessful efforts of the Company to obtain new financing and its inabilityto conclude a proposed sale of its European operations combined with a declinein its stock prices triggered a requirement for a goodwill impairment testrelated to the Company’s reporting units. As a result, the Company concludedthat the goodwill was impaired and a total impairment charge of $1,832.9million was recorded for the North American and Latin American reporting units. See the “Impairment of goodwill” section for additional information.

 

On a year-to-date basis, financial expenseswere $228.7 million, compared to $134.2 million in 2006. The variance of $94.5million is partly explained by a one time prepayment premium of $53.1 million,in the third quarter, for the early redemption of the Company’s outstanding8.42% Senior Notes, Series A, due July 15, 2010, 8.52% Senior Notes, Series B,due July 15, 2012, 8.54% Senior Notes, Series C, due September 15,2015 and 8.69% Senior Notes, Series D, due September 15, 2020. Thevariance is also explained by a lower amount of interest capitalized to thecost of equipment due to the finalization of Quebecor World’s retooling plan aswell as the premium paid and loss incurred on the redemption of the Company’s6.00% Convertible senior subordinated notes during the second quarter. Inaddition to those elements, the increase was also caused by higher interestrates, a higher average level of debt and the depreciation of the U.S. currencyagainst other major currencies.

 

Income tax recovery was $250.2million in 2007, compared to $35.4 million in 2006. Income tax recovery beforeIAROC and goodwill impairment charge was $93.2 million for 2007, compared to$11.4 million for the same period last year. The income tax recovery in 2007was mainly due to the long-lived asset write down, the deductible components ofgoodwill impairment charge, the higher foreign tax rates and higher financialexpenses.

 

The effective annual tax rate in 2007 was10.2% compared to a statutory rate of 33.1%. The decrease of 22.9% was mainlyexplained by the goodwill impairment charge that is mostly non-deductible.

 

Loss per share was $16.85 for 2007 comparedto $0.03 in 2006. These results incorporated impairment of assets,restructuring and other charges and goodwill impairment charge, net of incometaxes, of $2,145.5 million, or $16.26 per share compared with $87.3 million, or$0.66 per share in 2006. Excluding the effect of impairment of assets,restructuring and other charges and goodwill impairment charge, adjusteddiluted loss per share was $0.58 in 2007 compared with adjusted dilutedearnings per share of $0.64 in 2006.

 

**Year 2006**

 

The Company’s consolidated revenues for 2006were $6.09 billion, down 3.0% from $6.28 billion in 2005. Excluding the impactof currency translation, revenues were $6.02 billion for 2006, down 4.1%compared to 2005. The situation is due mainly to decrease in volumes andcontinued price pressures as further discussed in the “Segment results”section. In 2006, Adjusted EBIT was $241.5 million, down 32.4% from $357.5million in 2005. Adjusted EBIT margin was 4.0% for 2006, down from 5.7% in2005.

 

Paper sales, excluding the effect of currencytranslation, decreased by 2.1% in 2006, compared to 2005. Although the variancein paper sales has an impact on revenues, it has little impact on operatingincome because the cost is generally passed on to the customer. Most of theCompany’s long-term contracts with its customers include price-adjustmentclauses based on the cost of materials in order to minimize the effects offluctuation in the price of paper.

 

Cost of sales for 2006 was $5.11 billion, a1.7% decrease compared to $5.20 billion in 2005. The decrease is explainedmostly by a decrease in fixed plant costs, a decrease in labor costs and adecline in consumables that were partly offset by higher energy costs. Grossprofit margin was 16.0% for 2006 compared to 17.2% in 2005. Currencytranslation did not have a significant impact on gross profit margin for theyear 2006.

 

Selling, general and administrative expensesfor 2006 were $393.8 million, essentially flat compared to $396.8 million in2005. Excluding the unfavorable impact of currency translation of $8.2 million,selling, general and administrative expenses decreased by 2.8% compared to2005. The decrease in salaries and benefits resulting from the Company’srestructuring initiatives was partly offset by an increase in consulting feesfor compliance procedures related to the *Sarbanes-OxleyAct*.

 

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Depreciation and amortization expenses were$308.6 million in 2006 compared with $304.2 million in 2005. Excluding theimpact of currency translation, depreciation and amortization remainedessentially flat in 2006 compared to 2005 due to increased depreciation chargeson assets to be decommissioned which were offset by decreases due to impairmentcharges on long-lived assets taken in previous years.

 

Securitization fees increased $7.2 million,for a total of $31.0 million for 2006 compared to $23.8 million in 2005. Theincrease was mainly due to higher interest rates underlying the program fees.Servicing revenues and expenses did not have a significant impact on the Company’sresults.

 

For the year 2006, the Company recordedimpairment of assets, restructuring and other charges of $111.3 million,compared to $94.2 million in 2005. The charges for the year were mainly relatedto the closure and consolidation of facilities in North America and Europe andalso included impairment charges on long-lived assets mainly in North Americaas well as initiatives from previous years. These measures are described in the“Impairment of assets and restructuring initiatives” section.

 

The Company did not record a goodwillimpairment charge in 2006 ($243.0 million for the European segment in 2005).

 

Financial expenses were $134.2 million in2006 compared to $119.0 million in 2005. The variance of $15.2 million wasmainly explained by higher interest rates and a higher level of debt offset byan increase of interest capitalized to the cost of equipment and net gains onforeign exchange.

 

Income tax recovery was $35.4 million in2006, compared to an income tax expense of $50.4 million in 2005. Income taxrecovery before impairment of assets, restructuring and other charges was $11.4million compared to an income tax expense of $69.6 million in 2005 on the samebasis. The income tax recovery for 2006 was mainly due to losses incurred injurisdictions in which profits were generated in 2005.

 

Loss per share on continuing operation was$0.03 for 2006 compared to $1.43 in 2005. These results incorporated impairmentof assets, restructuring and other charges and goodwill impairment charge, netof income taxes, of $87.3 million, or $0.67 per share compared with $318.1million, or $2.41 per share in 2005. Excluding the effect of impairment ofassets, restructuring and other charges and goodwill impairment charge, dilutedearnings per share was $0.64 in 2006 compared with $0.98 in 2005.

 

**3.2**** ****Fourth quarterreview**

 

The Company’s consolidated revenues for thefourth quarter of 2007 were $1.52 billion, a 6.2% decrease when compared to$1.62 billion for the same period in 2006. Excluding the impact of currencytranslation, revenues were $1.45 billion for the quarter, down 10.5% comparedto 2006. The decrease in revenues resulted from reduced volume, mostly causedby plant closures and temporary restructuring dislocations, lower paper sales,as well as continued price pressures, as further discussed in the “Segmentresults” section. In the fourth quarter of 2007, Adjusted EBIT decreased to$1.8 million compared to $74.2 million in 2006.

 

Paper sales, excluding theeffect of currency translation, decreased by 15.7% for the fourth quarter of2007, compared to the same period in 2006. The paper sales decrease is mostlyexplained by plant closures as well as more client supplied paper. Although thevariance in paper sales has an impact on revenues, it has little impact onoperating income because the cost is generally passed on to the customer. Mostof the Company’s long-term contracts with its customers includeprice-adjustment clauses based on the cost of materials in order to minimizethe effects of fluctuation in the price of paper.

 

Cost of sales for the fourth quarter of 2007decreased by 4.4% to $1.29 billion compared to $1.35 billion for thecorresponding period in 2006. The decrease, compared to 2006, is mostlyexplained by a decrease in volume and labour costs, both partly resulting fromplant closures. Gross profit margin was 15.0% in the fourth quarter of 2007compared to 16.6% in 2006. Excluding the negative impact of currency, grossprofit margin was 15.1% in the fourth quarter of 2007.

 

Selling, general and administrative expensesfor the fourth quarter of 2007 were $125.4 million compared with$100.4 million in 2006. Excluding the unfavourable impact of currencytranslation of $6.1 million, selling, general and administrative expensesincreased by 18.8% compared to the same period last year.****The increase is due in part to investments incontinuous improvement programs, charges related to strategic initiatives aswell as financial advisory fees incurred to find solutions to the Company’sliquidity challenges.

 

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Securitization fees totalled $1.3 million forthe fourth quarter of 2007, down from $8.4 million for the fourth quarter of2006. The decrease for the quarter was mainly due to lower usage of theprograms, in part due to the amortization of the European program during thefourth quarter and the reclassification of the securitization and factoringprograms to secured financing, partially offset by higher interest ratesunderlying the program fees. Servicing revenues and expenses did not have asignificant impact on the Company’s results.

 

Depreciation and amortization expenses were$84.6 million in the fourth quarter of 2007, compared with $85.2 millionin 2006. Excluding the unfavourable impact of currency translation of $3.1million, depreciation and amortization expenses decreased by 4.3% compared tothe fourth quarter of 2006. The replacement and decommissioning ofunderperforming assets by investments in state-of-the-art printing technologyhas mostly offset the decrease in depreciation and amortization expenses causedby plant closures, impairment of long-lived assets as well as sale andleaseback agreements on buildings and equipments.

 

The Company recorded, during the fourthquarter, a net loss of $14.8 million on the disposal of other assets.

 

During the fourth quarter of 2007, theCompany recorded impairment of assets, restructuring and other charges (“IAROC”)of $105.4 million, compared to $46.2 million last year. The charge for thequarter was related to the impairment of long-lived assets in North America.These measures are described in the “Impairment of assets and restructuringinitiatives” section.

 

In the fourth quarter of2007, the unsuccessful efforts of the Company to obtain new financing and itsinability to conclude a proposed sale of its European operations combined witha decline in its stock prices triggered a requirement for a goodwill impairmenttest related to the Company’s reporting units. As a result, the Companyconcluded that the goodwill was impaired and a total impairment charge of$1,832.9 million was recorded for the North American and Latin Americareporting units. See the “Impairment ofgoodwill” section for additional information.

 

Financial expenses were $46.4 million in thefourth quarter of 2007, compared to $39.4 million in 2006. The variance of $7.0million was mainly explained by higher interest rates and a higher average levelof debt.

 

Income tax recovery was $160.9 million in thefourth quarter of 2007, compared to a recovery of $23.4 million in 2006. Incometax recovery before IAROC and goodwill impairment charge was $46.8 million inthe fourth quarter of 2007, compared to $10.2 million for the same period lastyear. The income tax recovery, in the fourth quarter of 2007, was mostly due toimpairment of goodwill and assets.

 

For the fourth quarter ended December 31,2007, the Company reported a loss per share of $13.87 compared to earnings pershare of $0.03 in 2006. These results incorporated IAROC and goodwillimpairment charge, net of income taxes, of $1,824.2 million or $13.81 per sharecompared with $33.0 million or $0.25 per share in 2006. Excluding thesecharges, adjusted diluted loss per share was $0.06 in the fourth quarter of2007 compared to adjusted diluted earnings per share of $0.28 for the sameperiod in 2006.

 

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**3.3**** ****Quarterly trends**

** **

**SelectedQuarterly Financial Data (Continuing Operations)**

($ millions, except pershare data)

 
| ** **                                    | ** ** | **2007**     | ** **  | **2006**   | ** ** |
|-----------------------------------------------|------------|--------------|-------------|------------|------------|
| ** **                                    | ** ** | **Q4**       | ** **  | **Q3**     | ** ** | **Q2** | ** ** | **Q1** | ** ** | **Q4** | ** ** | **Q3** | ** ** | **Q2** | ** ** | **Q1** | ** ** |
| **Consolidated  Results**                     |       |         |        |       |       |   |   |   | ** ** |   |   |   |   |   |   |   |   |
| Revenues                                      | ** ** | **$**        | **1,520.1** | ** ** | **$**      | **1,414.6** | ** ** | **$** | **1,360.1** | ** ** | **$** | **1,393.4** | ** ** | $ | 1,620.4 |   | $ | 1,546.2 |   | $ | 1,452.2 |   | $ | 1,467.5 |   |
| Adjusted  EBITDA                              | ** ** | **130.3**    | ** **  | **125.6**  | ** ** | **114.0** | ** ** | **92.0** | ** ** | 170.2 |   | 150.6 |   | 130.6 |   | 128.5 |   |
| Adjusted  EBIT                                | ** ** | **1.8**      | ** **  | **43.2**   | ** ** | **33.9** | ** ** | **11.2** | ** ** | 74.2 |   | 67.3 |   | 50.4 |   | 49.6 |   |
| IAROC                                         | ** ** | **105.4**    | ** **  | **132.7**  | ** ** | **36.0** | ** ** | **29.5** | ** ** | 46.2 |   | 11.6 |   | 31.4 |   | 22.1 |   |
| Goodwill  impairment charge                   | ** ** | **1,832.9**  | ** **  | **166.0**  | ** ** | **—** | ** ** | **—** | ** ** | — |   | — |   | — |   | — |   |
| Operating  income (loss)                      | ** ** | **(1,936.5** | **)**       | **(255.5** | **)**      | **(2.1** | **)** | **(18.3** | **)** | 28.0 |   | 55.7 |   | 19.0 |   | 27.5 |   |
| Operating  margin                             | ** ** | **(127.4**   | **)%**      | **(18.1**  | **)%**     | **(0.2** | **)%** | **(1.3** | **)%** | 1.7 | % | 3.6 | % | 1.3 | % | 1.9 | % |
| Adjusted  EBIT margin                         | ** ** | **0.1**      | **%**       | **3.1**    | **%**      | **2.5** | **%** | **0.8** | **%** | 4.6 | % | 4.3 | % | 3.5 | % | 3.4 | % |
| Net  income (loss) from continuing operations | ** ** | **(1,826.1** | **)**       | **(315.1** | **)**      | **(21.1** | **)** | **(38.1** | **)** | 11.6 |   | 19.2 |   | (6.5 | ) | 6.3 |   |
| Net  income (loss)                            | ** ** | **(1,826.1** | **)**       | **(315.1** | **)**      | **(21.1** | **)** | **(38.1** | **)** | 11.4 |   | 18.9 |   | (7.2 | ) | 5.2 |   |
| ** **                                    |       |         |        |       |       |   |   |   | ** ** |   |   |   |   |   |   |   |   |
| **Per  Share Data**                           |       |         |        |       |       |   |   |   | ** ** |   |   |   |   |   |   |   |   |
| Earnings  (loss)                              |       |         |        |       |       |   |   |   | ** ** |   |   |   |   |   |   |   |   |
| Basic  and diluted                            | ** ** | **$**        | **(13.87**  | **)**      | **$**      | **(2.42** | **)** | **$** | **(0.20** | **)** | **$** | **(0.34** | **)** | $ | 0.03 |   | $ | 0.09 |   | $ | (0.11 | ) | $ | (0.04 | ) |
| Adjusted  diluted                             | ** ** | **$**        | **(0.06**   | **)**      | **$**      | **(0.36** | **)** | **$** | **—** | ** ** | **$** | **(0.17** | **)** | $ | 0.28 |   | $ | 0.17 |   | $ | 0.10 |   | $ | 0.09 |   |

 

**Figure 4**

 

IAROC: Impairment ofassets, restructuring and other charges

Adjusted: Defined as beforeIAROC and before goodwill impairment charge

 

**Adjusted EBITDA trend**

** **

AdjustedEBITDA for the twelve months of 2007 was, overall, lower than last year due to$80 million in largely non-cash, additional specific charges, price pressures,volume declines and inefficiencies resulting from previous periods restructuringactivities. These more than offset the year-over-year improvements, achieved in2007, resulting from the retooling initiatives and restructuring process.

 

Overallperformance for the previous eight quarters was also affected by operationalinefficiencies mainly in plants involved in the installation of new equipmentor press shutdowns as well as to plant closures. In all four quarters of 2007,the Company continued to face difficult market conditions, resulting in priceerosion worldwide and decreased volume in certain of the Company’s markets. Theretooling benefits, as well as strategic options to create growth in some ofthe Company’s segments are intended to help reverse this negative trend.

 

**Seasonal impact**

** **

Revenuesgenerated by the Company are seasonal with a greater part of volume beingrealized in the second half of the fiscal year, primarily due to the highernumber of magazine pages, new product launches, back-to-school ads, marketingby retailers, increased catalog activity, and holiday promotions. Therefore, ananalysis of the consecutive quarters is not a true measurement of the revenuetrend (Figure 4).

** **

**IAROC impact**

** **

Significant IAROC have resultedfrom the Company’s focus on cost reduction and retooling activities undertakenduring the previous years that involved a reduction in workforce, closure ordownsizing of facilities, decommissioning of under-performing assets, loweringof overhead expenses, consolidating corporate functions and relocating salesand administrative offices into plants. This determined focus on costcontainment has reduced the Company’s long-term cost structure and is expectedto improve efficiency across the platform. For the year ended December 31,2007, the Company recorded IAROC of $303.6 million relating to its European,North American and Latin American platforms. Of that amount, $256.1 million wasrelated to an impairment charge of long-lived assets for European, NorthAmerican and Latin American facilities, $42.7 million related to restructuringcharges incurred in 2007 for the closure of North American facilities and thecontinuation of prior year initiatives, and $4.8 million related to pensionsettlements in North American facilities.

 

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**Table of Contents**

 

**Goodwill impairment charge impact**

** **

Throughout2006, the European reporting unit continued to be severely impacted by poormarket conditions, namely continued price erosion and decreased volumes, aswell as several production inefficiencies. Quebecor World completed its annualgoodwill impairment test in the third quarter of 2007, taking into accountfinancial information such as the proposed sale/merger of its Europeanoperations. Consequently, management determined that the entire carrying amountof goodwill for the European reporting unit was not recoverable and a pre-taximpairment charge of $166.0 million was taken at the end of the third quarterof 2007. In the fourth quarter of 2007, the unsuccessful efforts of the Companyto obtain new financing and its inability to conclude a contemplated sale ofits European operations combined with a decline in its stock prices triggered arequirement for a goodwill impairment test related to the Company’s reportingunits. As a result, the Company recorded a total impairment charge of $1,832.9million related to its North American and Latin American reporting units.

 

**General market conditions impact**

** **

The Company’sperformance for the last eight quarters was primarily affected by the difficultmarket environment, which more than offset some of the benefits from QuebecorWorld’s restructuring process and the decreased costs from other initiativesmentioned above. Competition in the industry remains intense as the industry isstill in the process of consolidation, evidenced by several recent mergers. Thepublishing market is largely constant in volumes, while the primary demand forprinted marketing materials is stable with low growth. The Company is focusingon adding customer value and improving productivity through continuousimprovement projects and the recent deployment of next generation technology,in order to create an operating network capable of being highly competitive inthis market.

 

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**3.4****      ****Segment results**

 

The followingis a review of activities by segment which, except as otherwise indicated,focuses only on continuing operations.

 

**SegmentResults of Continuing Operations ($ millions)Selected Performance Indicators**

 
| ** **                                                              |       | **North America** | ** **  | **Europe** | ** ** | **Latin America** | ** ** | **Inter-Segment  and Others** | ** **  | **Total**  |       |
|-------------------------------------------------------------------------|------------|------------------------|-------------|------------|------------|------------------------|------------|------------------------------------|-------------|------------|------------|
| ** **                                                              |       | **2007**               | ** **  | **2006**   | ** ** | **2007**               | ** ** | **2006**                           | ** **  | **2007**   | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** |   |
| **Three months ended December 31**                                 |       |                   | ** **  |       |       |                   | ** ** |                               |        |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |   |
| Revenues                                                                | ** ** | **$**                  | **1,148.8** | ** ** | $          | 1,284.1                |       | **$**                              | **289.1**   | ** ** | $          | 267.3 |   | **$** | **82.5** | ** ** | $ | 68.8 |   | **$** | **(0.3** | **)** | $ | 0.2 |   | **$** | **1,520.1** | ** ** | $ | 1,620.4 |   |
| Adjusted EBITDA                                                         | ** ** | **123.4**              | ** **  | 157.0      |       | **12.3**               | ** ** | 7.2                                |        | **9.2**    | ** ** | 6.1 |   | **(14.6** | **)** | (0.1 | ) | **130.3** | ** ** | 170.2 |   |
| Adjusted EBIT                                                           | ** ** | **13.9**               | ** **  | 80.0       |       | **(3.2**               | **)**      | (8.9                               | )           | **5.7**    | ** ** | 3.2 |   | **(14.6** | **)** | (0.1 | ) | **1.8** | ** ** | 74.2 |   |
| IAROC                                                                   | ** ** | **104.0**              | ** **  | 35.6       |       | **(0.4**               | **)**      | 10.6                               |        | **1.8**    | ** ** | — |   | **—** | ** ** | — |   | **105.4** | ** ** | 46.2 |   |
| Goodwill impairment charge                                              | ** ** | **1,823.2**            | ** **  | —     |       | **—**             | ** ** | —                             |        | **9.7**    | ** ** | — |   | **—** | ** ** | — |   | **1,832.9** | ** ** | — |   |
| Operating income (loss)                                                 | ** ** | **(1,913.3**           | **)**       | 44.4       |       | **(2.8**               | **)**      | (19.5                              | )           | **(5.8**   | **)**      | 3.2 |   | **(14.6** | **)** | (0.1 | ) | **(1,936.5** | **)** | 28.0 |   |
| Adjusted EBITDA margin                                                  | ** ** | **10.7**               | **%**       | 12.2       | %          | **4.3**                | **%**      | 2.7                                | %           | **11.1**   | **%**      | 8.9 | % | ** ** | ** ** |   |   | **8.6** | **%** | 10.5 | % |
| Adjusted EBIT margin                                                    | ** ** | **1.2**                | **%**       | 6.2        | %          | **(1.1**               | **)%**     | (3.3                               | )%          | **6.7**    | **%**      | 4.7 | % | ** ** | ** ** |   |   | **0.1** | **%** | 4.6 | % |
| Operating  margin                                                       | ** ** | **(166.5**             | **)%**      | 3.5        | %          | **(1.0**               | **)%**     | (7.3                               | )%          | **(7.0**   | **)%**     | 4.7 | % | ** ** | ** ** |   |   | **(127.4** | **)%** | 1.7 | % |
|                                                                    | ** ** | ** **             | ** **  |       |       | ** **             | ** ** |                               |        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   |
| Capital expenditures                                                    | ** ** | **$**                  | **110.4**   | ** ** | $          | 73.4                   |       | **$**                              | **12.4**    | ** ** | $          | 17.1 |   | **$** | **0.7** | ** ** | $ | 2.7 |   | **$** | **0.3** | ** ** | $ | 1.6 |   | **$** | **123.8** | ** ** | $ | 94.8 |   |
| Change in non-cash balances related to operations,  cash flow (outflow) | ** ** | **(4.0**               | **)**       | (75.5      | )          | **(131.7**             | **)**      | (7.2                               | )           | **(6.0**   | **)**      | (9.1 | ) | **20.6** | ** ** | (23.5 | ) | **(121.1** | **)** | (115.3 | ) |
| ** **                                                              |       |                   | ** **  |       |       |                   | ** ** |                               |        |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |   |
| **Twelve months ended December 31**                                |       |                   | ** **  |       |       |                   | ** ** |                               |        |       | ** ** |   |   |   | ** ** |   |   |   | ** ** |   |   |
| Revenues                                                                | ** ** | **$**                  | **4,373.7** | ** ** | $          | 4,821.7                |       | **$**                              | **1,033.7** | ** ** | $          | 1,025.4 |   | **$** | **284.8** | ** ** | $ | 239.3 |   | **$** | **(4.0** | **)** | $ | (0.1 | ) | **$** | **5,688.2** | ** ** | $ | 6,086.3 |   |
| Adjusted EBITDA                                                         | ** ** | **461.8**              | ** **  | 529.9      |       | **5.5**                | ** ** | 37.0                               |        | **26.2**   | ** ** | 21.4 |   | **(31.6** | **)** | (8.4 | ) | **461.9** | ** ** | 579.9 |   |
| Adjusted EBIT                                                           | ** ** | **164.9**              | ** **  | 257.8      |       | **(56.1**              | **)**      | (17.5                              | )           | **13.2**   | ** ** | 10.0 |   | **(31.9** | **)** | (8.8 | ) | **90.1** | ** ** | 241.5 |   |
| IAROC                                                                   | ** ** | **205.7**              | ** **  | 65.0       |       | **96.0**               | ** ** | 45.1                               |        | **1.9**    | ** ** | 1.2 |   | **—** | ** ** | — |   | **303.6** | ** ** | 111.3 |   |
| Goodwill impairment charge                                              | ** ** | **1,823.2**            | ** **  | —     |       | **166.0**              | ** ** | —                             |        | **9.7**    | ** ** | — |   | **—** | ** ** | — |   | **1,998.9** | ** ** | — |   |
| Operating income (loss)                                                 | ** ** | **(1,864.0**           | **)**       | 192.8      |       | **(318.1**             | **)**      | (62.6                              | )           | **1.6**    | ** ** | 8.8 |   | **(31.9** | **)** | (8.8 | ) | **(2,212.4** | **)** | 130.2 |   |
| Adjusted EBITDA margin                                                  | ** ** | **10.6**               | **%**       | 11.0       | %          | **0.5**                | **%**      | 3.6                                | %           | **9.2**    | **%**      | 9.0 | % | ** ** | ** ** |   |   | **8.1** | **%** | 9.5 | % |
| Adjusted EBIT margin                                                    | ** ** | **3.8**                | **%**       | 5.3        | %          | **(5.4**               | **)%**     | (1.7                               | )%          | **4.6**    | **%**      | 4.2 | % | ** ** | ** ** |   |   | **1.6** | **%** | 4.0 | % |
| Operating  margin                                                       | ** ** | **(42.6**              | **)%**      | 4.0        | %          | **(30.8**              | **)%**     | (6.1                               | )%          | **0.6**    | **%**      | 3.7 | % | ** ** | ** ** |   |   | **(38.9** | **)%** | 2.1 | % |
|                                                                    | ** ** | ** **             | ** **  |       |       | ** **             | ** ** |                               |        | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   |
| Capital expenditures                                                    | ** ** | **$**                  | **251.5**   | ** ** | $          | 207.9                  |       | **$**                              | **64.6**    | ** ** | $          | 75.5 |   | **$** | **3.5** | ** ** | $ | 29.1 |   | **$** | **1.4** | ** ** | $ | 1.3 |   | **$** | **321.0** | ** ** | $ | 313.8 |   |
| Change in non-cash balances related to operations,  cash flow (outflow) | ** ** | **(19.1**              | **)**       | (182.4     | )          | **(189.3**             | **)**      | (2.1                               | )           | **(11.8**  | **)**      | (6.8 | ) | **74.3** | ** ** | 11.8 |   | **(145.9** | **)** | (179.5 | ) |

 

**Figure 5**

 

IAROC: Impairmentof assets, restructuring and other charges

Adjusted: Defined as beforeIAROC and before goodwill impairment charge

 

**North America**

** **

The NorthAmerican segment is comprised of the following business groups: Magazine,Retail, Catalog, Book & Directory, Direct, Canada, Logistics andPremedia. North American revenues for the fourth quarter of 2007 were $1.15billion, down 10.2% from $1.28 billion in 2006 and $4.37 billion for thetwelve-month period ended December 31, 2007, down 9.3% from $4.82 billionfor the same period in 2006. Revenues in the North American segment continuedto be impacted by negative price pressures. Volume decreased during the fourthquarter and the full year of 2007, mainly due to restructuring initiatives inthe Catalog, Magazine, Book and Canada groups. Additional volume contractedwith Yellow Book positively impacted the Directory group since the beginning ofthe second quarter of 2007. Finally, due to a strong Canadian dollar, theCanada group continued to be affected in 2007 by less favourable foreignexchange contracts on sales to its U.S. customers.

 

Operatingincome and margin in North America decreased in the fourth quarter and on ayear-to-date basis compared to 2006. Operating income in North America wasmainly impacted by the goodwill and asset impairment charges, the highlycompetitive market conditions as well as inefficiencies and costs related tothe finalization of the Company’s retooling plan.

 

The NorthAmerican workforce was reduced year-over-year by 1,189 employees, or 5.3%,mostly as a result of the restructuring initiatives completed thus far.

 

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**Europe**

** **

The Europeansegment operates mainly in the Magazine, Retail, Catalog and Book markets.European revenues for the fourth quarter of 2007 were $289.1 million, up 8.1%from $267.3 million in 2006 and $1,033.7 million for the full year period, up0.8% from $1,025.4 million for the same period in 2006. Overall, volumedecrease experienced in Europe was mostly the result of the disposal of theLille and the Strasbourg French facilities, as well as press start-upinefficiencies and equipment transfers. This shortfall was however more thanoffset by increases in facilities re-equipped with new presses in Austria andBelgium, with Belgian volume up almost 50% from last year during thetwelve-month period of 2007.

 

On ayear-to-date basis, the operating income and margin for the European segmentdecreased compared to the same period in 2006, but increased in Finland andSweden. The increased volume in Belgium did not translate into increasedoperating income as its positive effect was offset by press start upinefficiencies and an unfavourable work mix in the twelve-month period of 2007.The trend in this segment’s operating income and margin reflects lower demand,price pressures, temporary inefficiencies experienced with the installation ofnew presses and transfer of volumes between plants. Year-over-year, theEuropean workforce was reduced by 1,177 employees or 4.6%.

 

**Latin America**

** **

Latin Americaoperates mainly in the Book, Directory, Magazine, Catalog and Retail markets.Latin America’s revenues for the fourth quarter of 2007 were $82.5 million, up19.9% from $68.8 million in 2006 and $284.8 million, on a year-to-date basis,up 19.0% from $239.3 million for the same period in 2006. Significant revenueincreases from Colombia and Mexico, during the fourth quarter and the twelve-monthperiod of 2007, were mostly the result of exporting a growing volume of booksand directories. However, the impact of these increases in volume on operatingincome was partly offset by less favourable pricing in 2007. Overall, inaddition to cost reductions, these factors contributed to the growth inoperating income during the fourth quarter and the full year compared to thesame periods last year.

 

**3.5****      ****Impairment ofassets and restructuring initiatives (Amended)**

 

Quebecor Worldhas undertaken various restructuring initiatives to increase the efficiency ofthe pressroom and the return on capital employed by its facilities.Restructuring costs are mostly the result of plant closures and workforcereductions resulting from current and prior years’ initiatives. A descriptionof these initiatives is provided in Note 3 to the Consolidated FinancialStatements for the period ended December 31, 2007.

 

The 2007restructuring initiatives affected a total of 1,345 employees, of which 1,056positions have been eliminated as of December 31, 2007. The remaining 289positions will be eliminated in the near future. However, the Company estimatesthat 505 new jobs should be created in other facilities with respect to the2007 initiatives. The execution of prior years’ initiatives resulted in theelimination of 779 jobs for the twelve-month period ended December 31,2007 and 183 are still to come.

 

As at December 31,2007, the balance of the restructuring reserve was $17.0 million. The totalcash disbursement related to this reserve is expected to be $15.2 million forthe year 2008. Finally, the Company expects to record a charge of $6.1 millionin upcoming quarters for the restructuring initiatives that have already beenannounced at December 31, 2007.

 

During thefirst three quarters of 2007, impairment tests were triggered in North America,as a result of the retooling plan and the relocation of existing presses intofewer, but larger and more efficient facilities and the Company recordedimpairment charges of $71.7 million mainly on machinery and equipment. InEurope, the impairment test was triggered by the potential sale and merger ofthe European operations and the impairment charges totalling $84.1 millionmainly on machinery and equipment was recorded.

 

In the fourthquarter of 2007, the Company completed its impairment tests on specificcomponents were triggered due to industry pressure namely continued pricepressure and volume declines. As a result, the Company concluded that thecarrying amount of certain long lived assets was not fully recoverable andnon-cash asset impairment charges of $99.3 million in North America and $1.0million in Latin America were recorded to write down the value of the longlived assets to the estimated fair value. The impairment charge is mainlyrelated to machinery and equipment.

 

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2008restructuring initiatives

 

During thethird quarter of 2008, there were various workforce reductions across NorthAmerica. In the first half of 2008, there were restructuring initiatives inNorth America related to the closures of North Haven, CT and Magog,  QCfacilities, a significant downsizing of the Islington, ON facility and variousworkforce reductions across North America. The total cost expected for theseinitiatives is $42.4 million, of which $30.9 million is for workforce reductionand $11.5 million is for leases and carrying costs for closed facilities. Theseinitiatives are expected to be completed by the end of 2008.

 

**3.6****      ****Impairment ofgoodwill (Amended)**

 

The Companycompleted its annual goodwill impairment testing in the third quarter of 2007.Taking into account financial information such as the potential sale and mergerof the European operations, management determined that the carrying value ofgoodwill for its European reporting unit was not recoverable and that theresulting impairment of such goodwill amounted to its entire carrying value of $166.0million at September 30, 2007.

 

In the fourthquarter of 2007, the unsuccessful efforts of the Company to obtain newfinancing and its inability to conclude a proposed sale of its Europeanoperations combined with a decline in its stock prices triggered a requirementfor a goodwill impairment test related to the Company’s reporting units. As aresult, the Company concluded that the goodwill was impaired and a totalimpairment charge of $1,832.9 million was recorded for the North American andLatin America reporting units.

 

2008

 

During the fourth quarter of2008 triggering events occurred that may impact the carrying value of goodwill.Should the goodwill not be recoverable the resulting impairment may amount tobe as much as the carrying value. The Company is currently assessing the impactof such events.

 

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**Reconciliation of non-GAAP measures**

(In millions of US dollars, except per sharedata)

 
| ** **                                                                                        | ** ** | **2007**     | ** **   | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------|--------------|------------|------------|------------|------------|
| **Operating  income from continuing operations- adjusted**                                        | ** ** | ** **   | ** **   | ** ** | ** ** | ** ** | ** ** |
| Operating  income (loss) (“EBIT”)                                                       | ** ** | **$**        | **(2,212.4** | **)**      | $          | 130.2      |       | $ | 20.3 |   |
| Impairment  of assets, restructuring and other charges (“IAROC”)                        | ** ** | **303.6**    | ** **   | 111.3      |       | 94.2       |       |
| Goodwill  impairment charge                                                                       | ** ** | **1,998.9**  | ** **   | —     |       | 243.0      |       |
| ** **                                                                                        | ** ** | ** **   | ** **   |       |       |       |       |
| **Adjusted  EBIT**                                                                                | ** ** | **$**        | **90.1**     | ** ** | $          | 241.5      |       | $ | 357.5 |   |
| EBIT                                                                                              | ** ** | **(2,212.4** | **)**        | $          | 130.2      |       | $          | 20.3 |   |
| Depreciation  of property, plant and equipment (1)                                                | ** ** | **$**        | **311.4**    | ** ** | 308.4      |       | 308.1      |   |
| Amortization  of other assets (1)                                                                 | ** ** | **60.4**     | ** **   | $          | 30.0       |       | $          | 27.3 |   |
| Less  depreciation and amortization from discontinued operations                                  | ** ** | **—**   | ** **   | —     |       | (4.2       | )          |
| **Operating  income (loss) before depreciation and amortization (“EBITDA”)**            | ** ** | **$**        | **(1,840.6** | **)**      | $          | 468.6      |       | $ | 351.5 |   |
| IAROC                                                                                             | ** ** | **303.6**    | ** **   | 111.3      |       | 94.2       |       |
| Goodwill  impairment charge                                                                       | ** ** | **1,998.9**  | ** **   | —     |       | 243.0      |       |
|                                                                                              | ** ** | ** **   | ** **   |       |       |       |       |
| **Adjusted  EBITDA**                                                                              | ** ** | **$**        | **461.9**    | ** ** | $          | 579.9      |       | $ | 688.7 |   |
| ** **                                                                                        | ** ** | ** **   | ** **   | ** ** | ** ** | ** ** | ** ** |
| **Earnings  (loss) per share from continuing operations**                                         | ** ** | ** **   | ** **   | ** ** | ** ** | ** ** | ** ** |
| Net income  (loss) from continuing operations                                                     | ** ** | **$**        | **(2,200.4** | **)**      | $          | 30.6       |       | $ | (148.8 | ) |
| IAROC (2)                                                                                         | ** ** | **243.0**    | ** **   | 87.3       |       | 86.0       |       |
| Goodwill  impairment charge (3)                                                                   | ** ** | **1,902.5**  | ** **   | —     |       | 232.1      |       |
|                                                                                              | ** ** | ** **   | ** **   |       |       |       |       |
| **Adjusted  net income (loss) from continuing operations**                                        | ** ** | **$**        | **(54.9**    | **)**      | $          | 117.9      |       | $ | 169.3 |   |
| Net income  allocated to holders of preferred shares                                              | ** ** | **22.2**     | ** **   | 34.0       |       | 39.6       |       |
|                                                                                              | ** ** | ** **   | ** **   |       |       |       |       |
| **Adjusted  net income (loss) from continuing operations available to holders of equity  shares** | ** ** | **$**        | **(77.1**    | **)**      | $          | 83.9       |       | $ | 129.7 |   |
| Diluted  average number of equity shares outstanding (in millions)                                | ** ** | **131.9**    | ** **   | 131.4      |       | 131.8      |       |
| **Earnings  (loss) per share from continuing operations**                                         |       |         | ** **   |       |       |       |       |
| **Diluted**                                                                                       | ** ** | **$**        | **(16.85**   | **)**      | $          | (0.03      |       | $ | (1.43 | ) |
| **Adjusted  diluted**                                                                             | ** ** | **$**        | **(0.58**    | **)**      | $          | 0.64       |       | $ | 0.98 |   |
| ** **                                                                                        | ** ** | ** **   | ** **   |       |       |       |       |
| **Free  Cash Flow**                                                                               | ** ** | ** **   | ** **   | ** ** | ** ** | ** ** | ** ** |
| Cash  provided by operating activities                                                            | ** ** | **$**        | **68.0**     | ** ** | $          | 236.0      |       | $ | 469.5 |   |
| Dividends on  preferred shares                                                                    | ** ** | **(17.6**    | **)**        | (43.1      | )          | (39.6      | )          |
| Additions to  property, plant and equipment                                                       | ** ** | **(321.0**   | **)**        | (313.8     | )          | (394.0     | )          |
| Net proceeds  from disposal of assets                                                             | ** ** | **101.4**    | ** **   | 82.5       |       | 16.4       |       |
| Net proceeds  from business disposals                                                             | ** ** | **—**   | ** **   | 28.5       |       | 66.9       |       |
| **Free  cash flow (outflow)**                                                                     | ** ** | **$**        | **(169.2**   | **)**      | $          | (9.9       | )          | $ | 119.2 |   |
|                                                                                                   |            |              |              |            |            |            |            |  |  |  |  |  |  |

 

**Figure6**

 

Adjusted: Defined as before IAROC andgoodwill impairment charge

 

----

(1)          As reported in the Consolidated Statements ofCash Flows

(2)          Net of income taxes of $60.6 million for 2007,$24.0 million in 2006 and $8.2 million in 2005

(3)          Net of income taxes of $96.4 million in 2007and $10.9 million in 2005

 

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** **

**Reconciliation of non-GAAP measures**

(In millions of US dollars, except per sharedata)

 
| ** **                                                                                        | ** ** | **Three months ended December 31,** | ** **   |
|---------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|--------------|
| ** **                                                                                        | ** ** | **2007**                                                | ** **   | **2006** | ** ** |
| **Operating  income from continuing operations- adjusted**                                        | ** ** | ** **                                              | ** **   | ** ** | ** ** |
| Operating  income (loss) (“EBIT”)                                                       | ** ** | **$**                                                   | **(1,936.5** | **)** | $ | 28.0 |   |
| Impairment  of assets, restructuring and other charges (“IAROC”)                        |       | **105.4**                                               | ** **   | 46.2 |   |
| Goodwill  impairment charge                                                                       |       | **1,832.9**                                             | ** **   | — |   |
|                                                                                              |       | ** **                                              | ** **   |   |   |
| **Adjusted  EBIT**                                                                                | ** ** | **$**                                                   | **1.8**      | ** ** | $ | 74.2 |   |
| EBIT                                                                                              | ** ** | **(1,936.5**                                            | **)**        | $ | 28.0 |   |
| Depreciation  of property, plant and equipment(1)                                                 | ** ** | **84.5**                                                | ** **   | $ | 85.2 |   |
| Amortization  of other assets(1)                                                                  | ** ** | **44.0**                                                | ** **   | 10.8 |   |
| **Operating  income (loss) before depreciation and amortization (“EBITDA”)**            | ** ** | **$**                                                   | **(1,808.0** | **)** | $ | 124.0 |   |
| IAROC                                                                                             | ** ** | **105.4**                                               | ** **   | 46.2 |   |
| Goodwill  impairment charge                                                                       | ** ** | **1,832.9**                                             | ** **   | — |   |
| **Adjusted  EBITDA**                                                                              | ** ** | **$**                                                   | **130.3**    | ** ** | $ | 170.2 |   |
| ** **                                                                                        | ** ** | ** **                                              | ** **   |   |   |
| **Earnings  (loss) per share from continuing operations**                                         | ** ** | ** **                                              | ** **   | ** ** | ** ** |
| Net income  (loss) from continuing operations                                                     | ** ** | **$**                                                   | **(1,826.1** | **)** | $ | 11.6 |   |
| IAROC (2)                                                                                         | ** ** | **80.9**                                                | ** **   | 33.0 |   |
| Goodwill  impairment charge (3)                                                                   | ** ** | **1,743.3**                                             | ** **   | — |   |
| **Adjusted  net income (loss) from continuing operations**                                        | ** ** | **$**                                                   | **(1.9**     | **)** | $ | 44.6 |   |
| Net income  allocated to holders of preferred shares                                              | ** ** | **5.5**                                                 | ** **   | 7.6 |   |
| **Adjusted  net income (loss) from continuing operations available to holders of equity  shares** | ** ** | **$**                                                   | **(7.4**     | **)** | $ | 37.0 |   |
| Diluted  average number of equity shares outstanding (in millions)                                | ** ** | **132.0**                                               | ** **   | 131.6 |   |
| **Earnings  (loss) per share from continuing operations**                                         |       |                                                    | ** **   |   |   |
| **Diluted**                                                                                       | ** ** | **$**                                                   | **(13.87**   | **)** | $ | 0.03 |   |
| **Adjusted  diluted**                                                                             | ** ** | **$**                                                   | **(0.06**    | **)** | $ | 0.28 |   |

** **

**Figure6**

** **

Adjusted: Definedas before IAROC and goodwill impairment charge

** **

----

(1)          As reported in the Consolidated Statements ofCash Flows

(2)          Net of income taxes of $24.5 million for thefourth quarter of 2007 and $13.2 million in 2006

(3)          Net of income taxes of $89.6 million in 2007

 

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**Reconciliationof non-GAAP measures**

($ millions)

 
| ** **                                                         | ** ** | **2007**   | ** **  | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------------|------------|------------|-------------|------------|------------|------------|------------|
| **Coverage Ratios from continuing operations** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** |
|                                                               |       |       |        |       |       |       |       |
| **Adjusted EBITDA**                                                | ** ** | **$**      | **461.9**   |       | $          | 579.9      |       | $ | 688.7 |   |
|                                                               |       |       |        |       |       |       |       |
| Financial expenses                                                 | ** ** | **$**      | **228.7**   |       | $          | 134.2      |       | $ | 119.0 |   |
| **Interest coverage ratio (times)**                                | ** ** | **2.0**    |        | 4.3        |       | 5.8        |       |
| **Total Indebtedness**                                             | ** ** | **$**      | **2,890.9** |       | $          | 2,132.4    |       | $ | 1,855.1 |   |
| **Debt-to-Adjusted-EBITDA ratio (times)**                          | ** ** | **6.3**    |        | 3.7        |       | 2.7        |       |

** **

**Figure 6**

 

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### **4.**         Liquidity and capital resources

### ** **

This section was not updatedto reflect the sale of the European operations, described in Section 2.

 

**4.1**** ****Operating activities**

 
| **Cash provided by operating activities** | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------|------------|
| **($ millions)**                                         | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                                    |       | **$**                                       | **68.0**   |   | $ | 236.0 |   |
|                                                               |            |                                             |            |  |  |  |  |

 

The decrease in cash fromoperating activities generated in the fourth quarter and year ended December 31,2007 compared to the same period in 2006 was due mainly to the shortfallattributable to the Company’s European segment and the depreciation of the U.S.dollar.

 

The deficiency in workingcapital was $1,069.4 million at December 31, 2007, compared to $76.0million at December 31, 2006. The change is mainly due to thereclassification of the revolving credit facility and the first tranche of theunsecured Senior Notes into current maturities as at December 31, 2007.The working capital deficiency is also explained by the North American securitizationprogram and the European Factoring program, which no longer meet certaincriteria set forth in the Accounting Guideline 12 “Transfers of Receivables”and consequently have been recorded as new short term secured financing on thebalance sheet of the Company. This increase in new short term secured financingwas partly offset by an increase in accounts receivable at year end.

 

**4.2**** ****Financing activities**

 

**Financing Activities**

 
| **Cash provided by financing activities** | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------|------------|
| **($ millions)**                                         | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                                    |       | **$**                                       | **282.5**  |   | $ | 0.7 |   |
|                                                               |            |                                             |            |  |  |  |  |

 

As of December 31, 2007, the Company had obtained waivers from itsBanking syndicate and the sponsors of its North American securitization programuntil March 30, 2008 from compliance with certain financial tests underthe relevant agreements in respect of the quarter ended December 31, 2007,in particular, the maximum Debt-to-EBITDA ratio of 4.50:1.00. These waivers(which are mirrored in the Equipment financing credit facility - refer to Note16 (e)) were subject to a number of conditions including: the Company having toobtain on or before January 15, 2008 $125.0 million of new financing; todeliver on or before January 31, 2008 a “Refinancing Transaction”, beingcomprised of commitments or other arrangements satisfactory to the Company’slenders which would have been used to reduce the Company’s current creditfacility to $500.0 million by February 29, 2008 and further allow therepayment in full of the Company’s current credit facility on or before June 30,2008. The Company was not able to put in place such refinancing transaction andon January 21, 2008, the Company was granted creditorprotection under CCAA in Canada and under Chapter 11 in the United States.

 

Further to conversion notices received on or before December 27,2007, the Company announced on February 26, 2008 that it had determinedthe final conversion rate applicable to the 3,975,663 Series 5 CumulativeRedeemable First Preferred Shares that were converted into Subordinate VotingShares effective as of March 1, 2008. Taking into account all accrued andunpaid dividends on the Series 5 Preferred Shares up to and including March 1,2008, the Company has determined that, in accordance with the provisionsgoverning the Series 5 Preferred Shares, each Series 5 PreferredShare was converted on March 1, 2008 into 12.93125 Subordinate VotingShares.  On March 27, 2008, theCompany received notices with respect to 517,184 of its remaining 3,024,337issued and outstanding Series 5 Cumulative Redeemable First PreferredShares requesting conversion into the Company’s Subordinate Voting Shareseffective as of June 1, 2008.

 

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On November 26, 2007, the Company announced that it was suspendingdividend payments on its Series 3 (classified as equity) and Series 5(classified as liability) Preferred Shares. Accordingly, no dividends were paidin the fourth quarter of 2007 on those shares. Last year, during the sameperiod, the Company paid $9.5 million to the holders of the preferredshares classified as equity. On a year-to-date basis, the Company paiddividends on preferred shares classified as equity of $17.6 million in 2007compared to $43.1 million in 2006. Quebecor World suspended on November 7,2006 the dividends payment on its Multiple Voting Shares and Subordinate VotingShares. Accordingly, in the fourth quarter of 2006, no dividend was paid on itsMultiple Voting Shares and Subordinate Voting Shares and $39.8 million was paidin the first nine months of 2006. These dividends are designated to be eligibledividends, as provided under subsection 89(14) of the Income Tax Act (Canada)and its provincial counterpart.

 

On November 19, 2007, the Company announced that in accordancewith the provisions governing the Series 2 Preferred Shares and the Series 3Preferred Shares none of its 12,000,000 issued and outstanding Series 3Preferred Shares classified as equity were to be converted into Series 2Preferred Shares on December 1, 2007. Subject to the declaration by theBoard of Directors (which, as noted above, has been suspended), the holders of Series 2Preferred Shares are entitled to receive quarterly fixed dividends at an annualrate of 6.13%.

 

On November 13, 2007, the Company announced a refinancing planpursuant to which it intended to concurrently offer approximately CA$250million of equity shares, $500 million of new debt securities and amend theRevolving bank facility. On November 20, 2007, due to adverse financialmarket conditions, the Company withdrew its refinancing plan.

 

On October 29, 2007, Quebecor World redeemed the outstandingSenior Notes (8.42%, 8.52%, 8.54% and 8.69%) for a redemption price of 100% of theoutstanding principal amount of the Notes, plus the accrued and unpaid intereston the Notes to the redemption date plus the applicable prepayment premium of$53.1 million due on the redemption date.

 

On September 28, 2007, the Company finalized new terms for itssyndicated Revolving bank facility. The amendment included modification of thecovenants to provide financial flexibility through to maturity of the agreementin January 2009. As part of the amendment, the Company agreed to reduceits facility from $1 billion to $750 million in October 2007, ofwhich a portion will be secured by a lien on assets in an amount of $135.6million. The amendment also included a commitment to reduce the facility to$500 million by July 1, 2008 and provided certain restrictions on the useof proceeds and terms of repayment and it included certain restrictivecovenants, including the obligation to maintain certain financial ratios

 

On September 26, 2007, the Company included additional equipmentin its lease agreement that was announced on December 19, 2006, increasingthe total financing to approximately $100 million. On January 15, 2008,the Company finalized the conversion of all the equipment into the leaseagreements.

 

In the third quarter of 2007, Quebecor World reimbursed CA$9.8 million($9.2 million) on the long-term committed Equipment financing credit facility.As of December 31, 2007, the drawings under this facility amounted toCA$165.3 million ($168.5 million) compared to CA$118.0 million ($101.3 million)at the same date last year. In October 2007, the credit facility wassecured by a lien on assets in an amount of $34.4 million. As required underthe agreement, on January 3, 2008, the Company reimbursed CA$10.3 million($10.2 million) on the Equipment financing credit facility.

 

On June 28, 2007, the Company redeemed all of the 6.00%Convertible Senior Subordinated Notes due on October 1, 2007 for aredemption price of 100.6% of the outstanding principal amount of the Notes,plus the accrued and unpaid interest. The aggregate outstanding principalamount of the Notes was $119.5 million.

 

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**4.3**** ****Investing activities**

 
| **Cash used in investing activities** | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------|------------|
| **($ millions)**                                     | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                                |       | **$**                                       | **229.9**  |   | $ | 217.9 |   |
|                                                           |            |                                             |            |  |  |  |  |

 

**Additions to property, plantand equipment**

** **

On a year-to-date basis, $321.0 million has been invested in capitalprojects in 2007, compared to $313.8 million in 2006. Of that amount,approximately 79% represented organic growth, including expenditures for newcapacity requirements, but mostly for productivity improvement. The remainingportion was spent on equipment transferred between plants and maintenance ofthe Company’s existing structure. In 2006, the amount related to organic growthrepresented 81% of total spending (89% excluding building purchases). Keyyear-to-date expenditures included approximately $47 million in North Americaand $51 million in Europe as part of the strategic retooling plans and acustomer related project. Other notable projects are related to the Corinth, MSfacility transformation into a dual-process, premier rotogravure and offsetcatalog facility.

 

**Proceeds from businessdisposals and disposal of assets**

** **

In the fourth quarter of 2007, proceeds on disposal of assets amountedto $32.4 million, compared to $73.3 million during the same period in 2006.Proceeds in the last quarter were mainly related to the sale and leaseback ofmachinery and equipment installed in facilities in North America. On ayear-to-date basis, proceeds on disposal of assets amounted to $101.4 millioncompared to $82.5 million in 2006. The higher proceeds in 2007 included $34.2million related to the sale and leaseback of land and buildings of two Canadianfacilities completed on March 23, 2007.

 

**5.****   ****Financial position**

 

This section was not updatedto reflect the sale of the European operations, described in Section 2.

 

The Company’s ability tomanage its business is restricted during the Insolvency Proceedings and allsteps or actions in connection therewith may, in certain circumstances, requirethe approval of the Company’s DIP Lenders, the Monitor and/or the Courts. Seethe “Risk factors” section of this MD&A.

 

**5.1**** ****Free cash flow**

** **
| **Free cash flow (outflow)** | ** ** | **Years ended December 31,** | ** ** |
|---------------------------------------------|------------|---------------------------------------------|------------|
| **($ millions)**                       | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| ** **                                  |       | **$**                                       | **(169.2** | **)** | $ | (9.9 | ) |
|                                             |            |                                             |            |  |  |  |  |

 

The Company reports freecash flow because it is a measure used by management to evaluate its liquidity(Figure 6). Free cash flow is not a calculation based on Canadian or U.S. GAAPand should not be considered as an alternative to the Consolidated Statement ofCash Flows. Free cash flow is a measure that can be used to gauge the Company’sperformance over time. Investors should be cautioned that free cash flow asreported by Quebecor World may not be comparable in all instances to free cashflow as reported by other companies.

 

The decrease in free cashflow compared to 2006 is due mainly to decrease in cash flows from operatingactivities as described above.

 

**5.2**** ****Financial ratios, financial covenants and credit ratings**

 

**Financial ratios**

** **

The key financial ratiosused by management to evaluate the Company’s financial position are theinterest coverage ratio and the debt-to-Adjusted-EBITDA ratio. Calculations ofkey financial ratios are presented in Figure 6. For the year ended December 31,2007, the debt-to-Adjusted-EBITDA ratio was 6.3 times, compared to 3.7 times atDecember 31, 2006. The increase is due in large part to thereclassification of the securitization and factoring programs on-balance sheetto secured financing towards the end of 2008.

 

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**Financial covenants**

** **

The Company is subject tocertain financial covenants in some of its major financing agreements. As discussed in Section 3.2 and in Note 16(a) andbased on the waivers described, the Company was in compliance with all significantdebt covenants at December 31, 2007.

 

The amounts disclosed inFigure 6 as well as the discussion in the “Financial ratios” section may notaccurately represent figures used in the calculation of the actual debtcovenants.

 

**Credit ratings**

** **

**Unsecured debt**

** **

As at April 18, 2008,the following credit ratings had been attributed to the senior unsecured debtof the Company:

 
| **Rating Agency**               | ** ** | **Rating** | ** ** |
|--------------------------------------|------------|------------|------------|
| Standard and Poor’s             |       | D          |       |
| Dominion Bond Rating Service Limited |       | D          |       |

 

On November 20, 2007,Standard and Poor’s (“S&P”) lowered the Company’s credit rating from B toB-. On December 13, 2007, Dominion Bond Rating Service Limited (“DBRS”)lowered the Company’s credit rating from B to CCC. On December 18, 2007,S&P lowered the rating from B- to CCC and, on the following day, Moody’sInvestors Service (“Moody’s”) lowered its rating from B3 to Caa2. On January 16,2008, S&P and DBRS lowered their credit ratings, respectively, from CCC toD and from CCC to C. On January 21, 2008, the Company commenced theInsolvency Proceedings in Canada and in the US. On the same day, DBRS loweredits rating from C to D and the following day, Moody’s reduced its rating fromCaa2 to Ca. Moody’s withdrew its rating on February 6, 2008.

 

**Secured debt**

** **

Following the commencementof the Insolvency Proceedings, the Company’s senior secured debt is now beingrated. Accordingly, on February 11, 2008, Moody’s attributed an initialrating of Ba3 to them and S&P, on February 13, 2008 rated them BBB.

 

**5.3**** ****Contractual cash obligations**

 

The following table sets forth the Company’scontractual cash obligations for the items described therein as at December 31,2007:

 

**ContractualCash Obligations**

($ millions)

 
| ** **                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2013 and** | ** ** | ** ** | ** ** |
|------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|------------|------------|
| ** **                                                 | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **thereafter**    | ** ** | **Total**  | ** ** |
| Long-term debt                                             |       | $          | 1,016.6    |       | $          | 2.8        |       | $          | 2.8        |       | $          | 2.9               |       | $          | 3.2        |   | $ | 1,264.4 |   | $ | 2,292.7 |   |
| Capital leases                                             |       | 7.1        |       | 7.6        |       | 8.0        |       | 9.4        |       | 8.9        |       | 21.5              |       | 62.5       |       |
| Interest payments on long-term debt and capital  leases(1) |       | 150.6      |       | 107.7      |       | 107.0      |       | 106.3      |       | 105.6      |       | 233.2             |       | 810.4      |       |
| Operating leases                                           |       | 95.9       |       | 60.7       |       | 40.8       |       | 27.0       |       | 23.6       |       | 91.2              |       | 339.2      |       |
| Capital asset purchase commitments                         |       | 27.1       |       | 2.0        |       | —     |       | —     |       | —     |       | —            |       | 29.1       |       |
| Total contractual cash obligations                         |       | $          | 1,297.3    |       | $          | 180.8      |       | $          | 158.6      |       | $          | 145.6             |       | $          | 141.3      |   | $ | 1,610.3 |   | $ | 3,533.9 |   |

 

**Figure7**

 

----

| (1) | Interest  payments were calculated using the interest rate that would prevail should  the debt be reimbursed as planned, and the outstanding balance as at  December 31, 2007. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The Company has major operating leases pursuant towhich it has the option to purchase the underlying equipment (presses andbinders) at the end of the term. Whether the equipment will be acquired at theend of the lease term will depend on circumstances prevailing at the time theoption is available. The total terminal value of these operating leasesexpiring between 2008 and 2015 is approximately $32.8 million.

 

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The Company monitors the funded status of itspension plans very closely. During the twelve-month period ended December 31,2007, the Company made contributions of $60.1 million ($82.5 million in 2006),which were in accordance with the minimum required contributions as determinedby the Company’s actuaries. Minimum required contributions are estimated at$43.6 million for 2008.

 

**6.****    ****Off-balance sheet arrangements and other disclosures**

 

This section was not updatedto reflect the sale of the European operations, described in Section 2.

 

**6.1**** ****Off-balancesheet arrangements**

 

**Guarantees**

** **

In the normal course of business, the Company entersinto numerous agreements that contingently require it to make payments to athird party based on changes in an underlying item that is related to an asset,a liability or an equity of the guaranteed party, or failure of another partyto perform under an obligating agreement.

 

The Company has provided significant guarantees tothird parties including the following:

 

***Operatingleases***

** **

**The Company has guaranteeda portion of the residual values of certain of its assets under operatingleases with expiry dates in 2008 and 2009, for the benefit of the lessor. Ifthe fair value of the assets, at the end of their respective lease terms, isless than the residual value guaranteed, then the Company must, under certainconditions, compensate the lessor for a portion of the shortfall. The maximumexposure in respect of these guarantees is $13.2 million. As at December 31,2007 the Company has recorded a liability of $4.8 million associated with theseguarantees.**

** **

**During 2007, certainassets under operating lease were purchased for a cash consideration of $74.8million. The amount recorded in machinery and equipment was reduced by aprovision of $14.0 million since the fair value of the equipment was lower thanthe cash consideration paid.**

** **

***Businessand real estate disposals***

** **

**In connection with certaindispositions of businesses or real estate, the Company has provided customaryrepresentations and warranties whose terms range in duration and may not beexplicitly defined. The Company has also retained certain liabilities forevents occurring prior to sale, relating to tax, environmental, litigation andother matters. Generally, the Company has indemnified the purchasers in theevent that a third party asserts a claim against the purchaser that relates toa liability retained by the Company.**

** **

**These types ofindemnification guarantees typically extend for a number of years. The natureof these indemnification agreements prevents the Company from estimating themaximum potential liability that it could be required to pay to guaranteedparties. These amounts are dependent upon the outcome of future contingentevents, the nature and likelihood of which cannot be determined at this time.**

** **

**Historically, the Companyhas not made any significant indemnification payments under such agreements andno amount has been accrued in the Consolidated Balance Sheets with respect tothese indemnification guarantees as at December 31, 2007. The Companycontinues to monitor the conditions that are subject to guarantees andindemnifications to identify whether it is probable that a loss has occurredand it would recognize any such losses under any guarantees or indemnificationswhen those losses are probable and estimable.**

 

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***Debtagreements***

** **

On December 31, 2007, Quebecor Worldannounced that it was continuing to actively pursue financing options andsolutions to its liquidity and balance sheet challenges. Also that day, theCompany obtained waivers from its Banking syndicate and the sponsors of itsNorth American securitization program until March 30, 2008 from compliancewith certain financial tests under the relevant agreements in respect of thequarter ended December 31, 2007, in particular, the maximum Debt-to-EBITDAratio of 4.50:1.00. These waivers (which are mirrored in the Equipmentfinancing credit facility - refer to Note 16 (e)) were subject to a number ofconditions including: the Company having to obtained on or before January 15,2008 $125.0 million of new financing; and the Company having arranged for on orbefore January 31, 2008 a “Refinancing Transaction”, being comprised ofcommitments or other arrangements satisfactory to the Company’s lenders whichwould have been used to reduce the Company’s current credit facility to $500.0million by February 29, 2008 and further allowed the repayment in full ofthe Company’s current credit facility on or before June 30, 2008.

 

On January 11,2008, the Company acknowledged the receipt of a Cdn$400.0 million “rescue”financing proposal from Quebecor Inc. and Tricap Partners Ltd. Quebecor Worldannounced on January 15, 2008 that it had not obtained the new $125million financing required under the terms of its revolving credit facility andthe waivers described above. The same day, the Company failed to make theinterest payment on its $400.0 million Senior Notes due in 2015. On January 21,2008, the Company commenced the Insolvency Proceedings by filing under the *Companies Creditors Arrangement Act* (CCAA) in Canada and inthe United States under Chapter 11 of the United States Bankruptcy Code.

 

On January 23,2008, the Company received a U.S. Court interim approval to borrow up to $750.0million under the terms of a senior secured Debtor-in-Possession creditfacility (DIP Agreement or DIP Facility). Section 1 of this MD&Aprovides more information about the DIP Agreement. On April 1, 2008, theCompany announced it received final approval from the U.S. Court for the $1billion Debtor-in-Possession (DIP) financing. The final order serves to confirmthe $750 million of interim financing that was made available since the interimcourt order rendered on January 23, 2008 and increases the maximumavailability by a further $250 million effective on the same date. The $1billion financing is comprised of a term loan of $600 million and a revolvingloan facility up to $400 million.

 

On September 28,2007 the Company finalized new terms for its syndicated revolving bankfacility: a portion of the revolving bank facility and the equipment financingcredit facility from Société Générale, are secured by a lien on assets. Thebanking syndicate lenders and Société Générale were pledged substantially allof the shares of Quebecor World Memphis Corp owned by Quebecor World (USA)Inc., The Webb Company and Quebecor World Memphis LLC, all the shares ofQuebecor World (USA) Inc owned by Quebecor Printing Holding Company, QuebecorWorld Memphis’ assets, a first ranking security interest and a first rankingpledge of Quebecor World Inc. inventory in Canada for a total security of$170.0 million.

 

***Irrevocable standby letters of credit***

** **

**The Company and certain of its subsidiaries have granted irrevocablestandby letters of credit, issued by high rated financial institutions, tothird parties to indemnify them in the event the Company does not perform itscontractual obligations. As of December 31, 2007, the guaranteeinstruments amounted to $69.7 million. The Company has not recorded anyadditional liability with respect to these guarantees, as the Company does notexpect to make any payments in excess of what is recorded in the Company’sfinancial statements. The guarantee instruments mature at various dates in 2008.**

** **

**Sales of accounts receivable**

** **

**2007**

** **

**In October 2007,the Company terminated its Canadian Securitization program. By December 31,2007, the Company completed the amortization process set out in the agreementgoverning the Canadian securitization program as all accounts receivablegenerated in Canada were now governed by the North American program describedbelow. In order to conclude the revised arrangement, CA$23.6 million ($24.3million) of receivables which remained outstanding were repurchased under theNorth American program.**

** **

**In October 2007,the Company amended its U.S. program (the North American program) to includeaccounts receivable generated by its Canadian operations. The North AmericanProgram limit was then $408.0 million ($459.0 million during certain periods ofthe year.)**

 

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** **

**As ofDecember 31, 2007 the North American program did not meet certain criteriaunder accounting standards to achieve sale treatment, therefore, the amountoutstanding of $428.0 million is presented as secured financing. The accountsreceivable under the program serve to secure the financing. As at December 31,2007, the accounts receivables pledged totalled $605.4 million. Since theprogram ceased to qualify as a sale of assets under accounting standards, feespayable under the program are thereafter recorded as interest expense in theconsolidated statement of income.. Subsequent to the year end and following thefiling under creditor protection, the North American program was reimbursed inits entirety and the program was terminated on January 23, 2008.**

** **

**In October 2007,the Company commenced the liquidation of its European Securitization Program.By December 31, 2007, any amounts outstanding under this program had beenrepurchased thus completing the amortization process set out in the agreementgoverning the European securitization program.**

** **

**On November 22,2007, the Company entered into a factoring program of its accounts receivablein France. Under this program (the Factoring program), the Company entered intoagreements to sell up to EUR47.0 million ($69.2 million) of selectedreceivables with limited recourse. As at December 31, 2007, the Companyhad sold accounts receivable of EUR27.7 million ($40.7 million) under theFactoring program. The agreement can be terminated by either party upon onemonth’s notice.**

** **

**The Factoring program does not meet certain criteria under accountingstandards to achieve sale treatment. Accordingly, the funds received under this program are presented assecured financing for an aggregate amount of EUR23.4 million ($34.5 million).The related accounts receivable under the program serve to secure thefinancing. As at December 31, 2007, the accounts receivables pledgedtotalled $40.7 million.**

** **

**2006**

** **

**In2006, the U.S. securitization program (the “U.S. Program”) agreement limit was$408.0 million ($459.0 million during peak season). As at December 31,2006, the amount outstanding under the U.S. Program was $374.0 million.Consistent with its U.S. securitization agreement, the Company sold all of itsU.S. receivables to a wholly-owned subsidiary, Quebecor World Finance Inc.,through a true-sale transaction.**

** **

**In2006, the Company sold, with limited recourse, a portion of its Canadianaccounts receivable on a revolving basis (the “Canadian Program”). The CanadianProgram limit was CA$135.0 million. As at December 31, 2006 the amountoutstanding under the Canadian Program was CA$89.0 million ($76.4 million).**

** **

**In2006, the European securitization program (the “European Program”) had allowedthe Company to sell, with limited recourse, a portion of its accountsreceivable from its Spanish and French facilities on a revolving basis. TheEuropean Program limit was EUR153.0 million. As at December 31, 2006, theamount outstanding under the European Program was EUR97.9 million ($129.1million).**

** **

**At December 31,2006, an aggregate amount of $802.5 million of accounts receivable had beensold under the three programs, of which $223.0 million were kept by the Companyas a retained interest, resulting in a net aggregate consideration of $579.5million on the sale. The retained interest was recorded in the Company’s accountsreceivable, and its fair value approximated its cost, given the short-termnature of the collection period of the accounts receivable sold. The rights ofthe Company on the retained interest were subordinated to the rights of theinvestors under the programs. There was no recourse under the programs on theCompany’s other assets for failure of debtors to pay when due, other than theretained interest of the Company.**

** **

**TheCompany had retained the responsibility for servicing, administering andcollecting accounts receivable sold. No servicing asset or liability had beenrecognized, since the fees the Company receives for servicing the receivablesapproximate the related costs.**

** **

**Securitizationfees and interest on secured financing varied based on commercial paper ratesin Canada and the United States and on Euribor in Europe and, generally, haveprovided a lower effective funding cost than available under the Company’s bankfacilities.**

 

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**Leases**

** **

The Company rents premisesand machinery and equipment under operating leases with third parties, whichexpire at various dates up to 2018 and for which undiscounted minimum leasepayments total $339.2 million as at December 31, 2007. The minimum leasepayments for the year 2007 were $89.1 million. Of the total minimum leasepayments, approximately 65% was for machinery and equipment. The Company hasguaranteed a portion of the total residual values for a maximum exposure of$13.2 million.

 

**6.2**** ****Derivativefinancial instruments**

 

The Companyuses a number of financial instruments including: cash and cash equivalents,accounts receivable, receivables from related parties, restricted cash, bankindebtedness, trade payables, accrued liabilities, payables to related parties,long-term debt and convertible notes. The carrying amounts of these financialinstruments, except for long-term debt and convertible notes, approximate theirfair values due to their short-term nature. The fair values of long-term debtand convertible notes are estimated based on discounted cash flows usingperiod-end market yields of similar instruments with the same maturity.

 

The Company uses various derivative financialinstruments to manage its exposure to fluctuations in foreign currency exchangerates, interest rates and commodity prices. The Company does not hold or useany derivative instruments for speculative purposes and adheres to a financialrisk management policy.

 

The Company manages interest rate exposure byhaving a balanced schedule of debt maturities, as well as a combination offixed and floating interest rate obligations. In addition, the Company usesinterest rate swap agreements to manage its exposure to fluctuations ininterest rates on its long-term debt. Contracts outstanding at December 31,2007 had a notional value of $200.0 million and expire in 2008. Interestexpense is adjusted to include amounts payable or receivable under the swapagreements. The total adjustment recorded to interest expense was an expense of$4.4 million for 2007 and $4.0 million for the same period in 2006.

 

The Company enters into foreign exchangeforward contracts to hedge foreign denominated sales and related receivables,debt, and equipment purchases. The contracts outstanding at December 31,2007 had a notional value of $524.0 million and expire in 2008 and 2011. Theforeign exchange gains and losses are recognized as an adjustment to thecorresponding revenues, financial expenses and cost of equipment when thetransaction is recorded. The total amounts recorded to these accounts for 2007for these contracts were revenues of $4.3 million for foreign-denominatedsales, and a loss of $11.7 million for other foreign-denominated transactions(revenues of $13.2 million, and a loss of $1.3 million, respectively, for2006). For Canada and Europe, the foreign-denominated revenues as a percentageof their total revenues were approximately 20% and 12%, respectively in 2007.The forward contracts used to manage exposure to currency fluctuations withrespect to these foreign-denominated sales and related receivables were settledwith highly favorable results in the current year. In 2008, the Company expectsto have a lower level of revenues in its mitigation of exchange rate risk fromforeign exports as a result of having fewer hedges in place and less favorablerates compared to 2007.

 

The Company enters into foreign exchangeforward contracts and cross-currency swaps to hedge foreign denominated assetexposures. The contracts outstanding only comprised forward contracts at December 31,2007 and had a notional value of $44.1 million expiring in 2008. The foreignexchange gains and losses on such foreign denominated assets are recorded toincome. The changes in the fair values of the derivative instruments are alsorecorded to income to compensate the foreign exchange gains and losses on thetranslation of the foreign denominated assets. The total adjustment recorded toderivative gain or loss related to these contracts was a loss of $86.8 millionfor 2007 (a loss of $28.4 million for 2006).

 

The Company also enters into commodities swapcontracts to hedge certain future identifiable energy price exposures relatedto the purchases of natural gas. Contracts outstanding at December 31,2007 covered a notional quantity of 1,243,660 gigajoules in Canada and6,784,596 MMBTU in the United States and expire between January 2008 and June 2010.For contracts qualifying and designated as cash flow hedges, the totaladjustment to gas cost for 2007 was a loss of $10.2 million (a loss of $10.4million in 2006). For contracts outstanding for which hedge accounting is notapplied, the portion of the change in the contracts’ fair values recorded toderivative gains or losses was a loss of $1.7 million for 2007 (a loss of $1.3million for 2006).

 

While the counterparties of these agreementsexpose the Company to credit loss in the event of non-performance, the Companybelieves that the possibility of incurring such a loss is remote due to thecreditworthiness of the counterparties.

 

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Realized gains or losses associated withderivative instruments designated in a qualified cash flow hedge that have beenterminated or have ceased to be effective prior to maturity are deferred on thebalance sheet and recognized in income during the period in which the underlyinghedged transaction is recognized. For 2007, the total amount of gain deferredin accumulated other comprehensive income in relation to terminated derivativeinstruments was $6.3 million net of tax ($4.9 million deferred as a liabilityfor 2006) and the total amount of gain recognized as income was $1.6 million($1.7 million for 2006).

 

Following the commencement of the InsolvencyProceedings on January 21, 2008, substantially all derivative contractswere subsequently terminated by their counterparties. The amount of any gainsand losses associated with derivative contracts designated as hedging itemsthat had previously been recognized in other comprehensive income as a resultof applying hedge accounting will be carried forward to be recognized in net incomein the same periods during which the hedged forecast transaction will occur.

 

The fair values of the derivative financialinstruments are estimated using period-end market rates and reflect the amountthat the Company would receive or pay if the instruments were closed out atthese dates (Figure 8).

 

**Fair Value ofDerivative Financial Instruments (Continuing Operations)**($millions)

 
| ** **                          | ** ** | **2007**            | ** ** | **2006 **      | ** ** |
|-------------------------------------|------------|---------------------|------------|---------------------|------------|
| ** **                          | ** ** | **Book Value** | ** ** | **Fair Value** | ** ** | **Book Value** | ** ** | **Fair Value** | ** ** |
| Derivative  financial instruments   |       |                |       |                |       |   |   |   |   |
| Interest  rate swap agreements      | ** ** | **$**               | **(2.7**   | **)**               | **$**      | **(2.7** | **)** | $ | — |   | $ | (7.5 | ) |
| Foreign  exchange forward contracts | ** ** | **(48.8**           | **)**      | **(48.8**           | **)**      | (12.7 | ) | (15.5 | ) |
| Commodity  swaps                    | ** ** | **(6.2**            | **)**      | **(6.2**            | **)**      | (1.4 | ) | (13.7 | ) |
|                                     |            |                     |            |                     |            |  |  |  |  |  |  |  |  |

** **

**Figure 8**

 

**6.3**** ****Related party transactions(Amended)**

 

**Related PartyTransactions**($millions)

 
| ** **                                    | ** ** | **Years ended December 31,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
| Companies  under common control:              |       |                                        |       |   |   |   |   |
| Revenues                                      | ** ** | **56.3**                                    |       | $ | 66.3 |   | $ | 64.9 |   |
| Selling,  general and administrative expenses | ** ** | **25.0**                                    |       | 13.6 |   | 17.6 |   |
| Management  fees billed by Quebecor Inc.      | ** ** | **5.0**                                     |       | 4.8 |   | 4.5 |   |
|                                               |            |                                             |            |  |  |  |  |  |  |

 

**Figure 9**

 

Quebecor Inc. (“Quebecor”), directly andthrough a wholly-owned subsidiary, holds 75.5% of the outstanding votinginterests in Quebecor World. As a result, Quebecor has the power todetermine many matters requiring shareholder approval, including the electionof directors and the approval of significant corporate transactions. Theinterests of Quebecor may conflict with the interests of other holders ofQuebecor World equity and debt securities. However, the Court has exempted QuebecorWorld from the requirement to hold an annual meeting of shareholders until suchtime as the Company emerges from the Insolvency Proceedings (see Note 1). Inaddition, any fundamental transaction or proposed change to Quebecor World’sorganizational documents would require Court approval. Consequently, eventhough Quebecor currently holds 75.5% of the Company’s outstanding votinginterests, it is unlikely that Quebecor will be able to exercise its votesduring the Insolvency Proceedings in order to change the composition of theBoard of Directors or cause fundamental changes in the affairs andorganizational documents of the Company.

 

During the second quarter of 2008, theCompany acquired all rights, title and interest to an aircraft previouslyleased by the Company from a third party and subsequently sold it to QuebecorMedia Inc. The transaction was done at fair value based on two independentappraisals; the Company received a cash consideration of $20.3 million,resulting in a gain on disposal of $9.9 million.

 

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On October 1, 2008, as part of thereview of contracts (see Note 1) the Company repudiated a 10 year manufacturingagreement with subsidiaries of Quebecor Media Inc. that was entered during October of2007 for the printing of directories, representing a maximum of $11.5 millionof purchases per year. Following this repudiation, the subsidiaries of QuebecorMedia Inc. filed a claim against the Company for an amount of $46.7 million.

 

As part of the Canadian claims procedure described in Note 1, theCompany has received claims from Quebecor and certain of its subsidiaries(“Quebecor Group of Companies”), including the claim of $46.7 million relatedto the repudiation indicated above. As at the date hereof, it is not possibleto determine the accuracy and completeness of the other claims that were filed,whether or not such claims will be disputed and whether or not such claims willbe subject to discharge in the Insolvency Proceedings.  These claims willbe analyzed as part of the claims process described in Note 1.

 

There are other motions filed by the Company to recover certain assetsfrom the Quebecor Group of Companies.  The Company does not believe thatthe resolution of these claims will have a material adverse effect upon theCompany’s consolidated financial position.

 

The Company received letters from Pierre Karl Péladeau, Érik Péladeau(Vice-Chairman of the Board), Jean Neveu and Jean La Couture (Chairman of theAudit Committee) advising that they have resigned from the Board of Directors.These directors also serve on the board of Quebecor Inc. and Quebecor MediaInc., and have determined that, as a result of the claims that have been filedby the Quebecor Group of Companies as part of Quebecor World’s court protectedrestructuring process, their resignations are advisable.

 

The Company has entered into transactionswith its parent company, Quebecor Inc., and its other subsidiaries, which wereaccounted for at prices and conditions prevailing in the market. Intercompanyrevenues from the parent company’s media subsidiaries mostly involved theprinting of magazines. During the second quarter of 2007, a real estate assetwas sold to a shareholder of the parent company at fair value established basedon an independent estimate.

 

In October 2007, the Company sold aproperty to a company under common control, Quebecor Media Inc., forconsideration of CA$62.5 million ($64.0 million). Simultaneously,the Company entered into a long-term lease over a term of 17 years with Quebecor Media Inc., to rent aportion of the property sold. Considerationfor the two transactions was settled by a cash receipt of CA$43.9 million($44.9 million) on the date of the transactions and the Company assumed a netbalance of sale, including interest, of CA$7.0 million ($7.2 million)receivable in 2013.

 

In 2006, the Company transferred the benefitof a deduction for Part VI.I tax to a company under common control for aconsideration of CA$6.4 million ($5.5 million), recorded in receivables fromrelated parties. This reduced the Company’s available future income tax assetsby CA$7.6 million ($6.5 million), and decreased the contributed surplus byCA$1.2 million ($1.0 million). The transaction was recorded at the carryingamount.

 

In March 2005, the Company sold certainoperating assets to Quebecor Media Inc., a company under common control, for acash consideration of CA$3.3 million ($2.7 million). The transaction wasrealized at the carrying amount and no gain or loss was recorded.

 

In 2000, the Company entered into a strategicagreement with Nurun Inc. (“Nurun”). The agreement included a commitment fromthe Company to use the services of Nurun (information technology and E-Commerceservices) for a minimum of $40 million over a five-year period. In 2004, anaddendum was made to the agreement, extending the term for another five yearsfrom the date of the addendum. In addition, the minimum service revenues of $40million committed to Nurun were modified to include services directly requestedby the Company and its parent company and subsidiaries, as well as businessreferred, under certain conditions, to Nurun by the Company and its affiliates.Finally, if the aggregate amount of the service revenues for the term of theagreement is lower than the minimum of $40 million, the Company has agreed topay an amount to Nurun equal to 30% of the difference between the minimumguaranteed revenues and the aggregate amount of revenues. As of December 31,2007, the cumulative services registered by Nurun under this agreement amountedto $26.2 million.

 

**6.4**** ****Outstanding share data(Amended)**

 

Figure 10discloses the Company’s outstanding share data as at****April 18,2008**.**

 

**OutstandingShare Data**($ inmillions and shares in thousands)

 
| ** **                                                       | ** ** | **April 18, 2008**                 | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                       | ** ** | **Issued and  outstanding shares** | ** ** | **Book value** | ** ** |
| Multiple  Voting Shares                                          | ** ** | **46,987**                                   | ** ** | **$** | **93.5** | ** ** |
| Subordinate  Voting Shares                                       | ** ** | **136,995**                                  | ** ** | **1,166.0** | ** ** |
| First  Preferred Shares, Series 3 - Equity                  | ** ** | **12,000**                                   | ** ** | **212.5** | ** ** |
| First  Preferred Shares, Series 5 - Classified as liability | ** ** | **3,024**                                    | ** ** | **3,049.7** | ** ** |
|                                                                  |            |                                              |            |  |  |  |

 

**Figure 10**

 

As of April 18,2008, a total of 6,298,863 options to purchase Subordinate Voting Shares wereoutstanding, of which 3,453,442 were exercisable.

 

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On March 1, 2008, 3,975,663 Series 5Cumulative Redeemable First Preferred Shares were each converted into 12.93125Subordinate Voting Shares. Consequently, approximately 51.4 million newSubordinate Voting Shares were issued by the Company.

 

On June 1, 2008, 517,184 Series 5Cumulative Redeemable First Preferred Shares were each converted into 13.146875Subordinate Voting Shares.  Consequently,approximately 6.8 million new Subordinate Voting Shares were issued by theCompany.

 

On September 1, 2008, 744,124 Series 5Cumulative Redeemable First Preferred Shares were each converted into 13.3625 SubordinateVoting Shares. Consequently approximately 9.9 million new Subordinate VotingShares were issued by the Company.

 

On December 1,2008, 66,601 Series 5 Preferred Shares were each converted into 13.578125Subordinate Voting Shares. Consequently approximately 0.9 million newSubordinate Voting Shares were issued by the Company.

 

**6.5**** ****Controls and procedures(Amended)**

 

**Overview**

 

As mentioned inthe preceding sections, there were a number of significant events that occurredduring the year, including the proposed sale and merger of European operations,various financing activities and bankruptcy protection measures which wereundertaken during the preparation of the year-end financial statements. Thesesignificant events created an environment of substantial work overload and timeconstraint, which led to changes in personnel and lack of sufficient personnel,which in aggregate directly, impacted the operating effectiveness of theCompany’s internal controls over financial reporting discussed below. The impacton the internal controls over financial reporting was restricted to and evidentin the last two quarters of the year ended December 31, 2007, which waswhen the significant events occurred

 

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**Evaluationof Disclosure Controls and Procedures**

 

Quebecor World’sdisclosure controls and procedures are designed to provide reasonable assurancethat information required to be disclosed by the Company is recorded,processed, summarized and reported within the time periods specified underCanadian and U.S. securities laws and include controls and procedures designedto ensure that information is accumulated and communicated to management,including the President and Chief Executive Officer and the Senior VicePresident and Chief Accounting Officer, to allow timely decisions regardingrequired disclosure.

 

As of December 31,2007, an evaluation was carried out under the supervision of and with theparticipation of management, including the President and Chief ExecutiveOfficer and Senior Vice President and Chief Accounting Officer, of theeffectiveness of Quebecor World’s disclosure controls and procedures as definedin Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934 andin Multilateral Instrument 52-109 under the Canadian Securities Administrators Rules andPolicies. Based on that evaluation, the President and Chief Executive Officerand Senior Vice President and Chief Accounting Officer concluded that as aresult of the material weaknesses in the Company’s internal control overfinancial reporting discussed below, the disclosure controls and procedureswere not effective as of the end of the period covered by this annual report.

 

**Management’sReport on Internal Control over Financial Reporting**

 

Management,including the President and Chief Executive Officer and the Senior VicePresident and Chief Accounting Officer, is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Rule 13a-15(e) under the U.S. Securities Exchange Act of1934 and in Multilateral Instrument 52-109 under Canadian SecuritiesAdministrators Rule and Policies.

 

Quebecor World’sinternal controls over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withCanadian generally accepted accounting principles (GAAP) and reconciled to U.S.GAAP. Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

As of December 31,2007, management assessed the effectiveness of the Company’s internal controlover financial reporting. In making this assessment, management used thecriteria set forth in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). Duringthis process, management identified material weaknesses in internal controlover financial reporting as described below. As defined in Exchange Act Rule 12b-2and Rule 1-02 of Regulation S-X, a material weakness is a deficiency, orcombination of deficiencies, in internal control over financial reporting, suchthat there is a reasonable possibility that a material misstatement of thecompany’s financial statements will not be prevented or detected on a timelybasis.

 

Given thecircumstances faced by the Company, it did not maintain effective processes andcontrols related to impairment of long-lived assets and goodwill, controls overthe accounting for and reporting of complex and non-routine transactions andcontrol activities specifically related to period-end review procedures.

 

·     Specificto the impairment of long-lived asset and goodwill, the Company did not havethe long-term forecasts, and hence it lacked timely monitoring of operations tocomplete an effective impairment analysis on a timely basis, and it did nothave the proper oversight controls and procedures to validate informationprepared by external specialists, in order to identify and documentsufficiently its analysis that would have impacted the impairment of assets,restructuring and other charges and the goodwill impairment charge. As aresult, errors were identified and corrected prior to the issuance of theCompany’s 2007 Consolidated Financial Statements. However, this deficiencycould have resulted in a material non-cash adjustment to the impairment ofassets, restructuring and other charges, and the goodwill impairment chargeand, therefore, there is a reasonable possibility that a material misstatementof the Company’s financial statements will not be prevented or detected on atimely basis.

 

·     Specificto complex and non-routine transactions, the Company did not adequately analyzeand review the accounting for and reporting of complex and non-routinetransactions. The Company determined that there was a lack of sufficientaccounting and finance personnel to perform in-depth analysis and review ofcomplex accounting matters and lack of communication between various functionswithin the Company.

 

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Theses deficiencies impacted the followingitems: classification of long-term debt, securitization of accounts receivable,valuation of derivatives instruments, recording of sale and leaseback ofproperty, plant and equipment, valuation of future income taxes andpresentation of cash flows from operating and financing activities. Thedeficiencies resulted in material errors that were identified and correctedprior to the issuance of the Company’s 2007 Consolidated Financial Statements.However, these deficiencies, which are pervasive in nature, could have resultedin a material adjustments to the financial statements and, therefore, there isa reasonable possibility that a material misstatement of the Company’s financialstatements will not be prevented or detected on a timely basis.

 

·     Specificto period-end controls and procedures, the Company did not on a timely basis,adequately perform those procedures in the following areas: (i) review andapproval of account analysis and reconciliations, and (ii) review ofjournal entries. As a result of this deficiency, errors were identified andcorrected prior to the issuance of the Company’s 2007 Consolidated FinancialStatements. However, this deficiency, which is pervasive in nature, could haveresulted in a material adjustments to the financial statements and, therefore,there is a reasonable possibility that a material misstatement of the Company’sfinancial statements will not be prevented or detected on a timely basis.

 

Because of the material weaknesses describedabove, management has concluded that as of December 31, 2007, the Company’ssystem of internal control over financial reporting was not effective.Notwithstanding the above-mentioned weaknesses, management has concluded thatthe Consolidated Financial Statements included in this report fairly presentthe Company’s consolidated financial position and the consolidated results ofthe operations, as of and for the year ending December 31, 2007.

 

Our independent registered public accountingfirm that audited the financial statements included in this annual report, hasissued an attestation report expressing an adverse opinion on the effectivenessof internal control over financial reporting as at December 31, 2007,which report is included on page 5 of the Consolidated Financial Statementsyear ended December 31, 2008.

 

**Changes in Internal Control Over Financial Reporting**

 

Duringthe last quarter of 2007, the change occurred that has materially affected oris reasonably likely to materially affect our internal controls over financialreporting, is related to the implementation of the new application software(Taxware) for the plants in the U.S.; the software is used to capture pertinentbilling data to provide sales tax to customers and facilitate the taxremittance process.

 

Toaddress the Company’s remediation plans last year, it revised its impairment oflong term assets methodology and based on that revision, the Company providedspecific training to its accounting staff and issued standardized, exhaustivechecklists to identify events that trigger impairment. Currently, the Companyis working to develop and deploy an improved forecasting system to provide moreappropriate analysis in the accounting for impairment of long lived assets andgoodwill.

 

**Remediation Plans**

 

Inresponse to the material weaknesses identified above, the Company has alreadystarted and will continue remediation plans to address the material weaknesses,by taking the following actions:

 
| 1. |   | The Company has created a  Special Projects Group to manage the bankruptcy protection issues and  requests; this will alleviate some of the work overload in the finance and  accounting departments.                    |
|----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2. |   | The Company has created a  Restructuring Committee to manage the activities around various projects;  this will alleviate some of the work overload in the finance and accounting  departments.                          |
| 3. |   | The Company continues to  leverage external resources with specific accounting expertise to consult on  complex accounting matters. Management will exercise greater oversight and  monitoring over these consultations. |
| 4. |   | The Company continues to  pursue hiring additional staff for the finance and accounting departments  with key technical skills.                                                                                          |
| 5. |   | The Company will develop and  deploy a more comprehensive system to review and monitor complex and non-routine  transactions.                                                                                            |
| 6. |   | The Company will establish a  system of cross-functional coordination and communication to provide for  timely dissemination of information that could have an impact on the  consolidated financial statements.         |

 

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During thethird quarter of 2008, management identified and implemented new controls thatit believes have significantly improved the Company’s internal control overfinancial reporting.  These new controlswere implemented with a view to specifically addressing the material weaknessesin the Company’s internal control over financial reporting that were identifiedin 2007. However, the newly implemented controls have not yet been tested andthus the Company is not in a position at the present time to conclude as totheir effectiveness, although it is currently anticipated that such tests willbe performed in the fourth quarter of 2008.

 

### **7.**     Critical accounting estimates and accounting policies

### ** **

This sectionwas not updated to reflect the sale of the European operations, described in Section 2.

 

**7.1**** ****Critical accountingestimates**

 

The rules ofthe two Canadian securities regulatory authorities define critical accountingestimates as those requiring assumptions made about matters that are highlyuncertain at the time the estimate is made, and when the use of differentreasonable estimates or changes to the accounting estimates would have amaterial impact on a Company’s financial condition or results of operations.

 

Thepreparation of financial statements in conformity with Canadian GAAP requiresthe Company to make estimates and assumptions which affect the reported amountsof assets and liabilities, disclosure with respect to contingent assets andliabilities at the date of the financial statements and reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

 

As disclosedin Note 2(b), the preparation of financial statements in conformity withCanadian GAAP requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the dates of the consolidated financial statementsand the reported amounts of revenues and expenses during the reporting periods.The Insolvency Proceedings materially affect the degree of uncertaintyassociated with the measurement of many amounts in the financial statements.More specifically, it could impact the recoverability tests and fair valueassumptions used in the impairment test of property, plant and equipment andgoodwill, the valuation of future income tax assets and of contract acquisitioncosts.  TheCompany made assumptions, such as expected growth, maintaining customer baseand achieving costs reductions, about the future cash flows expected from theuse of its assets.

 

The criticalaccounting estimates which affect the Consolidated Income statement andConsolidated Balance Sheet line items are summarized below:

 

**Goodwill**

** **

Goodwill istested for impairment annually for all of the Company’s reporting units, ormore frequently if events or changes in circumstances indicate that the assetmight be impaired. The impairment test is carried out in two steps. In thefirst step, the carrying amount of the reporting unit is compared to its fairvalue. When the fair value of a reporting unit exceeds its carrying amount, thegoodwill of the reporting unit is considered not to be impaired and the secondstep is not required. The second step of the impairment test is carried outwhen the carrying amount of a reporting unit exceeds its fair value, in whichcase the implied fair value of the reporting unit’s goodwill is compared to itscarrying amount to measure the amount of the impairment, if any. When thecarrying amount of the reporting unit’s goodwill exceeds the implied fair valueof the goodwill, an impairment is recognized in an amount equal to the excessand is presented as a separate item in the consolidated statement of income.

 

Based on theresults of the latest impairment test performed, the Company recorded agoodwill impairment charge of $1,998.9 million in 2007 ($243 million goodwillimpairment charge for the European reporting unit was recorded in 2005).Management will continue to monitor its segment for indicators of potentialimpairment as appropriate.

 

**Impairment of long-lived assets**

** **

The Companyreviews long-lived assets whenever events or changes in circumstances indicatethat the carrying amount of such assets may not be recoverable. An impairmentis recognized when the carrying amount of a group of assets held for useexceeds the sum of the undiscounted cash flows expected from its use and eventualdisposition. Measurement of an impairment is based on the amount by which thecarrying amount of a group of assets exceeds its fair value. Fair value isdetermined using accepted valuation techniques, such as quoted market prices,when available, or an estimate of discounted future cash flows.

 

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The Companyrecorded a total impairment charge of $256.1 million in the year ended December 31,2007 based on the results of these tests ($33.0 million total impairment chargewas recorded in 2006). Although management concluded that at December 31,2007 no further impairment charges were required other than those discussedabove, the Company continues to monitor groups of assets to identify any newevents or changes in circumstances that could indicate that their carryingvalues are not recoverable. In the event that such a situation is identified orthat actual results differ from management’s estimates, an additionalimpairment charge could be necessary.

 

**Pension and other postretirement benefits**

** **

**Weighted averageassumptions used in themeasurement of the Company’s pension benefits**

 
| ** **                                         | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|
| Accrued benefit obligation as of December 31: |       |     |       |     |       |
| Discount rate                                      | ** ** | **6.0**  | **%**      | 5.6      | %          |
| Rate of compensation increase                      | ** ** | **3.4**  | **%**      | 3.4      | %          |
| Benefit costs for year ended December 31:     |       |     | ** ** |     |       |
| Discount rate                                      | ** ** | **5.6**  | **%**      | 5.4      | %          |
| Expected return on plan assets                     | ** ** | **7.5**  | **%**      | 7.6      | %          |
| Rate of compensation increase                      | ** ** | **3.4**  | **%**      | 3.4      | %          |

 

**Figure 11**

** **

The Companymaintains defined benefit plans and postretirement benefits for its employeesand ensures that contributions are sustained at a level sufficient to coverbenefits. Actuarial valuations of the Company’s various pension plans wereperformed during the last three years or more frequently where required by law.Plan assets are measured at fair value and consist of equity securities,corporate and government fixed income securities and cash or cash equivalents.Pension and other postretirement costs and obligations are based on variouseconomic and demographic assumptions determined with the help of actuaries andare reviewed each year. Key assumptions include the discount rate, the expectedlong-term rate of return on plan assets, the rate of compensation increase(Figure 11) and the health care cost trend rate.

 

The discountrate assumption used to calculate the present value of the plans’ projectedbenefit payments was determined using a measurement date of September 30,2007 and based on yields of long-term high-quality fixed income investments.

 

The expectedlong-term rate of return on pension plan assets was obtained by calculating aweighted average rate based on targeted asset allocations of the plans. Theexpected returns of each asset class are based on a combination of historicalperformance analyses and forward-looking views of the financial markets. Thetargeted asset allocation of the plans is approximately 64% for equity and 36%for fixed income securities and cash.

 

The rate ofcompensation increase is used to project current plan earnings in order toestimate pension benefits at future dates. This assumption was determined basedon historical pay increases, forecast of salary budgets, collective bargaininginfluence and competitive factors.

 

Forpostretirement benefits, the assumptions related to the health care cost trendrate are based on increases experienced by plan participants in recent yearsand national average cost increases.

 

The Companybelieves that the assumptions are reasonable based on information currentlyavailable; however, in the event that actual outcome differs from management’sestimates, the provision for pension and postretirement benefit expenses andobligations may be adjusted.

 

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**Health care costs**

** **

The Companyprovides health care benefits to employees in North America and coversapproximately 70% to 75% of the costs under these employee health care plans.The Company actively manages its health care spending with its vendors tomaximize discounts in an attempt to limit the cost escalation experienced overthe past years. Health care costs and liabilities are estimated with the helpof actuaries. Health care costs continued to increase in 2007, consistent withthe national trend. Trend assumption is the most important factor in estimatingfuture costs. The Company uses the most recent twelve months of claims trendedforward to estimate the next year’s liability.

 

**Allowance for doubtful accounts**

** **

The Companymaintains an allowance for doubtful accounts for expected losses from customerswho are unable to pay their debts. The allowance is reviewed periodically andis based on an analysis of specific significant accounts outstanding, the ageof the receivable, customer creditworthiness and historical collectionexperience. In addition, the Company maintains an allowance to cover a fixedpercentage of all accounts for customers who have filed for bankruptcyprotection under Chapter 11 and other critical accounts. These accounts maytake several years before a settlement is reached. The allowance is reassessedon a quarterly basis.

 

**Income taxes**

** **

Managementbelieves that it has adequately provided for income taxes based on all of theinformation that is currently available.

 

The provisionfor income taxes is calculated based on the expected tax treatment oftransactions recorded in the Company’s consolidated statements. In determiningits provision for income taxes, the Company interprets tax legislation in avariety of jurisdictions and makes assumptions about the expected timing of thereversal of future tax assets and liabilities. Income tax assets andliabilities, both current and future, are measured according to enacted incometax legislation that is expected to apply when the asset is realized or theliability is settled. The Company regularly reviews the recognized andunrecognized future income tax assets to determine if a valuation allowance isrequired or needs to be adjusted. The Company’s future income tax assets arerecognized only to the extent that, in the Company’s opinion, it is more likelythan not that the future income tax assets will be realized. This opinion isbased on certain estimates, assumptions and judgments in assessing thepotential for future recoverability, while at the same time considering pastexperience. If these estimates, assumptions or judgments change in the future,the Company could be required to reduce or increase the value of the futureincome tax assets or liabilities resulting in income tax expense or recovery.The Company’s tax legislation interpretations could differ from those of taxauthorities and our tax filings are subject to government audits, which couldmaterially change the amount of both current and future income tax assets andliabilities. Any change would be recorded as a charge or a credit to income taxexpense.

 

In addition,the Company has not recognized a future tax liability for the undistributedearnings of its subsidiaries in the current and prior years because the Companydoes not expect those unremitted earnings to reverse and become taxable in theforeseeable future.

 

**Workers’ compensation**

** **

U.S. workers’compensation claims tend to be relatively low in value on a case-by-case basis,and the Company self-insures against the majority of such claims.

 

The liabilityprovision of such self-insurance is estimated based on reserves for claims thatare established by an independent administrator and the provision is adjustedannually to reflect the estimated future development of the claims usingCompany specific factors provided by its actuaries. The adjustment is recordedin income or expense.

 

While theCompany believes that the assumptions used are appropriate, in the event thatactual outcome differs from management’s estimates, the provision for U.S.workers’ compensation costs may be adjusted.

 

The Companyalso maintains third-party insurance coverage against U.S. workers’compensation claims which could be unusually large in nature as discussed inthe “Risks factors” section hereafter.

 

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**7.2****   ****Change in accounting policy**

 

**Financialinstruments**

 

Effective January 1,2007, the Company adopted CICA Handbook Section 1530, ComprehensiveIncome, Section 3855, Financial Instruments Recognition and Measurementand Section 3865, Hedges. Changes in accounting policies in conformitywith these new accounting standards are as follows:

 

**(a)****    ****Comprehensiveincome**

** **

Section 1530 introducesthe concept of comprehensive income, which is calculated by including othercomprehensive income with net income. Other comprehensive income representschanges in shareholders’ equity arising from transactions and other events withnon-owner sources such as unrealized gains and losses on financial assetsclassified as available-for-sale, changes in translation adjustment of self-sustainingforeign operations and changes in the fair value of the effective portion ofcash flow hedging instruments. With the adoption of this section, theconsolidated financial statements now include consolidated statements ofcomprehensive income. The comparative statements were restated solely toinclude the translation adjustment of self-sustaining foreign operations asprovided by transition rules.

 

**(b)****   ****Financialinstruments**

** **

Section 3855 establishesstandards for recognizing and measuring financial assets, financial liabilitiesand derivatives. Under this standard, financial instruments are now classifiedas held-for-trading, available-for-sale, held-to-maturity, loans andreceivables, or other financial liabilities and measurement in subsequent periodsdepends on their classification. Transaction costs are expensed as incurred forfinancial instruments classified as held-for-trading. For other financialinstruments, transaction costs are capitalized on initial recognition andpresented as a reduction of the underlying financial instruments. Financialassets and financial liabilities held-for-trading are measured at fair valuewith changes recognized in income. Available-for-sale financial assets aremeasured at fair value or at cost, in the case of financial assets that do nothave a quoted market price in an active market, and changes in fair value arerecorded in comprehensive income.

 

Financial assetsheld-to-maturity, loans and receivables, and other financial liabilities aremeasured at amortized cost using the effective interest method of amortization.The Company has classified its restricted and unrestricted cash and cashequivalents and temporary investments as held for trading. Accounts receivable,receivables from related parties, loans and other long-term receivablesincluded in other assets were classified as loans and receivable. Portfolioinvestments were classified as available for sale. All of the Company’sfinancial liabilities were classified as other financial liabilities.

 

Derivative instruments arerecorded as financial assets or liabilities at fair value, including thosederivatives that are embedded in financial or non-financial contracts that arenot closely related to the host contracts. Changes in the fair values of thederivatives are recognized in financial expenses with the exception ofderivatives designated in a cash flow hedge for which hedge accounting is used.In accordance with the new standards, the Company selected January 1, 2003as its transition date for adopting this standard related to embeddedderivatives.

** **

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** **

**(c)****   ****Hedges**

** **

Section 3865 specifies thecriteria that must be satisfied in order for hedge accounting to be applied andthe accounting for each of the permitted hedging strategies.

 

Accordingly, for derivativesdesignated as fair value hedges, such as certain cross-currency interest rateswaps used by the Company, changes in the fair value of the hedging derivativerecorded in income are substantially offset by changes in the fair value of thehedged item to the extent that the hedging relationship is effective. When afair value hedge is discontinued, the carrying value of the hedged item is nolonger adjusted and the cumulative fair value adjustments to the carrying valueof the hedged item are amortized to income over the remaining term of theoriginal hedging relationship.

 

For derivative instrumentsdesignated as cash flow hedges, such as certain commodity swaps and forwardexchange contracts used by the Company, the effective portion of a hedge isreported in other comprehensive income until it is recognized in income duringthe same period in which the hedged item affects income, while the ineffectiveportion is immediately recognized in the consolidated statement of income. Whena cash flow hedge is discontinued, the amounts previously recognized inaccumulated other comprehensive income are reclassified to income when thevariability in the cash flows of the hedged item affects income.

 

Upon adoptionof these new sections, the transition rules require that the Companyadjust either the opening retained earnings or accumulated other comprehensiveincome as if the new rules had always been applied in the past, withoutrestating comparative figures of prior years. Accordingly, the followingadjustments were recorded in the consolidated financial statements as at January 1,2007:

 

·       Decreaseof other assets by $24.3 million

 

·       Decreasein trade payable and accrued liabilities by $0.6 million

 

·       Increaseof other liabilities by $18.9 million

 

·       Decreaseof long-term debt by $23.5 million

 

·       Decreaseof future income tax liabilities by $7.2 million

 

·       Decreaseof retained earnings by $4.9 million

 

·       Decreaseof accumulated other comprehensive income by $7.0 million

 

Finally, theadoption of the new standards had no material impact on net income in 2007.

 

**7.3****   ****Reclassification**

 

During thesecond quarter of 2007, the Company reclassified the Series 5 CumulativeRedeemable First Preferred Shares in the amount of $150.2 million as at December 31,2006 and of $178.5 million as at December 31, 2007 from Capital stock andAccumulated other comprehensive income to preferred shares classified asliability in the balance sheet, to conform with accounting standards related tosuch financial instruments (CICA Handbook section 3861). Dividends on theseshares are now presented in the consolidated statement of income as dividendson preferred shares classified as liability. This reclassification was notmaterial to the Company’s consolidated financial statements.

 

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**7.4****   ****Recent accountingdevelopments**

 

The CICA has issued the following new Handbooksections:

 

In December 2006,the CICA issued a new accounting standard, Section 1535, CapitalDisclosures, which requires the disclosure of both qualitative and quantitativeinformation that enables users of financial statements to evaluate the entity’sobjectives, policies and processes for managing capital. The new standard willbe applied in the first quarter of 2008 for the Company.

 

In December 2006,the CICA issued two new accounting standards, Section 3862, FinancialInstruments – Disclosures, and Section 3863, Financial Instruments –Presentation, which require additional disclosures relating to financialinstruments. The new sections apply to interim and annual financial statementsrelating to fiscal years beginning on or after October 1, 2007, and willbe applied in the first quarter of 2008.

 

In March 2007,the CICA issued a new accounting standard, Section 3031, Inventories,which provides more extensive guidance on the recognition and measurement ofinventories, and related disclosures. This new standard applies to interim andannual financial statements relating to fiscal years beginning on or after January 1,2008. The Company is currently evaluating the effect of this standard on itsconsolidated financial statements.

 

In January 2008,the CICA issued Section 3064, Goodwill and Intangible Assets, which willreplace Section 3062, Goodwill and Other Intangible Assets, and results inthe withdrawal of Section 3450, Research and Development Costs andEmerging Issues Committee (“EIC”) Abstract 27, Revenues and Expenditures Duringthe Pre-operating Period, and amendments to Accounting Guideline (“AcG”) 11,Enterprises in the Development Stage. The standard provides guidance on therecognition of intangible assets in accordance with the definition of an assetand the criteria for asset recognition as well as clarifying the application ofthe concept of matching revenues and expenses, whether these assets are separatelyacquired or internally developed. This standard applies to interim and annualfinancial statements relating to fiscal years beginning on or after October 1,2008. The Company is currently evaluating the effect of adopting this standard.

 

### **8.**         Risk factors

### ** **

This sectionwas not updated to reflect the sale of the European operations, described in Section 2.

 

The Companyurges all current and potential investors to carefully consider the risksdescribed below, the other information contained in this MD&A and otherinformation and documents filed by the Company with the appropriate securitiesregulatory authorities before making any investment decision with respect toany of the Company’s securities. The risks and uncertainties described beloware not the only ones the Company may face. Additional risks and uncertaintiesthat the Company is unaware of, or that the Company currently deems to beimmaterial, may also become important factors that affect it. If any of thefollowing risks actually occurs, the Company’s business, cash flow, financialcondition or results of operations could be materially adversely affected.

 

**8.1****   ****Primary riskfactors**

 

**TheCompany and many of its subsidiaries are currently subject to creditorprotection and restructuring proceedings in both Canada and the United States.It is unlikely that the Company’s existing Multiple Voting Shares andSubordinate Voting Shares will have any material value in a restructuring planof arrangement, and there is also a risk such shares could be cancelled. If theCompany fails to implement a plan of arrangement and obtain sufficient exitfinancing within the time granted by the Courts, substantially all of its debtobligations will become due and payable immediately, or subject to immediateacceleration, which would in all likelihood lead to the liquidation of theCompany’s assets.**

 

On January 21,2008 (the “Filing Date”), the Company obtained an order (the “Initial Order”)from the Quebec Superior Court (the “Court”) granting creditor protection underthe Companies’ Creditors Arrangement Act (the “CCAA”) for itself and for53 of its US subsidiaries (collectively, the “Applicants”). On the samedate, those same US Subsidiaries filed a petition under Chapter 11 of the U.S.Bankruptcy Code (“Chapter 11”) in the U.S. Bankruptcy Court for the SouthernDistrict of New York (the “U.S. Bankruptcy Court”). The proceedings under theCCAA are hereinafter referred to as the “Canadian Proceedings”, the proceedingsunder Chapter 11 are hereinafter referred to as the “U.S. Proceedings” andthe Canadian Proceedings and the U.S. Proceedings are hereinafter collectivelyreferred to as the “Insolvency Proceedings”. The Company’s European and LatinAmerican subsidiaries are not subject to the Insolvency Proceedings.

 

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Pursuant tothe Initial Order, the Applicants are provided with the authority to, amongstother things, file with the Court and submit to their creditors a plan ofcompromise or arrangement under the CCAA and operate an orderly restructuringof their business and financial affairs, in accordance with the terms of theInitial Order. Ernst & Young Inc. (the “Monitor”) has been appointedby the Court as Monitor in the Canadian Proceedings. Pursuant to the terms ofthe Initial Order, the Monitor was appointed to monitor the business andfinancial affairs of the Applicants and, in connection with such role, theInitial Order imposes a number of duties and functions on the Monitor,including, but not limited to, assisting the Applicants in connection withtheir restructuring and reporting to the Court on the state of the business andfinancial affairs of the Applicants and on developments in the InsolvencyProceedings, as the Monitor considers appropriate.

 

The U.S.Bankruptcy Code provides for all actions and proceedings against the USsubsidiaries to be stayed during the continuation of the U.S. Proceedings. TheInitial Order also provides for a general stay and, pursuant to a subsequentorder of the Court rendered on February 19, 2008, this stay period hasbeen extended to May 12, 2008. The stay period is subject to furtherextensions as the Court may deem appropriate. The applicable stays generallypreclude parties from taking any actions against the Applicants. The purpose ofthe stay period and of the Insolvency Proceedings is to provide the Applicantsthe opportunity to stabilize their operations and businesses and to develop abusiness plan, all with a view to proposing a final plan of reorganization,compromise or arrangement. Any such plan will be subject to approval byaffected creditors, as well as Court approval.

 

In light ofthe Insolvency Proceedings, it is unlikely that the Company’s existing MultipleVoting Shares and Subordinate Voting Shares will have any material value in,and following the approval of, a restructuring plan of arrangement there is arisk such shares could be cancelled. There is also a risk that if the Companyfails to successfully implement a plan of arrangement and obtain sufficientexit financing within the time granted by the Court, substantially all of itsdebt obligations will become due and payable immediately, or subject toimmediate acceleration, which would in all likelihood lead to the liquidationof the Applicants’ assets.

 

**TheCompany’s ability to manage its business is restricted during the InsolvencyProceedings and all steps or actions in connection therewith may, in certaincircumstances, require the approval of the Company’s DIP Lenders, the Monitorand/or the Courts.**

 

The Company’sDIP Facility provides for various restrictions on, among other things, theCompany’s ability to incur additional debt, secure such debt, make investments,dispose of its assets (including pursuant to sale and leaseback transactionsand sales of receivables under securitization programs) and make capitalexpenditures. Each of these transactions would require the consent of theCompany’s DIP lenders if they exceed certain thresholds set forth in theDIP Facility, and may, in certain cases, require the consent of theMonitor and/or the Courts.

 

*Theabove Primary Risk Factors relating to the Company and the InsolvencyProceedings should be borne in mind by the reader when you read each of theadditional risk factors set forth below.*

 

**8.2****   ****Other riskfactors**

 

**Risks relating to the Company’s Business**

 

**TheCompany’s revenue is subject to cyclical and seasonal variations and prices of,and demand for, its printing services may fluctuate significantly based onfactors outside of the Company’s control**

 

The businessin which the Company operates is sensitive to general economic cycles and maybe adversely affected by the cyclical nature of the markets it serves, as wellas by local, regional, national and global economic conditions. The Company’sbusiness operations are seasonal, with the majority of its historical operatingincome during the past five financial years being recognized in the third andfourth quarters of the financial year, primarily as a result of the highernumber of magazine pages, new product launches and back-to-school, retail andholiday catalog promotions. Within any year, this seasonality could adverselyaffect the Company’s cash flows and results of operations.

 

Quebecor Worldis unable to predict market conditions and only has a limited ability to affectchanges in market conditions for printing services. Pricing and demand forprinting services have fluctuated significantly in the past and each havedeclined significantly in recent years. Prices and demand for printing servicesmay continue to decline from current levels. Further increases in the supply ofprinting services or decreases in demand could cause prices to continue todecline, and prolonged periods of low prices, weak demand and/or excess supplycould have a material adverse effect on the Company’s business growth, resultsof operations and liquidity.

 

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**TheCompany operates in a highly competitive industry**

 

The industryin which the Company operates is highly competitive. Competition is largelybased on price, quality, range of services offered, distribution capabilities,customer service, availability of printing time on appropriate equipment andstate-of-the-art technology. The Company competes for commercial business notonly with large national printers, but also with smaller regional printers. Incertain circumstances, due primarily to factors such as freight rates andcustomer preference for local services, printers with better access to certainregions of a given country may have a competitive advantage in such regions.Since 2001, the printing industry has experienced a reduction in demand forprinted materials and excess capacity. Some of the industries that the Companyservices have been subject to consolidation efforts, leading to a smallernumber of potential customers. Furthermore, if the Company’s smaller customersare consolidated with larger companies utilizing other printing companies, theCompany could lose its customers to competing printing companies. Primarily asa result of this excess capacity and customer consolidation, there have been,and may continue to be, downward pricing pressures and increased competition inthe printing industry. Any failure on the Company’s part to compete effectivelyin the markets it serves could have a material adverse effect on the results ofits operations, financial condition or cash flows and could require change tothe way the Company conducts business or reassesses strategic alternativesinvolving its operations.

 

**TheCompany will be required to make capital expenditures to maintain its facilitiesand may be required to make significant capital expenditures to remaintechnologically and economically competitive, which may significantly increaseits costs or disrupt its operations**

 

Becauseproduction technologies continue to evolve, the Company must make capitalexpenditures to maintain its facilities and may be required to make significantcapital expenditures to remain technologically and economically competitive.The Company may therefore be required to invest significant capital inimproving production technologies. If the Company cannot obtain adequatecapital or does not respond adequately to the need to integrate changingtechnologies in a timely manner, its operating results, financial condition orcash flows may be adversely affected.

 

The installationof new technology and equipment may also cause temporary disruption ofoperations and losses from operational inefficiencies. The impact onoperational efficiency is affected by the length of the period of remediation.

 

**Asignificant portion of the Company’s revenues is derived from long-termcontracts with important customers, which may not be renewed on similar termsand conditions or may not be renewed at all. The failure to renew or be awardedsuch contracts could significantly adversely affect the Company’s operatingresults, financial condition and cash flows**

 

The Companyderives a significant portion of its revenues from long-term contracts withimportant customers. If Quebecor World is unable to renew such contracts onsimilar terms and conditions, or at all, or if it is not awarded new long-termcontracts with important customers in the future, its operating results,financial condition and cash flows may be adversely affected.

 

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**TheCompany may be adversely affected by increases in its operating costs,including the cost and availability of raw materials and labor-related costs**

 

The Companyuses paper and ink as its primary raw materials. The price of such rawmaterials has been volatile over time and may cause significant fluctuations inits net sales and cost of sales. Although the Company uses its purchasing poweras one of the major buyers in the printing industry to obtain favorable prices,terms, quality control and service, it may nonetheless experience increases inthe costs of its raw materials in the future, as prices in the overall paperand ink markets are beyond the Company’s control. In general, the Company hasbeen able to pass along increases in the cost of paper and ink to many of itscustomers. If Quebecor World is unable to continue to pass any price increaseson to its customers, future increases in the price of paper and ink wouldadversely affect its margins and profits.

 

Due to thesignificance of paper in its business, the Company is dependent upon theavailability of paper. In periods of high demand, certain paper grades havebeen in short supply, including grades used in the Company’s business. Inaddition, during periods of tight supply, many paper producers allocateshipments of paper based upon historical purchase levels of customers. Althoughthe Company generally has not experienced significant difficulty in obtainingadequate quantities of paper, unforeseen developments in the overall papermarkets could result in a decrease in the supply of paper and could causeeither or both of the Company’s revenues or profits to decline.

 

Laborrepresents a significant component of the Company’s cost structure. Increasesin wages, salaries and benefits, such as medical, dental, pension and otherpost-retirement benefits, may impact the Company’s financial performance.Changes in interest rates, investment returns or the regulatory environment mayimpact the amounts the Company is required to contribute to the pension plansthat it sponsors and may affect the solvency of such pension plans.

 

**Thedemand for the Company’s products and services may be adversely affected bytechnological changes**

 

Technologicalchanges continue to increase the accessibility and quality of electronicalternatives to traditional delivery of printed documents through the onlinedistribution and hosting of media content and the electronic distribution ofdocuments and data. The acceleration of consumer acceptance of such electronicmedia, as an alternative to print materials, may decrease the demand for theCompany’s printed products or result in reduced pricing for its printingservices.

 

**TheCompany may be adversely affected by strikes and other labor protests**

 

As of December 31,2007, Quebecor World has 47 collective bargaining agreements in North America.Furthermore, 13 collective bargaining agreements are under negotiation (1 ofthese agreements expired in 2007, 11 expired in 2006 and 1 expired prior to2006). In addition, 9 collective bargaining agreements, covering approximately1,850 employees, will expire in 2008.

 

The Companyhas approximately 21,600 employees in North America, of which approximately6,700 or approximately 31% are unionized. Currently, 68 of the Company’s plantsand related facilities in North America are non-unionized.

 

The Companyalso has approximately 1,900 employees in Latin America, of which the majorityare either governed by agreements that apply industry wide or by a collectiveagreement.

 

The Companyhas approximately 4,100 employees in continental Europe. Labor relations withemployees in the Company’s European facilities are governed by agreements thatapply industry-wide and that set minimum terms and conditions of employment.

 

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Whilerelations with Quebecor World’s employees have been stable to date and therehas not been any material disruption in operations resulting from labordisputes, the Company cannot be certain that it will be able to maintain aproductive and efficient labor environment. The Company cannot predict theoutcome of any future negotiations relating to the renewal of the collectivebargaining agreements, nor can it assure with certainty that work stoppages,strikes or other forms of labor protests pending the outcome of any futurenegotiations will not occur. Any strikes or other forms of labor protests inthe future could materially disrupt the Company’s operations and result in amaterial adverse impact on its financial condition, operating results and cashflows, which could force the Company to reassess its strategic alternativesinvolving certain of its operations.

 

**TheCompany may be adversely affected by interest rates, foreign exchange rates andcommodity prices**

 

The Company isexposed to market risks associated with fluctuations in foreign currencyexchange rates, interest rates and commodity prices. Because a portion of theCompany’s operations are outside the United States, significant revenues andexpenses will be denominated in local currencies. Although operating in localcurrencies may limit the impact of currency rate fluctuations on the operatingresults of the Company’s non-U.S. subsidiaries and business units, fluctuationsin such rates may affect the translation of these results into the Company’sfinancial statements. The Company uses a number of derivative financialinstruments to mitigate these risks such as foreign exchange forward contractsand cross currency swaps, interest rate swap agreements and commodity swapagreements. Quebecor World cannot be sure, however, that its efforts at hedgingwill be successful. There is always a possibility that attempts to hedgecurrency, interest rate and commodity risks will lead to higher costs thanwould be the case if it were unhedged.

 

**Thereare risks associated with the Company’s operations outside the United Statesand Canada**

 

The Companyhas significant operations outside the United States and Canada. Revenues fromits operations outside the United States and Canada accounted for approximately24% of the Company’s revenues for the year ended December 31, 2007. As aresult, the Company is subject to the risks inherent in conducting businessoutside the United States and Canada, including the impact of economic andpolitical instability and being subject to different legal and regulatoryregimes that may preclude or make more costly certain initiatives or theimplementation of certain elements of the Company’s business strategy.

 

**Increasesin fuel and other energy costs may have a negative impact on the Company’sfinancial results**

 

Fuel and otherenergy costs represent a significant portion of the Company’s overall costs.Quebecor World may not be able to pass along a substantial portion of the risein the price of fuel and other energy costs directly to its customers. In thatinstance, increases in fuel and other energy costs, particularly resulting fromincreased natural gas prices, could adversely affect operating costs orcustomer demand and thereby negatively impact the Company’s operating results,financial condition or cash flows.

 

**TheCompany’s printing and other facilities are subject to environmental laws andregulations, which may subject the Company to material liability or require theCompany to incur material costs**

 

The Companyuses various materials in its operations that contain constituents consideredhazardous or toxic under environmental laws and regulations. In addition, theCompany’s operations are subject to a variety of environmental laws andregulations relating to, among other things, air emissions, wastewaterdischarges and the generation, handling, storage, transportation and disposalof solid waste. Further, the Company is subject to laws and regulationsdesigned to reduce the probability of spills and leaks; however, in the eventof a release, the Company is also subject to environmental regulation requiringan appropriate response to such an event. Permits are required for theoperation of certain of the Company’s businesses, and these permits are subjectto renewal, modification and, in some circumstances, revocation.

 

The Company’soperations generate wastes that are disposed of off-site. Under certainenvironmental laws, the Company may be liable for cleanup costs and damagesrelating to contamination at these off-site disposal locations, or at itsexisting or former facilities, whether or not the Company knew of, or wasresponsible for, the presence of such contamination. The remediation costs andother costs required to clean up or treat contaminated sites can besubstantial. Contamination on and from its current or former locations maysubject the Company to liability to third parties or governmental authoritiesfor injuries to persons, property or natural resources and may adversely affectits ability to sell or rent our properties or to borrow money using suchproperties as collateral.

 

The Companyexpects to incur ongoing capital and operating costs to maintain compliancewith environmental laws, including monitoring its facilities for environmentalconditions. The Company takes reserves on its financial 

 

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statements tocover potential environmental remediation and compliance costs as it considersappropriate. However, there can be no assurance that the liabilities for whichthe Company has taken reserves are the only environmental liabilities relatingto its current and former locations, that material environmental conditions notknown to the Company do not exist, that future laws or regulations will notimpose material environmental liability on the Company, or cause the Company toincur significant capital and operating expenditures, or that the Company’sactual environmental liabilities will not exceed its reserves. In addition,failure to comply with any environmental regulations or an increase inregulations could adversely affect its operating results and financialcondition.

 

**The Company may be required to takeadditional goodwill impairment charges and additional write-downs of the valueof its long-lived assets.**

 

The Companycompleted its annual goodwill impairment testing in the third quarter of 2007.Taking into account financial information such as the announced sale of theCompany’s European operations (which, subsequently, was not consummated),management determined that the carrying value of goodwill for its Europeanreporting unit was not recoverable and that the resulting impairment of suchgoodwill amounted to its entire carrying value of $166.0 million at September 30,2007.

 

In the fourth quarter of 2007, the unsuccessful efforts of the Companyto obtain new financing and its inability to conclude a proposed sale of itsEuropean operations combined with a decline in its stock prices triggered arequirement for a goodwill impairment test related to the Company’s reportingunits. As a result, the Company concluded that the goodwill was impaired and atotal impairment charge of $1,832.9 million was recorded for the North Americanand Latin America reporting units.

 

Duringthe year, Quebecor World recorded a $256.1 million impairment charge onlong-lived assets in North America, Europe and Latin America principallyapplied to machinery and equipment. In North America, this charge was a resultof impairment tests being triggered because of the retooling plan and therelocation of existing presses into fewer, but larger and more efficientfacilities. In Europe, the impairment test was triggered as a result of theproposed sale/merger of Quebecor World Europe with Roto Smeets De Boer NV, which, subsequently, was not consummated.

 

The Companymay, however, be required to take additional goodwill impairment charges andadditional write-downs on the value of its long-lived assets. Among otherfactors, the trading price of the Company’s listed securities may triggeradditional goodwill impairment charges and additional asset write-downs. Ourmanagement concluded that for the year ended December 31, 2007, theCompany did not maintain effective process and controls over the determinationof the impairment of its long-term assets and that this constituted a materialweakness in our internal control. In the event we are required to takeadditional goodwill impairment charges or additional asset write-downs, ourfinancial results and operations as well as the trading prices of our variousoutstanding securities could be adversely affected.

 

**TheCompany could be adversely affected by health and safety requirements**

 

The Company issubject to requirements of Canadian, U.S. and other foreign occupational healthand safety laws and regulations at the federal, state, provincial and locallevels. These requirements are complex, constantly changing and have tended tobecome more stringent over time. It is possible that these requirements maychange or liabilities may arise in the future in a manner that could have amaterial adverse effect on Quebecor World’s financial condition or results ofoperations. The Company cannot assure investors that it has been or that itwill be at all times in complete compliance with all such requirements or thatit will not incur material costs or liabilities in connection with thoserequirements in the future.

 

**Changesin postal rates and postal regulations may adversely impact demand for theCompany’s products and services.**

 

Postal costsare a significant component of many of the Company’s customers’ cost structuresand postal rate changes can influence the number of pieces that its customersare willing to mail. Any resulting decline in print volumes mailed could havean adverse effect on the Company’s business.

 

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**TheCompany is controlled by Quebecor Inc**

 

Quebecor Inc.,directly and through a wholly-owned subsidiary, currently holds 77.4% of thevoting interest in Quebecor World. As a result, Quebecor Inc. is able toexercise significant influence over the Company’s business and affairs and hasthe power to determine many matters requiring shareholder approval, includingthe election of directors and the approval of significant corporatetransactions. The interests of Quebecor Inc. may conflict with theinterests of other holders of our equity and debt securities. However, the Courthas exempted Quebecor World from the requirement to hold an annual meeting ofshareholders until such time as the Company emerges from the InsolvencyProceedings.  In addition, anyfundamental transaction or proposed charge to Quebecor World’s organizationaldocuments would require Court approval. Consequently, even though Quebecor Inc. currently holds 77.4% of theCompany’s outstanding voting interests, it is unlikely that Quebecor Inc. willbe able to exercise its votes during the Insolvency Proceedings in order tochange the composition of the Board of Directors or cause fundamental changesin the affairs and organizational documents of the Company.

 

**Wehave identified a material weakness in the Company’s internal control overfinancial reporting and concluded that such control was not effective as of December 31,2007, and that the Company’s disclosure controls and procedures were noteffective as of the same date. If the Company fails to maintain effectiveinternal control over financial reporting, it may not be able to accuratelyreport its financial results. The Company is subject to additional reportingrequirements under applicable Canadian securities laws and the Sarbanes-OxleyAct in the United States. The Company can provide no assurance that it will atall times in the future be able to report that its internal control iseffective.**

 

As a publiccompany, Quebecor World is required to comply with Section 404 of theSarbanes-Oxley Act, and it has to obtain an annual attestation from itsindependent auditors regarding its internal control over financial reportingand management’s assessment of internal control over financial reporting, aswell as with the corresponding applicable Canadian securities laws. In anygiven year, the Company cannot be certain as to the timing of completion of itsinternal control evaluation, testing and remediation actions or of their impacton its operations. Upon completion of this process, the Company may identifycontrol deficiencies of varying degrees of severity under applicable SEC andPublic Company Accounting Oversight Board rules and regulations thatremain unremediated. As a public company, Quebecor World is required to report,among other things, control deficiencies that constitute material weaknesses orchanges in internal control that, or that are reasonably likely to, materiallyaffect internal control over financial reporting. A “material weakness” is asignificant deficiency or combination of significant deficiencies that resultsin more than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected. If the Companyfails to comply with the requirements of Section 404 or report a materialweakness, the Company might be subject to regulatory sanction and investors maylose confidence in its financial statements, which may be inaccurate if theCompany fails to remedy such material weakness.

 

The Companyhas disclosed in this annual Management’s Discussion and Analysis for thefinancial year ended December 31, 2007 (see section 5.5, “Controls andprocedures”) that its system of internal control over financial reporting wasnot effective as of such date and therefore that its disclosure controls andprocedures were also not effective as of such date. More specifically, theCompany did not maintain effective processes and controls over thedetermination of the impairment of long-term assets. In order to remedy thesaid weakness, the Company has undertaken to reinforce its process fordetermining impairment of long-term assets. The Company continues to makeprogress in executing the remediation plans it has established in order tofurther improve its internal control in general and also address the saidweakness. The failure to do so within a reasonable time frame could adverselyimpact the accuracy of the reports and filings the Company makes with the SECand the Canadian securities regulatory authorities.

 

**TheCompany is dependent on the experience and industry knowledge of its executiveofficers and other key employees to execute its business plans. If the companywere to experience a substantial turnover in leadership, its business, resultsfrom operations and financial condition could be materially adversely affected.**

 

The Company isdependent on the experience and industry knowledge of its executive officersand other key employees to execute its business plans. If the Company were toexperience a substantial turnover in its leadership, its business, results fromoperations and financial condition could be materially adversely affected.Additionally, the Company may be unable to attract and retain additionalqualified executives as needed in the future.

 

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**Acquisitionshave contributed to growth in the industry in which the Company operates andwill continue to do so, making the Company vulnerable to financing risks andthe challenges of integrating new operations into its own.**

 

Due tofragmentation in the commercial printing industry, growth in the industry inwhich the Company operates will continue to depend, in part, upon acquisitions,and it may consider making strategic or opportunistic acquisitions in thefuture. The Company cannot assure you that future acquisition opportunitieswill exist on acceptable terms, that any newly acquired companies will besuccessfully integrated into its operations or that it will fully realize theintended results of any acquisitions. The Company may incur additionallong-term indebtedness in order to finance all or a portion of theconsideration to be paid in future acquisitions. The Company cannot assure youthat it will be able to obtain any such financing upon acceptable terms. Whilethe Company continuously evaluate opportunities to make strategic oropportunistic acquisitions, it has no present commitments or agreements withrespect to any material acquisitions.

 

**Risk relating to the Company’s various outstanding securities**

 

**TheCompany’s indebtedness and significant interest payment obligations couldadversely affect its financial condition and prevent it from fulfilling itsobligations under its various outstanding notes, debentures and other debtsecurities**

 

The Companyand its consolidated subsidiaries have indebtedness and, as a result,significant interest payment obligations. As of December 31, 2007, theCompany and its consolidated subsidiaries had a total indebtedness of $2,890.9million. The Company’s DIP Lenders and the Court could permit the Company orits consolidated subsidiaries to incur or guarantee additional indebtedness,including secured indebtedness in certain circumstances. To the extent theCompany incurs additional indebtedness; the risks discussed below willincrease.

 

Quebecor World’sdegree of leverage could have significant consequences, including thefollowing:

 

·                       make it more difficult for theCompany to satisfy its obligations with respect to its notes;

 

·                       increase the Company’svulnerability to general adverse economic and industry conditions;

 

·                       require the Company to dedicate a substantialportion of its cash flows from operations to making interest and  principal payments on its indebtedness;

 

·                       limit the Company’s ability to fundcapital expenditures, working capital and other general corporate purposes;

 

·                       limit the Company’s flexibility in planningfor, or reacting to, changes in its businesses and the industry in whichthe  Company operates, including cyclicaldownturns in its industry;

 

·                       place the Company at a competitivedisadvantage compared to its competitors that have less debt; and

 

·                       limit the Company’s ability toborrow additional funds on commercially reasonable terms, if at all.

 

**Someof Quebecor World’s financing agreements contain financial and other covenantsthat, if breached by the Company, may require it to redeem, repay, repurchaseor refinance its existing debt obligations prior to their scheduled maturity.The Company’s ability to refinance such obligations may be restricted due toprevailing conditions in the capital markets, available liquidity and otherfactors**

 

The Company isparty to a number of financing agreements, including its DIP Facility, creditfacility, the indentures governing its various senior notes, convertible notesand senior debentures, the Company’s accounts receivable securitizationprograms, and other debt instruments, which agreements, indentures andinstruments contain financial and other covenants. If the Company were tobreach such financial or other covenants contained in its financing agreements,the Company may, subject to the stay under the Insolvency Proceedings, berequired to redeem, repay, repurchase or refinance its existing debtobligations prior to their scheduled maturity and the Company’s ability to doso may be restricted or limited by the prevailing conditions in the capitalmarkets, available liquidity and other factors. If the Company is unable torefinance any of its debt obligations in such circumstances, its ability tomake capital expenditures and its financial condition and cash flows could beadversely impacted.

 

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In addition,from time to time, new accounting rules, pronouncements and interpretations areenacted or promulgated which may require the Company, depending on the natureof such new accounting rules, pronouncements and interpretations, to reclassifyor restate certain elements of its financial statements or to calculate in adifferent manner some of the financial ratios set forth in the Company’sfinancing agreements and other debt instruments, which may in turn cause theCompany to be in breach of the financial or other covenants contained in itsfinancing agreements and other debt instruments.

 

**TheCompany’s various unsecured notes, debentures and other debt securities areeffectively subordinated to its partially secured pre-petition debt and thefully secured indebtedness under the Company’s DIP Facility.**

 

The Company’svarious unsecured notes, debentures and other debt instruments, including theCompany’s unsecured pre-petition (i.e. prior to the Filing Date) creditfacilities (excluding the portion of such credit facilities that is secured inthe manner set forth below), and the guarantees of such notes, debentures andother debt instruments and credit facilities will be effectively subordinatedto any secured indebtedness that the Company may incur to the extent of theassets securing such indebtedness. In the event of a bankruptcy or similarproceeding with respect to the Company, the assets which serve as collateralfor any of its secured indebtedness will be available to satisfy theobligations under the secured indebtedness before any payments are made on theCompany’s unsecured notes, debentures and other debt instruments and creditfacilities. As of December 31, 2007, Quebecor World had an aggregate of$2,890.9 million of debt outstanding and no senior secured debt except as setforth below.

 

In terms ofpre-petition secured debt, the Company has granted liens on certain of itsNorth American assets as partial security for its indebtedness under asyndicated credit facility made available to the Company by a bank syndicateled by Royal Bank of Canada and an equipment financing provided to the Companyby Société Générale (Canada). These liens secure such indebtedness up to amaximum aggregate amount of US$170 million and have not been primed by theCompany’s DIP lenders.  In addition, asat December 31, 2007, the Company had $62.5 million of capital leases and$462.5 million of accounts receivable under its securitization and factoringprograms.

 

The Company’sDIP Facility is fully guaranteed and secured by all personal and real propertyof Quebecor World Inc., Quebecor World (USA) Inc., all of its materialsubsidiaries located in North America (including the Applicants) and certainmaterial subsidiaries located in Europe and Latin America.

 

All of theCompany’s other debt instruments are subordinated to the secured debt describedabove.

 

**TheCompany depends on the cash flows from its subsidiaries that are not guarantorsof its various notes, debentures and other debt securities to meet the Company’sobligations, and its debt holders’ right to receive payment on their relevantdebt securities will be structurally subordinate to the obligations of thesenon-guarantor subsidiaries.**

 

Not all of theCompany’s subsidiaries have guaranteed the Company’s various notes, debenturesand other debt securities. These non-guarantor subsidiaries are separate anddistinct legal entities and have no obligation to pay any amounts due pursuantto its debt securities or the guarantees of such debt securities or to providethe issuer or the guarantors of such debt securities with funds for theirrespective payment obligations. The Company’s cash flows and the Company’sability to service its indebtedness depend principally on the earnings of itsnon-guarantor subsidiaries and on the distribution of earnings, loans or otherpayments to the Company by these subsidiaries. In addition, the ability ofthese non-guarantor subsidiaries to make any dividend, distribution, loan orother payment to the issuer or a guarantor of the Company’s debt securitiescould be subject to statutory or contractual restrictions. Payments to theissuer or a guarantor by these non-guarantor subsidiaries will also becontingent upon their earnings and their business considerations. BecauseQuebecor World depends principally on the cash flows of these non-guarantorsubsidiaries to meet its obligations, these types of restrictions may impairthe Company’s ability to make scheduled interest and principal payments on itsvarious outstanding debt securities.

 

Furthermore,in the event of any bankruptcy, liquidation or reorganization of anon-guarantor subsidiary, holders of the Company’s debt securities will nothave any claim as a creditor against such subsidiary. As a result, the guaranteesof the Company’s various notes, debentures and other debt securities will beeffectively subordinated to all of the liabilities of its subsidiaries otherthan such subsidiaries that either issued or guaranteed the debt securities inquestion. The creditors (including trade creditors) of those non-guarantorsubsidiaries will have the right to be paid before payment on the guarantees tothe holders of the Company’s various notes, debentures and other debtsecurities from any assets received or held by those subsidiaries. In the eventof bankruptcy, liquidation or dissolution of a subsidiary, following payment bythe subsidiary of its liabilities, the subsidiary may not have sufficientassets to make payments to the Company.

 

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**TheCompany may not be able to finance a change of control offer required by theindentures governing its various notes, debentures and other debt securitiesbecause the Company may not have sufficient funds at the time of the change ofcontrol.**

 

If the Companywere to experience a change of control (as defined under each of the relevantindentures governing the Company’s various notes, debentures and other debtsecurities), it would, under certain of the indentures, be required to make anoffer to purchase all of the notes, debentures or other debt securities issuedhereunder then outstanding at a specified premium to the principal amount (often101%) plus accrued and unpaid interest, if any, to the date of purchase.However, the Company may not have sufficient funds at the time of the change ofcontrol to make the required repurchase of the notes, debentures or other debtsecurities.

 

**Canadianand U.S bankruptcy and insolvency laws may impair the trustee’s ability toenforce remedies under the Company’s various outstanding notes, debentures andother debt securities and the guarantees of such securities.**

 

The rights ofthe trustee who represents the holders of the Company’s debt securities toenforce remedies could be delayed by the restructuring provisions of applicableCanadian and U.S. federal bankruptcy, insolvency and other restructuringlegislation including the Bankruptcy and Insolvency Act (Canada) and the CCAA.A restructuring proposal, if accepted by the requisite majorities of eachaffected class of creditors, and if approved by the Court, would be binding onall creditors within each affected class, including those creditors that didnot vote to accept the proposal. Moreover, this legislation, in certaininstances, permits the insolvent debtor to retain possession and administrationof its property, subject to court oversight, even though it may be in defaultunder the applicable debt instrument, during the period that the stay againstproceedings remains in place. See the Primary Risk Factor above, “The Companyand many of its subsidiaries are currently subject to Insolvency proceedings inboth Canada and the United States. It is unlikely that the Company’s existingmultiple voting shares and subordinate voting shares will have any materialvalue in a restructuring plan of arrangement, and there is also a risk suchshares could be cancelled. If the Company fails to implement a plan ofarrangement and obtain sufficient exit financing within the time granted by theCourt, substantially all of its debt obligations will become due and payableimmediately, or subject to immediate acceleration, creating an immediateliquidity crisis, which would in all likelihood lead to the liquidation of theCompany’s assets.

 

Moreover, theCompany may not make any payments under its various debt securities during anyproceedings in bankruptcy, insolvency or other restructuring, including theInsolvency Proceedings, and holders of its debt securities may not becompensated for any delays in payment of principal, interest and costs, if any,including the fees and disbursements of the trustee.

 

**Applicablestatutes may allow courts, under specific circumstances, to void the guaranteesof the Company’s various notes, debentures and other debt securities**

 

The Company’screditors could challenge the guarantees of the Company’s various notes,debentures and other debt securities provided by the Company or certain of itssubsidiaries as fraudulent transfers, conveyances or preferences or on othergrounds under applicable U.S. federal or state law or applicable Canadianfederal or provincial law. The entering into of the guarantees could be foundto be a fraudulent transfer, conveyance or preference and declared void if acourt were to determine that the guarantor:

 

·                       delivered the guarantee with the intent tohinder, delay or defraud its existing or future creditors or the guarantor didnot receive fair consideration for the delivery of the guarantee; or

 

·                       the relevant guarantor did not receive fairconsideration or reasonably equivalent value in exchange for the guarantee, and

 

·                  was insolvent at thetime it delivered the guarantee or was rendered insolvent by the giving of theguarantee; or

 

·                  was engaged in abusiness or transaction for which such guarantor’s remaining assets constitutedunreasonably small capital; or

 

·                  intended to incur,or believed it could incur, debts beyond its ability to pay such debts as theycome due.

 

In addition,any payment by that guarantor pursuant to its guarantee could be voided andrequired to be returned to the guarantor, or to a fund for the benefit of thecreditors of the guarantor.

 

The measuresof insolvency for purposes of these fraudulent transfer laws will varydepending upon the law applied in any proceeding to determine whether afraudulent transfer has occurred. Generally, however, a guarantor would beconsidered insolvent if:

 

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·                       the sum of its debts, includingcontingent liabilities, was greater than the fair saleable value of all of itsassets; or

 

·                       the present fair saleable value of its assetswas less than the amount that would be required to pay its probable liabilityon its existing debts, including contingent liabilities, as they becameabsolute and mature; or

 

·                       it could not pay its debts as theybecame due.

 

In general,the terms of the guarantees of the Company’s various notes, debentures andother debt securities provided by the Company or certain of its subsidiarieswill limit the liability of such guarantor(s) to the maximum amount it(they) can pay without the guarantee being deemed a fraudulent transfer. On thebasis of historical financial information, recent operating history and otherfactors, the Company believes that each guarantor of its debt securities, aftergiving effect to its guarantee of the relevant debt securities, will not beinsolvent, will not have unreasonably small capital for the business in whichit is engaged and will not have incurred debts beyond its ability to pay suchdebts as they mature. Quebecor World cannot provide any assurance, however, asto what standard a court would apply in making these determinations or that acourt would agree with the Company’s conclusions with regard to these issues.

 

To the extenta court voids a guarantee as a fraudulent transfer, preference or conveyance orholds it unenforceable for any other reason, holders of the Company’sguaranteed debt securities would cease to have any direct claim against theguarantor which delivered that guarantee.

 

**Anactive trading market for the Company’s debt securities may not develop**

 

The Company’svarious notes, debentures and other debt securities are not listed on anynational securities exchange, and the Company does not intend to have such debtsecurities listed on a national securities exchange, although some of its debtsecurities have been rendered eligible for trading in the Private Offerings,Resale and Trading through Automatic Linkages, or PORTAL, Market. Themarket-makers of the Company’s various notes, debentures and other debtsecurities that are eligible for trading on the PORTAL Market may cease theirmarket-making at any time without notice. Accordingly, Quebecor World cannotprovide any assurance with respect to the liquidity of the market for such debtsecurities or the prices at which investors may be able to sell its debtsecurities.

 

In addition,the market for non-investment grade debt has historically been subject todisruptions that caused volatility in prices. It is possible that the marketfor the Company’s various notes, debentures and other debt securities will besubject to disruptions. Any such disruptions may have a negative effect on theability of investors to sell such debt securities regardless of the Company’sprospects and financial performance.

 

**U.S. investorsin the Company’s securities may have difficulties enforcing certain civilliabilities**

 

The Company isgoverned by the laws of Canada and a number of its subsidiaries are governed bythe laws of a jurisdiction outside of the United States. Moreover, the Company’scontrolling persons and a majority of its directors and officers are residentsof Canada or other jurisdictions outside of the United States and all or asubstantial portion of their assets and a significant portion of the Company’sassets are located outside of the United States. As a result, it may bedifficult for the Company’s security holders to effect service of process upon theCompany or such persons within the United States or to enforce, againstthe Company or them in the United States, judgments of courts of theUnited States predicated upon the civil liability provisions ofU.S. federal or state securities laws or other laws of theUnited States. There is doubt as to the enforceability in certainjurisdictions outside the United States of liabilities predicated solely uponU.S. federal or state securities laws against the Company, its controllingpersons, directors and officers who are not residents of theUnited States, in original actions or in actions for enforcements ofjudgments of U.S. courts.

 

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### **9.         Additional information**

### ** **

Additional information relating to QuebecorWorld, is available on the Company’s website at www.quebecorworld.com, on SEDARat www.sedar.com and on EDGAR at www.sec.gov.

 

Montreal, CanadaApril 28, 2008

 

For the purpose of furnishing the Company’s Form 40-F to theSecurities and Exchange Commission, Sections 1, 2, 3.5, 3.6, 6.3, 6.4 and 6.5of this MD&A have been updated to reflect the disposition of the Company’sEuropean operations that occurred on June 26, 2008 and other subsequentevents to December 15, 2008.

 

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**LIST OF EXHIBITS**

 

The following document is attached to thisannual report on Form 40-F:

 
| 23.1   |   | Consent  of the Independent Registered Public Accounting Firm                                                                              |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                       |
| 31.1   |   | Certification  of Jacques Mallette, President and Chief Executive Officer, pursuant to  Section 302 of the Sarbanes Oxley Act of 2002 |
|   |   |                                                                                                                                       |
| 31.2   |   | Certification  of Jeremy Roberts, Chief Financial Officer, pursuant to Section 302 of  the Sarbanes Oxley Act of 2002                 |
|   |   |                                                                                                                                       |
| 32.1   |   | Certification  of Jacques Mallette, President and Chief Executive Officer, pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                                       |
| 32.2   |   | Certification  of Jeremy Roberts, Chief Financial Officer, pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002                 |

 

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