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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F/A
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from           to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 333-13792
 QUEBECOR MEDIA INC.
  Province of Québec, Canada
 612 Saint-Jacques Street
Montréal, Québec, Canada H3C 4M8
  Title of each class
    
    Name of each exchange on which registeredNone
    
    None
  None
  73/4% Senior Notes due March 2016
  123,602,807 Common Shares
235,000 Cumulative First Preferred Shares, Series A
275,000 Cumulative First Preferred Shares, Series C
320,000 Cumulative First Preferred Shares, Series F
  o þ
  o þ
  þ o
  o o þ
  þ o
  o þ




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##### 



TABLE OF CONTENTS
 PageAmendment Explanatory Note
    
    iiPresentation of financial Information
    
    iiPART IITEM 3  KEY INFORMATION
    
    
    1PART IIIITEM 17  FINANCIAL STATEMENTS
    
    
    6ITEM 19  EXHIBITS
    
    
    6Signature
    
    
    7Index to Consolidated Financial Statements
    
    
    8Certification of Pierre Karl PeladeauCertification of Louis MorinCertification of Pierre Karl PeladeauCertification of Louis Morin




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AMENDMENT EXPLANATORY NOTE
 Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for Fair Value Hedge Relationships
      Companies Act
 
 PRESENTATION OF FINANCIAL INFORMATION
  ii




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iii




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PART I
 
 ITEM 3  KEY INFORMATION
 The U.S. GAAP selected financial data as at and for the years ended December 31, 2006, 2005,
2004, 2003 and 2002 set forth in this Item 3A has been revised to reflect the restatement described
under Amendment Explanatory Note. Except for such revisions and cross-references to the relevant
notes to our consolidated financial statements, this Item 3A has not been revised and does not
reflect events or developments subsequent to the date of the Original Filing.
 Selected Financial Data
   1




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CANADIAN GAAP DATA
 Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in millions, except ratio)STATEMENT OF INCOME DATA:RevenuesCable
    
    $
    1,309.5
    
    
    $
    1,080.3
    
    
    $
    937.6
    
    
    $
    862.8
    
    
    $
    843.1Newspapers
    
    
    928.2
    
    
    
    915.6
    
    
    
    888.1
    
    
    
    845.9
    
    
    
    831.6Broadcasting
    
    
    393.3
    
    
    
    401.4
    
    
    
    358.0
    
    
    
    340.9
    
    
    
    323.4Leisure and Entertainment
    
    
    315.8
    
    
    
    255.4
    
    
    
    241.7
    
    
    
    205.0
    
    
    
    206.3Interactive Technologies and Communications
    
    
    73.9
    
    
    
    65.1
    
    
    
    51.9
    
    
    
    44.8
    
    
    
    49.9Internet/Portals
    
    
    64.9
    
    
    
    50.0
    
    
    
    34.5
    
    
    
    28.2
    
    
    
    26.8Head Office and inter-segment
    
    
    (74.7
    )
    
    
    (64.9
    )
    
    
    (49.4
    )
    
    
    (29.5
    )
    
    
    (28.1
    )3,010.9
    
    
    
    2,702.9
    
    
    
    2,462.4
    
    
    
    2,298.1
    
    
    
    2,253.0Cost of sales, selling and administrative
expenses
    
    
    (2,208.1
    )
    
    
    (1,969.3
    )
    
    
    (1,765.2
    )
    
    
    (1,686.3
    )
    
    
    (1,680.6
    )Amortization
    
    
    (260.7
    )
    
    
    (231.9
    )
    
    
    (225.9
    )
    
    
    (226.6
    )
    
    
    (224.6
    )Financial expenses
    
    
    (224.6
    )
    
    
    (285.3
    )
    
    
    (314.6
    )
    
    
    (300.1
    )
    
    
    (323.4
    )Reserve for restructuring of operations,
impairment of assets and other special charges
    
    
    (18.9
    )
    
    
    0.2
    
    
    
    (2.8
    )
    
    
    (1.8
    )
    
    
    (36.9
    )(Loss) gain on debt refinancing and on
repurchase of redeemable preferred shares of a
subsidiary
    
    
    (342.6
    )
    
    
    (60.0
    )
    
    
    (4.8
    )
    
    
    144.1
    
    
    
    Gain (loss) on sales of businesses and other
assets
    
    
    2.2
    
    
    
    0.1
    
    
    
    9.3
    
    
    
    (1.1
    )
    
    
    3.6Depreciation of goodwill and intangible assets
    
    
    (180.0
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    (178.1
    )Income taxes
    
    
    52.6
    
    
    
    (44.0
    )
    
    
    (37.4
    )
    
    
    12.5
    
    
    
    (4.4
    )Non-controlling interest
    
    
    (0.4
    )
    
    
    (16.2
    )
    
    
    (31.7
    )
    
    
    (34.6
    )
    
    
    (30.5
    )(Loss) income from discontinued operations
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.1
    )
    
    
    0.2
    
    
    
    (7.9
    )Net (loss) income
    
    
    (169.7
    )
    
    $
    96.5
    
    
    $
    88.2
    
    
    $
    203.9
    
    
    $
    (229.8
    )OTHER FINANCIAL DATA AND RATIO:Operating income(1)
    
    $
    802.8
    
    
    $
    733.6
    
    
    $
    697.2
    
    
    $
    611.8
    
    
    $
    572.4Additions to property, plant and equipment
    
    
    435.5
    
    
    
    319.8
    
    
    
    181.1
    
    
    
    131.2
    
    
    
    135.8Ratio of earnings to fixed charges(2)
    
    
    
    
    
    
    1.5x
    
    
    
    1.5x
    
    
    
    1.7x
    
    
    
    0.4x
 As at December 31,2006
    
    2005
    
    2004
    
    2003
    
    2002(in millions)BALANCE SHEET DATA:Cash and cash equivalents
    
    $
    34.1
    
    
    $
    97.4
    
    
    $
    108.8
    
    
    $
    103.6
    
    
    $
    188.3Total assets
    
    
    6,583.9
    
    
    
    6,675.5
    
    
    
    6,509.2
    
    
    
    6,610.6
    
    
    
    6,742.8Total debt
    
    
    2,796.1
    
    
    
    2,533.2
    
    
    
    2,548.8
    
    
    
    2,756.8
    
    
    
    3,506.6Capital stock
    
    
    1,752.4
    
    
    
    1,773.7
    
    
    
    1,773.7
    
    
    
    1,773.7
    
    
    
    1,341.8Shareholders equity
    
    
    2,237.0
    
    
    
    2,450.1
    
    
    
    2,459.9
    
    
    
    2,395.0
    
    
    
    1,751.9
 2




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U.S. GAAP DATA
 Year Ended December 31,2006
    
    2005
    
    2004(restated)(3)
    
    (restated)(3)
    
    (restated)(3)(in millions, except ratio)STATEMENT OF INCOME DATA:RevenuesCable
    
    $
    1,312.2
    
    
    $
    1,086.5
    
    
    $
    946.9Newspapers
    
    
    928.2
    
    
    
    915.6
    
    
    
    888.1Broadcasting
    
    
    393.3
    
    
    
    401.4
    
    
    
    358.0Leisure and Entertainment
    
    
    315.8
    
    
    
    255.4
    
    
    
    241.7Interactive Technologies and Communications
    
    
    73.9
    
    
    
    65.1
    
    
    
    51.9Internet/Portals
    
    
    64.9
    
    
    
    50.0
    
    
    
    34.5Head Office and inter-segment
    
    
    (74.7
    )
    
    
    (64.9
    )
    
    
    (49.4
    )3,013.6
    
    
    
    2,709.1
    
    
    
    2,471.7Cost of sales, selling and administrative expenses
    
    
    (2,216.9
    )
    
    
    (1,973.5
    )
    
    
    (1,764.3
    )Amortization
    
    
    (257.9
    )
    
    
    (229.6
    )
    
    
    (225.7
    )Financial expenses
    
    
    (220.0
    )
    
    
    (304.0
    )
    
    
    (322.2
    )Reserve for restructuring of operations,
impairment of assets and other special charges
    
    
    (18.9
    )
    
    
    0.2
    
    
    
    (2.8
    )Loss on debt refinancing
    
    
    (275.7
    )
    
    
    (48.5
    )
    
    
    (4.8
    )Gain on sales of businesses and other assets
    
    
    2.2
    
    
    
    1.6
    
    
    
    9.3Depreciation of goodwill and intangible assets
    
    
    (180.0
    )
    
    
    
    
    
    
    Income taxes
    
    
    12.2
    
    
    
    (8.1
    )
    
    
    (43.4
    )Non-controlling interest
    
    
    (1.3
    )
    
    
    (18.4
    )
    
    
    (35.1
    )Loss from discontinued operations
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.8
    )Net (loss) income
    
    $
    (142.8
    )
    
    $
    128.8
    
    
    $
    81.9OTHER FINANCIAL DATA AND RATIOS:Operating income(1)
    
    $
    796.7
    
    
    $
    735.6
    
    
    $
    707.4Additions to property, plant and equipment
    
    
    435.5
    
    
    
    319.8
    
    
    
    181.1Comprehensive (loss) income
    
    
    (56.4
    )
    
    
    160.0
    
    
    
    (25.5
    )Ratio of earnings to fixed charges(2)
    
    
    
    
    
    
    1.5
    x
    
    
    1.5
    x
 As of December 31,2006
    
    2005
    
    2004(restated) (3)
    

(restated) (3)
    

(restated) (3)(in millions)BALANCE SHEET DATA:Cash and cash equivalents
    
    $
    34.1
    
    
    $
    97.4
    
    
    $
    108.8Total assets
    
    
    6,533.4
    
    
    
    6,664.1
    
    
    
    6,480.1Long-term debt
    
    
    2,766.3
    
    
    
    2,501.1
    
    
    
    2,529.0Capital stock
    
    
    1,752.4
    
    
    
    1,773.7
    
    
    
    1,773.7Shareholders equity
    
    
    2,155.3
    
    
    
    2,275.2
    
    
    
    2,204.3
 
 (1)
    
    Quebecor Media defines operating income, as reconciled to net (loss) income under Canadian
GAAP, as net (loss) income before amortization, financial expenses, reserve for restructuring
of operations, impairment of assets and other special charges, (loss) gain on debt refinancing
and on repurchase of redeemable preferred shares of a subsidiary, gain (loss) on sales of 3




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businesses and other assets, depreciation of goodwill and intangible assets, income taxes,
non-controlling interest and (loss) income from discontinued operations. Quebecor Media
defines operating income, as reconciled to net (loss) income under U.S. GAAP, as net
(loss) income before amortization, financial expenses, reserve for restructuring of
operations, impairment of assets and other special charges, loss on debt refinancing, gain
on sales of businesses and other assets, depreciation of goodwill and intangible assets,
income taxes, non-controlling interest and loss from discontinued operations. Operating
income as defined above is not a measure of results that is consistent with Canadian GAAP
or U.S. GAAP. It is not intended to be regarded as an alternative to other financial
operating performance measures or to the statement of cash flows as a measure of liquidity.
It is not intended to represent funds available for debt service, dividends or
distributions, reinvestment or other discretionary uses, and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with
Canadian GAAP or U.S. GAAP. Our management believes that operating income is a meaningful
measure of performance. Our parent company, Quebecor Inc., considers the media segment as a
whole and uses operating income in order to assess the performance of its investment in
Quebecor Media. Our management and Board of Directors use this measure in evaluating
Quebecor Medias consolidated results as well as results of Quebecor Medias operating
segments. As such, this measure eliminates the significant level of non-cash depreciation
of tangible assets and amortization of certain intangible assets, and it is unaffected by
the capital structure or investment activities of Quebecor Media and of its segments.
Operating income is also relevant because it is a significant component of Quebecor Medias
annual incentive compensation programs. A limitation of this measure, however, is that it
does not reflect the periodic costs of capitalized tangible and intangible assets used in
generating revenues in Quebecor Medias segments. The Company uses other measures that do
reflect such costs, such as free cash flows from operations. In addition, measures like
operating income are commonly used by the investment community to analyze and compare the
performance of companies in the industries in which we are engaged. Our definition of
operating income may not be the same as similarly titled measures reported by other
companies.  Three MonthPeriodEnded DecemberYears Ended December 31,
    
    
    31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2006
    
    
    2005(in millions)
    
    
    
    
    
    
    
    
    
    
    (in millions)(unaudited)Reconciliation between
net (loss) income and
operating income
disclosed herein
(Canadian GAAP)Net (loss) income
    
    $
    (169.7
    )
    
    $
    96.5
    
    
    $
    88.2
    
    
    $
    203.9
    
    
    $
    (229.8
    )
    
    $
    (97.1
    )
    
    $
    58.4Amortization
    
    
    260.7
    
    
    
    231.9
    
    
    
    225.9
    
    
    
    226.6
    
    
    
    224.6
    
    
    
    68.3
    
    
    
    64.7Financial expenses
    
    
    224.6
    
    
    
    285.3
    
    
    
    314.6
    
    
    
    300.1
    
    
    
    323.4
    
    
    
    57.6
    
    
    
    68.3Reserve for
restructuring of
operations, impairment
of assets and other
special
charges
    
    
    18.9
    
    
    
    (0.2
    )
    
    
    2.8
    
    
    
    1.8
    
    
    
    36.9
    
    
    
    9.5
    
    
    
    (0.2
    )Loss (gain) on debt
refinancing and on
repurchase of
redeemable preferred
shares of a subsidiary
    
    
    342.6
    
    
    
    60.0
    
    
    
    4.8
    
    
    
    (144.1
    )
    
    
    
    
    
    
    0.5
    
    
    
    (Gain) loss on sale of
businesses and other
assets
    
    
    (2.2
    )
    
    
    (0.1
    )
    
    
    (9.3
    )
    
    
    1.1
    
    
    
    (3.6
    )
    
    
    (0.4
    )
    
    
    Depreciation of
goodwill and intangible
assets
    
    
    180.0
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    178.1
    
    
    
    179.2
    
    
    
    
 4




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Three MonthPeriodEnded DecemberYears Ended December 31,
    
    
    31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2006
    
    
    2005(in millions)
    
    
    
    
    
    
    
    
    
    
    (in millions)(unaudited)Income taxes
    
    
    (52.6
    )
    
    
    44.0
    
    
    
    37.4
    
    
    
    (12.5
    )
    
    
    4.4
    
    
    
    29.0
    
    
    
    16.8Non-controlling interest
    
    
    0.4
    
    
    
    16.2
    
    
    
    31.7
    
    
    
    34.6
    
    
    
    30.5
    
    
    
    (6.8
    )
    
    
    5.4Loss (income) from
discontinued operations
    
    
    0.1
    
    
    
    
    
    
    
    1.1
    
    
    
    (0.2
    )
    
    
    7.9
    
    
    
    (0.4
    )
    
    
    Operating income
    
    $
    802.8
    
    
    $
    733.6
    
    
    $
    697.2
    
    
    $
    611.8
    
    
    $
    572.4
    
    
    $
    239.4
    
    
    $
    213.4
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(restated)(3)
    
    
    (restated)(3)
    
    
    (restated)(3)(in millions)Reconciliation between net (loss) income and
operating income disclosed herein (U.S. GAAP)Net (loss) income
    
    $
    (142.8
    )
    
    $
    128.8
    
    
    $
    81.9Amortization
    
    
    257.9
    
    
    
    229.6
    
    
    
    225.7Financial expenses
    
    
    220.0
    
    
    
    304.0
    
    
    
    322.2Reserve for restructuring of operations,
impairment of assets and other special
charges
    
    
    18.9
    
    
    
    (0.2
    )
    
    
    2.8Loss on debt refinancing
    
    
    275.7
    
    
    
    48.5
    
    
    
    4.8Gain on sales of businesses and other assets
    
    
    (2.2
    )
    
    
    (1.6
    )
    
    
    (9.3
    )Depreciation of goodwill and intangible assets
    
    
    180.0
    
    
    
    
    
    
    
    Income taxes
    
    
    (12.2
    )
    
    
    8.1
    
    
    
    43.4Non-controlling interest
    
    
    1.3
    
    
    
    18.4
    
    
    
    35.1Loss from discontinued operations
    
    
    0.1
    
    
    
    
    
    
    
    0.8Operating income
    
    $
    796.7
    
    
    $
    735.6
    
    
    $
    707.4
 
 (2)
    
    For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings consist
of net (loss) income plus non-controlling interest in subsidiary, income taxes, fixed
charges, amortized capitalized interest, less interest capitalized and (ii) fixed charges
consist of interest expensed and capitalized, plus amortized premiums, discounts and
capitalized expenses relating to indebtedness and an estimate of the interest within rental
expense. For the years ended December 31, 2002 and 2006, earnings, as calculated under
Canadian GAAP, were inadequate to cover our fixed charges, and the coverage deficiency was
$209.2 million and $231.1 million. For the year ended December 31, 2006, earnings, as
calculated under U.S. GAAP, were inadequate to cover our fixed charges, and the coverage
deficiency was $162.9 million.(3)
    
    Refer to note 26 of the audited consolidated financial statements for the year
ended December 31, 2006. 
 5




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PART III
 
 ITEM 17  FINANCIAL STATEMENTS
 The consolidated financial statements included in this Item 17 include a new report of the
auditors. In addition, note 26 Significant Differences Between GAAP in Canada and in the United
States has been revised to reflect the restatement and a note 28, Subsequent events has been included. Except for those revisions, the consolidated
financial statements included in this Item 17 have not been restated.
  
 ITEM 19 EXHIBITS
 Other than the certifications, which are updated for this filing, no other new exhibits are
filed and all other exhibits to the Original Filing remain unchanged.
  ExhibitNumber
    
    Description12.1
    
    Certification of Pierre Karl Péladeau, Vice Chairman and Chief
Executive Officer of Quebecor Media Inc., pursuant to 15
U.S.C. Section 78(m)(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.12.2
    
    Certification of Louis Morin, Vice President and Chief
Financial Officer of Quebecor Media Inc., pursuant to 15
U.S.C. Section 78(m)(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.13.1
    
    Certification of Pierre Karl Péladeau, Vice Chairman and Chief
Executive Officer of Quebecor Media Inc., pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.13.2
    
    Certification of Louis Morin, Vice President and Chief
Financial Officer of Quebecor Media Inc., pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 6




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SIGNATURE
  QUEBECOR MEDIA INC.By:
    /s/ Louis MorinName:
    Louis MorinTitle: Vice President and Chief Financial Officer  7




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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Years ended December 31, 2006, 2005 and 2004
 Report of Independent Registered Public Accounting Firm to the Board
of Directors and to the Shareholders of Quebecor Media Inc.
    
    
    F-1Financial StatementsConsolidated statements of income
    
    
    F-2Consolidated statements of shareholders equity
    
    
    F-3Consolidated statements of cash flows
    
    
    F-4Consolidated balance sheets
    
    
    F-6Segmented information
    
    
    F-8Notes to consolidated financial statements
    
    
    F-11
 8




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Report of Independent Registered Public Accounting Firm
 to the Board of Directors and to the shareholders of Quebecor Media Inc.
     
   F-1




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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
 
 Consolidated statements of income
 
  2006
    
    
    2005
    
    
    2004Revenues
    
    $
    3,010.9
    
    
    $
    2,702.9
    
    
    $
    2,462.4Cost of sales and selling and administrative expenses
    
    
    (2,208.1
    )
    
    
    (1,969.3
    )
    
    
    (1,765.2
    )Amortization
    
    
    (260.7
    )
    
    
    (231.9
    )
    
    
    (225.9
    )Financial expenses (note 2)
    
    
    (224.6
    )
    
    
    (285.3
    )
    
    
    (314.6
    )Reserve for restructuring of operations, impairment of assets
and other special charges (note 3)
    
    
    (18.9
    )
    
    
    0.2
    
    
    
    (2.8
    )Loss on debt refinancing (note 4)
    
    
    (342.6
    )
    
    
    (60.0
    )
    
    
    (4.8
    )Gain on sale of businesses and other assets
    
    
    2.2
    
    
    
    0.1
    
    
    
    9.3Impairment of goodwill and intangible assets (note 5)
    
    
    (180.0
    )
    
    
    
    
    
    
    (Loss) income before income taxes
    
    
    (221.8
    )
    
    
    156.7
    
    
    
    158.4Income taxes (note 7)
    
    
    (52.6
    )
    
    
    44.0
    
    
    
    37.4(169.2
    )
    
    
    112.7
    
    
    
    121.0Non-controlling interest
    
    
    (0.4
    )
    
    
    (16.2
    )
    
    
    (31.7
    )(Loss) income from continuing operations
    
    
    (169.6
    )
    
    
    96.5
    
    
    
    89.3Loss from discontinued operations (note 8)
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.1
    )Net (loss) income
    
    $
    (169.7
    )
    
    $
    96.5
    
    
    $
    88.2
  F-2




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
 
 Consolidated statements of shareholders equity
 
 Contributed
    
    
    
    
    
    
    Translation
    
    
    Total shareholdersCapital Stock
    
    
    surplus
    
    
    Deficit
    
    
    adjustment
    
    
    equityBalance as at December 31, 2003
    
    $
    1,773.7
    
    
    $
    3,220.6
    
    
    $
    (2,597.8
    )
    
    $
    (1.5
    )
    
    $
    2,395.0Net income
    
    
    
    
    
    
    
    
    
    
    88.2
    
    
    
    
    
    
    
    88.2Dividends
    
    
    
    
    
    
    
    
    
    
    (20.0
    )
    
    
    
    
    
    
    (20.0
    )Purchase of tax credits from a
company under common control
    
    
    
    
    
    
    (3.8
    )
    
    
    
    
    
    
    
    
    
    
    (3.8
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    0.5Balance as at December 31, 2004
    
    
    1,773.7
    
    
    
    3,216.8
    
    
    
    (2,529.6
    )
    
    
    (1.0
    )
    
    
    2,459.9Net income
    
    
    
    
    
    
    
    
    
    
    96.5
    
    
    
    
    
    
    
    96.5Dividends
    
    
    
    
    
    
    
    
    
    
    (105.0
    )
    
    
    
    
    
    
    (105.0
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.3
    )
    
    
    (1.3
    )Balance as at December 31, 2005
    
    
    1,773.7
    
    
    
    3,216.8
    
    
    
    (2,538.1
    )
    
    
    (2.3
    )
    
    
    2,450.1Net loss
    
    
    
    
    
    
    
    
    
    
    (169.7
    )
    
    
    
    
    
    
    (169.7
    )Dividends
    
    
    
    
    
    
    
    
    
    
    (23.7
    )
    
    
    
    
    
    
    (23.7
    )Reduction in paid-up capital
    
    
    (21.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21.3
    )Purchase of tax credits from a
company under common control
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    1.2Balance as at December 31, 2006
    
    $
    1,752.4
    
    
    $
    3,217.2
    
    
    $
    (2,731.5
    )
    
    $
    (1.1
    )
    
    $
    2,237.0
  F-3




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
 
 Consolidated statements of cash flows
 
  2006
    
    
    2005
    
    
    2004Cash flows related to operations:(Loss) income from continuing operations
    
    $
    (169.6
    )
    
    $
    96.5
    
    
    $
    89.3Adjustments for:Amortization of property, plant and equipment
    
    
    251.2
    
    
    
    225.3
    
    
    
    218.1Amortization of deferred charges and other assets
    
    
    9.5
    
    
    
    6.6
    
    
    
    7.8Impairment of goodwill and intangible assets (note 5)
    
    
    180.0
    
    
    
    
    
    
    
    Net loss on derivative instruments and on
foreign currency translation on financial instruments
    
    
    1.2
    
    
    
    4.4
    
    
    
    8.0Loss on revaluation of the Additional Amount payable (note 14)
    
    
    10.5
    
    
    
    10.1
    
    
    
    26.9(Gain) loss on sale of businesses and other assets
    
    
    (0.4
    )
    
    
    (1.7
    )
    
    
    3.1Loss on debt refinancing (note 4)
    
    
    342.6
    
    
    
    60.0
    
    
    
    4.8Repayment of accrued interest on Senior Discount Notes
    
    
    (197.3
    )
    
    
    (3.0
    )
    
    
    Amortization of deferred financing costs and
of long-term debt discount
    
    
    7.3
    
    
    
    62.7
    
    
    
    56.9Future income taxes
    
    
    (58.0
    )
    
    
    25.0
    
    
    
    16.5Non-controlling interest
    
    
    0.4
    
    
    
    16.2
    
    
    
    31.7Other
    
    
    0.3
    
    
    
    (1.5
    )
    
    
    (1.8
    )377.7
    
    
    
    500.6
    
    
    
    461.3Net change in non-cash balances related to operations
    
    
    (23.3
    )
    
    
    (27.9
    )
    
    
    38.6Cash flows provided by continuing operations
    
    
    354.4
    
    
    
    472.7
    
    
    
    499.9Cash flows provided by discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.6Cash flows provided by operations
    
    
    354.4
    
    
    
    472.7
    
    
    
    500.5Cash flows related to investing activities:Business acquisitions, net of cash and cash equivalents (note 6)
    
    
    (10.5
    )
    
    
    (110.5
    )
    
    
    (112.5
    )Proceeds from disposal of businesses, net of cash and cash
equivalents (note 8)
    
    
    0.5
    
    
    
    4.3
    
    
    
    (7.8
    )Additions to property, plant and equipment
    
    
    (435.5
    )
    
    
    (319.8
    )
    
    
    (181.1
    )Net decrease in temporary investments
    
    
    39.2
    
    
    
    59.1
    
    
    
    94.5Proceeds from disposal of assets
    
    
    9.4
    
    
    
    5.5
    
    
    
    7.5Acquisition of tax deductions from parent company (note 23)
    
    
    (16.1
    )
    
    
    
    
    
    
    Decrease (increase) in advances receivable from parent company
    
    
    15.9
    
    
    
    (15.9
    )
    
    
    Proceeds from disposal of tax deductions to the parent company (note 23)
    
    
    
    
    
    
    15.9
    
    
    
    Other
    
    
    (3.4
    )
    
    
    (3.6
    )
    
    
    (3.7
    )Cash flows used in investing activities
    
    
    (400.5
    )
    
    
    (365.0
    )
    
    
    (203.1
    )Sub-total, balance carried forward
    
    $
    (46.1
    )
    
    $
    107.7
    
    
    $
    297.4
 F-4




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Consolidated statements of cash flows (continued)
 
  2006
    
    
    2005
    
    
    2004Sub-total, balance brought forward
    
    $
    (46.1
    )
    
    $
    107.7
    
    
    $
    297.4Cash flows related to financing activities:Net increase (decrease) in bank indebtedness
    
    
    7.9
    
    
    
    12.3
    
    
    
    (4.2
    )Net borrowings (repayments) under revolving bank facilities
    
    
    38.4
    
    
    
    72.2
    
    
    
    (86.4
    )Issuance of long-term debt, net of financing fees
    
    
    1,225.8
    
    
    
    200.9
    
    
    
    389.5Repayments of long-term debt and unwinding of hedging contracts
    
    
    (1,201.2
    )
    
    
    (315.9
    )
    
    
    (384.9
    )Net decrease (increase) in prepayments under cross-currency
swap agreements
    
    
    21.6
    
    
    
    (34.1
    )
    
    
    (184.4
    )Dividends and reduction of Common Shares paid-up capital
    
    
    (105.0
    )
    
    
    (45.0
    )
    
    
    (20.0
    )Dividends paid to non-controlling shareholders
    
    
    (4.5
    )
    
    
    (5.2
    )
    
    
    (5.0
    )Issuance of capital stock by subsidiaries
    
    
    0.1
    
    
    
    
    
    
    
    2.6Other
    
    
    (0.7
    )
    
    
    (3.6
    )
    
    
    Cash flows used in financing activities
    
    
    (17.6
    )
    
    
    (118.4
    )
    
    
    (292.8
    )Net (decrease) increase in cash and cash equivalents
    
    
    (63.7
    )
    
    
    (10.7
    )
    
    
    4.6Effect of exchange rate changes on cash and cash equivalents
denominated in foreign currencies
    
    
    0.4
    
    
    
    (0.7
    )
    
    
    0.6Cash and cash equivalents at beginning of year
    
    
    97.4
    
    
    
    108.8
    
    
    
    103.6Cash and cash equivalents at end of year
    
    $
    34.1
    
    
    $
    97.4
    
    
    $
    108.8Cash and cash equivalents consist of:Cash
    
    $
    13.9
    
    
    $
    14.9
    
    
    $
    8.0Cash equivalents
    
    
    20.2
    
    
    
    82.5
    
    
    
    100.8$
    34.1
    
    
    $
    97.4
    
    
    $
    108.8Additional information on the consolidated
statements of cash flows:Changes in non-cash balances related to operations
(net of effect of business acquisitions and disposals):Accounts receivable
    
    $
    (14.5
    )
    
    $
    (57.6
    )
    
    $
    (10.9
    )Inventories and investments in televisual products and movies
    
    
    (2.7
    )
    
    
    (20.3
    )
    
    
    5.3Accounts payable and accrued charges
    
    
    (15.8
    )
    
    
    43.7
    
    
    
    15.0Other
    
    
    9.7
    
    
    
    6.3
    
    
    
    29.2$
    (23.3
    )
    
    $
    (27.9
    )
    
    $
    38.6Cash interest payments
    
    $
    446.3
    
    
    $
    233.5
    
    
    $
    239.6Cash income taxes payments (net of refunds)
    
    
    7.0
    
    
    
    13.5
    
    
    
    8.8
  F-5




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
 
 Consolidated balance sheets
 
  2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    34.1
    
    
    $
    97.4Temporary investments
    
    
    1.4
    
    
    
    40.6Accounts receivable (note 9)
    
    
    426.2
    
    
    
    415.7Income taxes
    
    
    17.3
    
    
    
    9.3Amounts receivable from parent company and companies under common control
    
    
    
    
    
    
    15.6Inventories and investments in televisual products and movies (note 10)
    
    
    158.7
    
    
    
    155.5Prepaid expenses
    
    
    24.4
    
    
    
    22.4Future income taxes (note 7)
    
    
    65.9
    
    
    
    98.7728.0
    
    
    
    855.2Property, plant and equipment (note 11)
    
    
    1,830.1
    
    
    
    1,631.5Future income taxes (note 7)
    
    
    61.1
    
    
    
    57.5Other assets (note 12)
    
    
    243.6
    
    
    
    259.4Goodwill (note 13)
    
    
    3,721.1
    
    
    
    3,871.9$
    6,583.9
    
    
    $
    6,675.5
 F-6




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  consolidated balance sheets (continued)
 
  2006
    
    
    2005Liabilities and shareholders equityCurrent liabilities:Bank indebtedness
    
    $
    20.6
    
    
    $
    12.7Accounts payable and accrued charges
    
    
    592.4
    
    
    
    608.8Deferred revenue
    
    
    177.6
    
    
    
    155.2Income taxes
    
    
    8.8
    
    
    
    13.4Dividends payable
    
    
    
    
    
    
    60.0Amounts payable to parent company and companies under common control
    
    
    11.9
    
    
    
    Additional Amount payable (note 14)
    
    
    122.0
    
    
    
    111.5Current portion of long-term debt (note 15)
    
    
    23.1
    
    
    
    2.7956.4
    
    
    
    964.3Long-term debt (note 15)
    
    
    2,773.0
    
    
    
    2,530.5Other liabilities (note 16)
    
    
    356.5
    
    
    
    359.3Future income taxes (note 7)
    
    
    118.9
    
    
    
    227.0Non-controlling interest (note 17)
    
    
    142.1
    
    
    
    144.3Shareholders equity:Capital stock (note 18)
    
    
    1,752.4
    
    
    
    1,773.7Contributed surplus
    
    
    3,217.2
    
    
    
    3,216.8Deficit
    
    
    (2,731.5
    )
    
    
    (2,538.1
    )Translation adjustment
    
    
    (1.1
    )
    
    
    (2.3
    )2,237.0
    
    
    
    2,450.1Commitments and contingencies (note 20)Guarantees (note 21)Subsequent
events (note 28)$
    6,583.9
    
    
    $
    6,675.5
  F-7




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
 
 Segmented
information
 
      2006
    
    
    2005
    
    
    2004Revenues:Cable
    
    $
    1,309.5
    
    
    $
    1,080.3
    
    
    $
    937.6Newspapers
    
    
    928.2
    
    
    
    915.6
    
    
    
    888.1Broadcasting
    
    
    393.3
    
    
    
    401.4
    
    
    
    358.0Leisure and Entertainment
    
    
    315.8
    
    
    
    255.4
    
    
    
    241.7Interactive Technologies and Communications
    
    
    73.9
    
    
    
    65.1
    
    
    
    51.9Internet/Portals
    
    
    64.9
    
    
    
    50.0
    
    
    
    34.5Head Office and inter-segment
    
    
    (74.7
    )
    
    
    (64.9
    )
    
    
    (49.4
    )$
    3,010.9
    
    
    $
    2,702.9
    
    
    $
    2,462.4
 F-8




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Segmented information (continued)
 
  2006
    
    
    2005
    
    
    2004Income before amortization, financial expenses,
reserve for restructuring of
operations, impairment of assets and other
special charges, loss on debt refinancing,
gain on sale of businesses and other assets
and impairment of goodwill and intangible
assets:Cable
    
    $
    512.5
    
    
    $
    413.3
    
    
    $
    363.8Newspapers
    
    
    207.6
    
    
    
    222.2
    
    
    
    227.8Broadcasting
    
    
    42.1
    
    
    
    53.0
    
    
    
    80.5Leisure and Entertainment
    
    
    19.3
    
    
    
    27.0
    
    
    
    22.7Interactive Technologies and Communications
    
    
    7.5
    
    
    
    3.9
    
    
    
    2.3Internet/Portals
    
    
    13.3
    
    
    
    10.5
    
    
    
    4.5802.3
    
    
    
    729.9
    
    
    
    701.6General corporate revenues (expenses)
    
    
    0.5
    
    
    
    3.7
    
    
    
    (4.4
    )$
    802.8
    
    
    $
    733.6
    
    
    $
    697.2
 2006
    
    
    2005
    
    
    2004Amortization:Cable
    
    $
    198.4
    
    
    $
    179.7
    
    
    $
    177.1Newspapers
    
    
    36.5
    
    
    
    30.3
    
    
    
    26.0Broadcasting
    
    
    14.3
    
    
    
    13.7
    
    
    
    11.9Leisure and Entertainment
    
    
    7.2
    
    
    
    4.3
    
    
    
    5.6Interactive Technologies and Communications
    
    
    2.3
    
    
    
    1.7
    
    
    
    1.7Internet/Portals
    
    
    1.1
    
    
    
    0.8
    
    
    
    0.7Head Office
    
    
    0.9
    
    
    
    1.4
    
    
    
    2.9$
    260.7
    
    
    $
    231.9
    
    
    $
    225.9
 2006
    
    
    2005
    
    
    2004Additions to property, plant and equipment:Cable
    
    $
    302.6
    
    
    $
    219.9
    
    
    $
    144.5Newspapers
    
    
    116.3
    
    
    
    74.0
    
    
    
    18.8Broadcasting
    
    
    9.0
    
    
    
    12.9
    
    
    
    10.1Leisure and Entertainment
    
    
    3.4
    
    
    
    7.9
    
    
    
    3.3Interactive Technologies and Communications
    
    
    1.8
    
    
    
    1.4
    
    
    
    1.2Internet/Portals
    
    
    1.9
    
    
    
    0.7
    
    
    
    0.8Head Office
    
    
    0.5
    
    
    
    3.0
    
    
    
    2.4$
    435.5
    
    
    $
    319.8
    
    
    $
    181.1
 F-9




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Segmented information (continued)
 
  2006
    
    
    2005Assets:Cable
    
    $
    4,253.5
    
    
    $
    4,251.7Newspapers
    
    
    1,579.2
    
    
    
    1,503.5Broadcasting
    
    
    408.9
    
    
    
    585.3Leisure and Entertainment
    
    
    178.0
    
    
    
    183.1Interactive Technologies and Communications
    
    
    92.8
    
    
    
    71.0Internet/Portals
    
    
    59.8
    
    
    
    59.0Head Office
    
    
    11.7
    
    
    
    21.9$
    6,583.9
    
    
    $
    6,675.5
 F-10




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES
 
 Notes
to consolidated financial statements
 
   1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:The consolidated financial statements are prepared in accordance with Canadian generally
accepted accounting principles (GAAP). The significant differences between generally
accepted accounting principles in Canada and in the United States are described in note 26.
 (a)
    
    Basis of presentation:The consolidated financial statements include the accounts of the Company and all its
subsidiaries. Intercompany transactions and balances are eliminated on consolidation.Certain comparative figures for the years 2005 and 2004 have been reclassified to conform
to the presentation adopted for the year ended December 31, 2006.(b)
    
    Foreign currency translation:Financial statements of self-sustaining foreign operations are translated using the rate in
effect at the balance sheet date for asset and liability items, and using the average
exchange rates during the year for revenues and expenses. Adjustments arising from this
translation are deferred and recorded in translation adjustment and are included in income
only when a reduction in the investment in these foreign operations is realized.Other foreign currency transactions are translated using the temporal method. Translation
gains and losses are included in financial expenses.(c)
    
    Use of estimates:The preparation of consolidated financial statements in accordance with Canadian GAAP
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, related amounts of revenues and expenses, and disclosure of
contingent assets and liabilities. Significant areas requiring the use of management
estimates relate to the determination of pension and post-retirements benefits costs, key
economic assumptions used in determining the allowance for doubtful accounts, the allowance
for sales returns, reserves for the restructuring of operations, the useful life of assets
for amortization and evaluation of expected future cash flows to be generated by those
assets, the determination of the fair value of assets acquired and liabilities assumed in
business combinations, implied fair value of goodwill, fair value of long-lived assets,
broadcasting licences and goodwill for impairment tests purposes, provisions for income
taxes and determination of future income tax assets and liabilities, and the determination
of fair value of financial instruments. Actual results could differ from these estimates.(d)
    
    Impairment of long-lived assets:The Company reviews long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. An impairment loss is
recognized when the carrying amount of a group of assets held for use exceeds the sum of
the undiscounted cash flows expected from its use and eventual disposition. Measurement of
an impairment loss is based on the amount by which the group of assets carrying amount
exceeds its fair value. Fair value is determined using quoted market prices, when
available, or using accepted valuation techniques such as the discounted future cash flows
method.
 F-11




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 (e)
    
    Revenue recognition:The Company recognizes its operating revenues when the following criteria are met:
 
    
    persuasive evidence of an arrangement exists;
    
    delivery has occurred or services have been rendered;
    
    the sellers price to the buyer is fixed or determinable; and
    
    the collection of the sale is reasonably assured.
 The portion of unearned revenue is recorded under Deferred revenue when customers are
invoiced.Revenue recognition policies for each of the Companys main segments are as follows:Cable segmentThe Cable segment provides services under arrangements with multiple deliverables, which
are comprised of two separate accounting units: one for subscriber services (cable
connecting fees and operating services) and the other for equipment sales to subscribers
including activation fees related to wireless phones.Cable connection fee revenues of the Cable segment are deferred and recognized as revenues
over the estimated average 30-month period that subscribers are expected to remain
connected to the network. The incremental and direct costs related to cable connection
fees, in an amount not exceeding the revenue, are deferred and recognized as an operating
expense over the same 30-month period. Operating revenues from cable and other services,
such as Internet access, telephony and wireless, are recognized when services are rendered.
Revenue from equipment sales to subscribers and their costs are recognized in income when
the equipment is delivered. Revenues from video rentals are recorded as revenue when
services are provided. Promotion offers are accounted for as a reduction in the related
service revenue when customers take advantage of the offer. Operating revenues related to
service contracts are recognized in income over the life of the specific contracts on a
straight-line basis over the period in which the services are provided.Newspapers segmentRevenues of the Newspapers segment, derived from circulation and advertising from
publishing activities, are recognized when the publication is delivered, net of provisions
for estimated returns. Revenue from the distribution of publications and products is
recognized upon delivery.Broadcasting segmentRevenues of the Broadcasting segment derived from the sale of advertising airtime are
recognized when the advertisement has been broadcast. Revenues derived from subscription
to speciality television channels are recognized on a monthly basis at the time service is
rendered. Revenues derived from circulation and advertising from publishing activities are
recognized when publication is delivered.Revenues derived from the sale and distribution of film and from television program rights
are recognized when the following conditions are met: (a) persuasive evidence of a sale or
a licensing agreement with a customer exists and is provided solely by a contract or other
legally enforceable documentation that sets forth, at a minimum (i) the licence period,
(ii) the film or group of films affected, (iii) the consideration to be received for the
rights transferred; (b) the film is complete and has been delivered or is available for
delivery; (c) the licence period of the arrangement has begun and the customer can begin
its exploitation, exhibition, or sale; (d) the arrangement fee is fixed or determinable;
(e) the collection of the arrangement fee is reasonably assured.
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 (e)
    
    Revenue recognition (continued):Broadcasting segment (continued)Theatrical revenues are recognized over the period of presentation and are based on a
percentage of revenues generated by movie theatres. Revenues generated from the sale of
video are recognized at the time of delivery of the videocassettes and DVDs, less a
provision for future returns, or are accounted for based on a percentage of retail sales.Leisure and Entertainment segmentRevenues derived from retail stores, book publishing and distribution activities are
recognized on delivery of the products, net of provisions for estimated returns based on
the segments historical rate of products return.(f)
    
    Barter transactions:In the normal course of operations, the Newspapers, the Broadcasting and the
Internet/Portals segments offer advertising in exchange for goods and services. Revenues
thus earned and expenses incurred are accounted for on the basis of the fair value of the
goods and services obtained.For the year ended December 31, 2006, the Company recorded $19.5 million of barter
advertising ($17.7 million in 2005 and $13.1 million in 2004).(g)
    
    Cash and cash equivalents:Cash and cash equivalents include highly liquid investments purchased three months or less
from maturity and are stated at cost, which approximates market value. As at December 31,
2006, these highly liquid investments consisted mainly of commercial paper and bankers
acceptance.(h)
    
    Temporary investments:Temporary investments are recorded at the lower of cost and market value and as at December
31, 2006, these temporary investments consisted mainly of commercial paper.(i)
    
    Trade receivable:The Company establishes an allowance for doubtful accounts based on the specific credit
risk of its customers and historical trends.(j)
    
    Tax credits and government assistanceThe Broadcasting and Leisure and Entertainment segments have access to several government
programs designed to support production and distribution of televisual products and movies
and magazine and book publishing in Canada. The financial aid for production is accounted
for as a reduction of expenses. The financial aid for broadcast rights is applied against
investments in televisual products or used directly to reduce operating expenses during the
year. The financial aid for magazine and book publishing is accounted for in revenues when
the conditions for acquiring the government assistance are met.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 (j)
    
    Tax credits and government assistance (continued):The Interactive Technologies and Communications and Leisure and Entertainment segments
receive tax credits mainly related to their research and development activities and
publishing activities. These tax credits are accounted for using the cost reduction
method. Under this method, tax credits related to eligible expenses are accounted for as a
reduction in related costs, whether they are capitalized or expensed, in the year the
expenses are incurred, as long as there is reasonable assurance of their realization.(k)
    
    Inventories:Inventories are valued at the lower of cost, determined by the first-in, first-out method
or the weighted-average cost method, and net realizable value. Net realizable value
represents the market value for all inventories, except for raw materials and supplies, for
which it is replacement cost. Work in progress is valued at the pro-rata billing value of
the work completed.(l)
    
    Investments in televisual products and movies:
 (i)
    
    Programs produced and productions in progressPrograms produced and productions in progress related to broadcast activities are
accounted for at the lower of cost and net realizable value. Cost includes direct
charges for goods and services and the share of labour and general expenses relating to
each production. The cost of each program is charged to cost of sales when the program
is broadcasted.(ii)
    
    Broadcast rightsBroadcast rights are essentially contractual rights allowing limited or unlimited
broadcast of televisual products or movies. The Broadcasting segment records the
broadcast rights acquired as an asset and the obligations incurred under a licence
agreement as a liability when the broadcast licence period begins and all of the
following conditions have been met: the cost of each program, movies or series is known
or can be reasonably determined; the programs, movies or series have been accepted in
accordance with the conditions of the broadcast licence agreement; the programs, movies
or series are available for the first showing or telecast.Amounts paid for broadcast rights before all of the above conditions are met are
recorded as prepaid broadcast rights.Broadcast rights are classified as short or long term, based on managements estimates
of the broadcast period. These rights are amortized when televisual products and movies
are broadcast over the contract period, based on the estimated number of showings, using
an amortization method based on future revenues. This amortization is presented in cost
of sales and selling and administrative expenses. Broadcast rights are valued at the
lower of unamortized cost or net realizable value. Broadcast rights payable are
classified as current or long-term liabilities based on the payment terms included in
the licence.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 (l)
    
    Investment in televisual products and movies (continued):
 (iii)
    
    Distribution rights:Distribution rights relate to the distribution of televisual products and movies. The
costs include costs for movies distribution rights and other operating costs incurred,
which provide future economic benefits. The net realizable value of distribution rights
represents the Broadcasting segments share of future estimated revenues to be derived,
net of future costs. The Broadcasting segment records an asset and a liability for the
distribution rights and obligations incurred under a licence agreement when the
televisual product and movie has been accepted in accordance with the conditions of the
licence agreement, the televisual product or movie is available for broadcast and the
cost of the licence is known or can be reasonably estimated.Amounts paid for distribution rights before all of the above conditions are met are
recorded as prepaid distribution rights. Distribution rights are amortized using the
individual film forecast computation method based on actual revenues realized over total
expected revenues.Estimates of revenues related to television products and movies are examined
periodically by Broadcasting segment management and revised as necessary. The value of
unamortized costs is reduced to net realizable value, as necessary, based on this
assessment. The amortization of distribution rights is presented in cost of sales and
selling and administrative expenses.
 (m)
    
    Income taxes:The Company follows the asset and liability method of accounting for income taxes. Under
this method, future income tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Future
income tax assets and liabilities are measured using enacted or substantively enacted tax
rates in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on future income tax assets and
liabilities is recognized in income in the period that includes the enactment or
substantive enactment date. A valuation allowance is established, if necessary, to reduce
any future income tax asset to an amount that is more likely than not to be realized.(n)
    
    Long-term investments:Investments in joint ventures are accounted for using the proportionate consolidation
method. Joint ventures represent a negligible portion of the Companys operations.
Investments in companies subject to significant influence are accounted for by the equity
method. Portfolio investments are accounted for by the cost method. Carrying values of
investments accounted for by the equity or cost method are reduced to estimated market
values if there is other than a temporary decline in the value of the investment.(o)
    
    Property, plant and equipment:Property, plant and equipment are stated at cost, net of government grants and investment
tax credits. Cost represents acquisition or construction costs, including preparation,
installation and testing costs and interest incurred with respect to the property, plant
and equipment until they are ready for commercial production. In the case of projects to
construct and connect receiving and distribution networks of cable, cost includes
equipment, direct labour and direct overhead costs. Projects under development may also be
comprised of advances for equipment under construction. Expenditures for additions,
improvements and replacements are capitalized, whereas maintenance and repair expenditures
are expensed as incurred.
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 (o)
    
    Property, plant and equipment (continued):Amortization is principally calculated on the straight-line basis over the following
estimated useful lives:
 EstimatedAsset
    
    useful lifeBuildings
    
    
    25 to 40 yearsMachinery and equipment
    
    
    3 to 20 yearsReceiving, distribution and telecommunications networks
    
    
    3 to 20 years
 Leasehold improvements are amortized over the term of the lease.The Company does not record an asset retirement obligation in connection with its cable
distribution networks. The Company expects to renew all of its agreements with utility
companies to access their support structures in the future, making the retirement date,
relating to these assets, undeterminable.(p)
    
    Goodwill and other intangible assets:Goodwill and intangible assets with indefinite useful lives are not amortized.Goodwill is tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The impairment test is carried
out in two steps. In the first step, the carrying amount of the reporting unit is compared
to its fair value. When the fair value of a reporting unit exceeds its carrying amount,
then the goodwill of the reporting unit is considered not to be impaired and the second
step is not required. The second step of the impairment test is carried out when the
carrying amount of a reporting unit exceeds its fair value, in which case the implied fair
value of the reporting units goodwill is compared to its carrying amount to measure the
amount of the impairment loss, if any. When the carrying amount of the reporting units
goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized
in an amount equal to the excess.Intangible assets acquired, such as broadcasting licences, that have an indefinite useful
life, are also tested for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The impairment test compares the
carrying amount of the intangible asset to its fair value, and an impairment loss is
recognized in the statement of income for the excess, if any.Intangible assets with definite useful lives, such as customer relationships and
non-competition agreements, are amortized over their useful life using the straight-line
method over a period of 3 to 10 years.(q)
    
    Deferred start-up costs and financing fees:Deferred start-up costs are recorded at cost and include development costs related to new
specialty services and pre-operating expenditures and are amortized when commercial
operations begin using the straight-line method over periods of three to five years.
Financing fees related to long-term financing are amortized using the interest rate method
and the straight-line method over the term of the related long-term debt.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 (r)
    
    Stock-based compensation:The compensation cost attributable to stock-based awards to employees that call for
settlement in cash or other assets, at the option of the employee is recognized in
operating expenses over the vesting period. Changes in the intrinsic value of the stock
option awards between the grant date and the measurement date result in a change in the
measurement of the liability and compensation cost. Other stock option awards to employees
are measured based on the fair value of the options at the grant date and a compensation
expense is recognized over the vesting period of the options, with a corresponding increase
to additional contributed surplus. When the stock options are exercised, capital stock is
credited by the sum of the consideration paid, together with the related portion previously
recorded to contributed surplus.In the case of the employee share purchase plans of the Companys subsidiaries, the
contribution paid by the subsidiary on behalf of its employees is considered a compensation
expense. The contribution paid by employees for the purchase of shares is credited to the
subsidiarys capital stock.(s)
    
    Derivative financial instruments:The Company uses various derivative financial instruments to manage its exposure to
fluctuations in foreign currency exchange rates and interest rates. The Company does not
hold or use any derivative instruments for trading purposes. Under hedge accounting, the
Company documents all hedging relationships between derivatives and hedged items, its
strategy for using hedges and its risk-management objective. The Company assesses the
effectiveness of derivatives when the hedge is put in place and on an ongoing basis.The Company enters into foreign exchange forward contracts to hedge anticipated
foreign-denominated equipment purchases. Under hedge accounting, foreign exchange
translation gains and losses are recognized as an adjustment to the cost of property, plant
and equipment or inventories, when the transaction is recorded.The Company enters into foreign exchange forward contracts and cross-currency swaps to
hedge some of its long-term debt. Under hedge accounting, foreign exchange translation
gains and losses are deferred and recorded as derivative instruments under other assets or
other liabilities. The fees on forward foreign exchange contracts and on cross-currency
swaps are recognized as an adjustment to interest expenses over the term of the agreement.The Company also enters into interest rate swaps to manage the impact of fluctuations in
interest rates on its long-term debt. These swap agreements require the periodic exchange
of payments without the exchange of the notional principal amount on which the payments are
based. The Company designates its interest rate hedge agreements as hedges of the interest
cost on the underlying debt. Interest expense on the debt is adjusted to include payments
made or received under interest rate swaps.Some of the Companys cross-currency swap agreements repurchased in 2006 were subject to a
floor limit on negative fair market value, below which the Company was required to make
prepayments to reduce the lenders exposure. Such prepayments were reimbursed by
reductions in the Companys future payments under the agreements. The portion of these
reimbursements related to interest was accounted for as a reduction in financial expenses.
The prepayments were presented on the balance sheet as a reduction of the derivative
instrument liability.
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
 (s)
    
    Derivative financial instruments (continued):Realized and unrealized gains or losses associated with derivative instruments that have
been terminated or cease to be effective prior to maturity, are deferred under other
current or non-current assets or liabilities on the balance sheet and recognized in income
in the period in which the underlying hedged transaction is recognized. In the event a
designated hedged item is sold, extinguished or matures prior to the termination of the
related derivative instrument, any realized or unrealized gain or loss on such derivative
instrument is recognized in income.Derivative instruments that are ineffective or that are not designated as an hedge are
reported on a market-to-market basis in the consolidated financial statements. Any change
in the fair value of these derivative instruments is recorded in income.(t)
    
    Pension plans and postretirement benefits:
 (i)
    
    Pension plans:The Company offers defined benefit pension plans and defined contribution pension plans
to some of its employees. Defined benefit pension plan costs are determined using
actuarial methods and are funded through contributions determined in accordance with the
projected benefit method pro-rated on service, which incorporates managements best
estimate of future salary levels, other cost escalations, retirement ages of employees
and other actuarial factors. Pension plan expense is charged to operations and
includes:
 
    
    Cost of pension plan benefits provided in exchange for employee services
rendered during the year.
    
    Amortization of the initial net transition asset, prior service costs and
amendments on a straight-line basis over the expected average remaining service
period of the active employee group covered by the plans.
    
    Interest cost of pension plan obligations, expected return on pension fund
assets, and amortization of cumulative unrecognized net actuarial gains and losses
in excess of 10.0% of the greater of the accrued benefit obligation or the fair
value of plan assets over the expected average remaining service period of the
active employee group covered by the plans.
 When an event gives rise to both a curtailment and a settlement, the curtailment is
accounted for prior to the settlement.Actuarial gains and losses arise from the difference between the actual rate of return
on plan assets for a period and the expected rate of return on plan assets for that
period, or from changes in actuarial assumptions used to determine the accrued benefit
obligation.The Company uses the fair value at year-end to evaluate plan assets for the purpose of
calculating the expected return on plan assets.(ii)
    
    Postretirement benefits:The Company offers health, life and dental insurance plans to some of its retired
employees. The cost of postretirement benefits is determined using actuarial methods
and the related benefits are funded by the Company as they become due. The Company
amortizes the cumulative unrecognized net actuarial gains and losses in excess of 10.0%
of the accrued benefit obligation over the expected average remaining service life of
the active employee group covered by the plans.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 2.
    
    FINANCIAL EXPENSES:
 2006
    
    
    2005
    
    
    2004Interest on long-term debt
    
    $
    215.0
    
    
    $
    212.7
    
    
    $
    224.1Amortization of deferred financing costs and long-term debt discount
    
    
    7.3
    
    
    
    62.7
    
    
    
    56.9Net loss on derivative instruments and on foreign currency
translation on financial instruments 1
    
    
    1.2
    
    
    
    4.4
    
    
    
    8.0Loss on revaluation of the Additional Amount payable
    
    
    10.5
    
    
    
    10.1
    
    
    
    26.9Other
    
    
    1.3
    
    
    
    0.9
    
    
    
    3.6Investment income
    
    
    (1.5
    )
    
    
    (4.5
    )
    
    
    (4.9
    )233.8
    
    
    
    286.3
    
    
    
    314.6Interest capitalized to the cost of property, plant and equipment
    
    
    (9.2
    )
    
    
    (1.0
    )
    
    
    $
    224.6
    
    
    $
    285.3
    
    
    $
    314.6
 1
    During the year ended December 31, 2006, the Company recorded a loss of $4.1
million on derivative instruments for which hedge accounting is not used ($13.1 million in
2005 and $30.2 million in 2004).
 3.
    
    RESERVE FOR RESTRUCTURING OF OPERATIONS, IMPAIRMENT OF ASSETS AND OTHER SPECIAL CHARGES:
 2006
 (a)
    
    Newspapers segmentIn August 2005, the Company announced a plan to invest in two new printing facilities
located in Toronto (Ontario) and Saint-Janvier-de-Mirabel (Québec). As part of the plan,
Sun Media Corporation will outsource the printing of certain of its publications in Ontario
and Québec to the new facilities. In 2006, a charge for contractual termination benefits
of $11.0 million was recorded in connection with the elimination of production positions at
The London Free Press, The Toronto Sunand at The Ottawa Sun, and inserters positions at
Le Journal de Montréal, in relation to these projects.In June 2006, the Newspapers segment announced a plan to restructure its news production
operations by introducing new content management technologies, and streamlining the news
gathering process. The Newspapers segment expects the restructuring to be complete by
early 2007. In 2006, the Newspapers segment recorded severance costs of $2.8 million
relating to the elimination of editorial positions in operations across the organization.Finally, in 2006, Sun Media Corporation implemented a voluntary workforce reduction program
at The London Free Pressand several smaller involuntary workforce reduction programs,
namely at The Toronto Sunand Bowes Publishers. The Newspapers segment has recorded
termination benefits of $3.2 million relating to these workforce reduction initiatives.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 3.
    
    RESERVE FOR RESTRUCTURING OF OPERATIONS, IMPAIRMENT OF ASSETS AND OTHER SPECIAL CHARGES
(continued):2006 (continued)
 (a)
    
    Newspaper segment (continued)Continuity of reserve for restructuring and other special charges
 2006Balance at beginning of year
    
    $
    Work-force reduction initiatives
    
    
    17.0Payments
    
    
    (4.3
    )Balance at end of year
    
    $
    12.7
 (b)
    
    Other segmentsIn 2006, other segments recorded restructuring costs of $1.9 million mainly related to the
elimination of management positions in the Broadcasting segment.
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 4.
    
    LOSS ON DEBT REFINANCING
 (a)
    
    Quebecor Media Inc.On January 17, 2006, the Company recorded a loss of $331.6 million as a result of the
refinancing of substantially all of its 11.125% Senior Notes and 13.75% Senior Discount
Notes. The loss represents the excess of the consideration paid of $1.3 billion, including
premiums and disbursements for unwinding hedging contracts, over the book value of the
notes and the hedging contracts, and the write-off of deferred financing costs. The
refinancing transactions carried out were as follows:
 
    
    The Company issued new 7.75% Senior Notes of US$525.0 million in aggregate
principal amount (note 15 (iii)).
    
    The Company entered into new credit facilities comprised of (i) a five-year $125.0
million term loan A credit facility, (ii) a seven-year US$350.0 million term loan
B credit facility and (iii) a new $100.0 million five-year revolving credit facility
(note 15 (i)).
    
    Videotron Ltd. borrowed $237.0 million under its existing revolving credit facility
and Sun Media Corporation amended its existing credit facilities to borrow $40.0
million under a new term loan C maturing in 2009 (note 15 (x)).
    
    The proceeds from new Senior Notes, the full amount of new term loans A and B,
the Videotron Ltd. drawing from its existing revolving credit facility and Sun Media
Corporations new term loan C were used to repurchase US$561.6 million in aggregate
principal amount of the Companys 11.125% Senior Notes and US$275.6 million in
aggregate principal amount at maturity of the Companys 13.75% Senior Discount Notes.
Total consideration offered per US$1,000.00 principal amount of Senior Notes was
US$1,083.49 and total consideration per US$1,000.00 principal amount at maturity of
Senior Discount Notes was US$1,042.64, which included an early tender premium of
US$30.00 per US$1,000.00 of principal, or principal amount at maturity in the case of
the Discount Notes.
 On July 15, 2006, the Company repurchased the remaining balances of its 11.125% Senior
Notes and 13.75% Senior Discount Notes for a total cash consideration of $39.3 million.
The repurchase resulted in a loss of $10.5 million.On July 19, 2005, as a result of the repurchase of a first portion of its 11.125% Senior
Notes and its 13.75% Discount Notes, the Company recorded a loss of $60.8 million,
comprised of the excess of the consideration paid of $215.3 million, including premiums and
disbursements for unwinding hedging contracts, over the carrying value of the notes and of
the hedging contracts, and the write-off of related deferred financing costs. The Company
repurchased US$128.2 million and US$12.1 million, respectively, in aggregate principal
amounts of its Senior Notes and Senior Discount Notes. The total consideration was a fixed
price of US$1,112.50 per US$1,000.00 principal amount for each Senior Note and a fixed
price of US$1,007.50 per US$1,000.00 principal amount at maturity for each Discount Note,
which included an early tender premium in the amount of US$30.00 per US$1,000.00 of
principal, or principal amount at maturity in the case of the Discount Notes.
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 4.
    
    LOSS ON DEBT REFINANCING (continued):
 (b)
    
    Videotron Ltd.:On July 15, 2005, Videotron Ltd., Cable segment, repurchased the entire aggregate principal
amount of its subsidiary, CF Cable TV Inc., Senior Secured First Priority Notes, which bore
interest at 9.125%, for a total cash consideration of $99.3 million, including the cost of
unwinding a hedging contract. The repurchase resulted in a gain of $0.8 million.On November 19, 2004, the net proceeds from the issuance of a second series of the 6.875%
Senior Notes (note 15 (viii)) were used to repay in full Videotron Ltd.s term loan credit
facility C in place as at December 31, 2003. As a result of the refinancing of the term
loan, Videotron Ltd. recorded a loss of $4.8 million, comprised of a loss of $4.6 million
on the marked-to-market of a derivative instrument and the write-off of $0.2 million in
deferred financing costs.(c)
    
    Sun Media Corporation:On December 29, 2006, Sun Media Corporation made a partial repayment of US$15.0 million on
its term loan B credit facility (note 15 (x)) and settled a corresponding portion of its
hedging contracts. As a result, a loss of $0.5 million was recorded.
 5.
    
    IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS:During the fourth quarter of 2006, the Company completed its annual impairment test for its
broadcasting licenses and goodwill. Based on the results, the Company concluded that the
carrying values of the broadcasting licenses and goodwill of its Broadcasting segment were
impaired. Conventional television broadcasters are experiencing pressures on their advertising
revenues caused by the fragmentation of the television market. Accordingly, the Company
reviewed its business plan and recorded a total impairment charge of $179.2 million: $30.8
million for one of its broadcasting licenses and $148.4 million for the goodwill.In addition, during the third quarter of 2006, the Broadcasting segment recorded an impairment
charge of $0.8 million related to an operating licence co-owned with another entity.
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 6.
    
    BUSINESS ACQUISITIONS:During the years ended December 31, 2006, 2005 and 2004, the Company acquired or increased its
interest in several businesses and has accounted for these by the purchase method. Certain
purchase price allocations related to the 2006 acquisitions are preliminary and should be
finalized as soon as Companys management has gathered all the significant information believed
to be available and considered necessary. The results of operations of these businesses have
been included in the Companys consolidated financial statements from the dates of their
respective acquisitions.2006
 
    
    Several businesses, mainly in the Interactive Technologies and Communications segment,
were acquired for a total consideration of $14.0 million, including $12.6 million in cash
and $1.4 million in Common Shares of a subsidiary, resulting in additional goodwill of
$7.6 million.
 2005
 
    
    A total of 3,739,599 Class B non-voting Common Shares of TVA Group Inc., Broadcasting
segment, were repurchased for a cash consideration of $81.9 million, resulting in
preliminary additional goodwill of $22.3 million, which was reduced by $7.3 million in
2006 when the purchase price allocation was finalized.
    
    On December 12, 2005, the Company acquired Sogides Ltée, a major book publishing and
distribution group in Quebec, for a cash consideration of $24.0 million and an additional
contingent payment of $5.0 million based on the achievement of specific conditions in
2008. This acquisition resulted in a preliminary additional goodwill of $7.8 million,
which was reduced by $2.9 million in 2006 when the purchase price allocation was
finalized.
    
    Other businesses were acquired for considerations including cash of $4.6 million and
the operating assets of the community newspaper Beauport Express, resulting in additional
goodwill of $3.5 million.
 2004
 
    
    A total of 1,892,500 Class B non-voting Common Shares of TVA Group Inc. were
repurchased for a cash consideration of $41.0 million, resulting in additional goodwill of
$10.2 million.
    
    All minority interests in Canoe Inc., Internet/Portals segment, directly owned by
minority shareholders, were acquired for a cash consideration of $25.2 million, resulting
in additional goodwill of $4.8 million.
    
    On December 2, 2004, TVA Group Inc. and Sun Media Corporation, two subsidiaries of the
Company, completed the acquisition of Sun TV (formerly Toronto 1). The purchase price paid
at the closing was $43.2 million, $32.4 million of which was paid in cash by TVA Group
Inc. for its 75% interest in Sun TV. Sun Media Corporation paid $2.8 million in cash and
transferred its 29.9% interest in CablePulse24 (CP24), a 24-hour news station in Toronto,
for its 25.0% interest in Sun TV. The balance payable of $3.6 million with respect to the
final purchase price adjustment was paid in January 2007. The transfer of Sun Media
Corporations interest in CP24 resulted in a gain on disposal of $8.0 million. The
acquisition resulted in goodwill of $10.7 million.
    
    Other businesses were acquired for cash considerations totalling $13.3 million,
resulting in additional goodwill of $8.8 million.
 F-23




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 6.
    
    BUSINESS ACQUISITIONS (continued):Business acquisitions are summarized as follows:
 2006
    
    
    2005
    
    
    2004Assets acquired:Cash and cash equivalents
    
    $
    2.1
    
    
    $
    
    
    
    $
    2.2Non-cash current operating assets
    
    
    2.5
    
    
    
    13.0
    
    
    
    11.4Property, plant and equipment
    
    
    0.2
    
    
    
    8.0
    
    
    
    15.5Other assets
    
    
    4.4
    
    
    
    19.9
    
    
    
    32.8Future income taxes
    
    
    
    
    
    
    
    
    
    
    20.3Goodwill
    
    
    7.6
    
    
    
    22.9
    
    
    
    35.0Non-controlling interest
    
    
    1.2
    
    
    
    60.3
    
    
    
    31.818.0
    
    
    
    124.1
    
    
    
    149.0Liabilities assumed:Bank indebtedness
    
    
    
    
    
    
    (0.4
    )
    
    
    Non-cash current operating liabilities
    
    
    (3.1
    )
    
    
    (3.2
    )
    
    
    (15.2
    )Other liabilities
    
    
    
    
    
    
    
    
    
    
    Future income taxes
    
    
    (0.9
    )
    
    
    (5.3
    )
    
    
    (11.1
    )(4.0
    )
    
    
    (8.9
    )
    
    
    (26.3
    )Net assets acquired at fair value
    
    $
    14.0
    
    
    $
    115.2
    
    
    $
    122.7Consideration:Cash
    
    $
    12.6
    
    
    $
    110.5
    
    
    $
    114.7Issuance of Common Shares by Nurun Inc.
    
    
    1.4
    
    
    
    
    
    
    
    Balance payable
    
    
    
    
    
    
    3.6
    
    
    
    Community newspaper (Beauport Express)
    
    
    
    
    
    
    1.1
    
    
    
    Investment in CP24
    
    
    
    
    
    
    
    
    
    
    8.0$
    14.0
    
    
    $
    115.2
    
    
    $
    122.7
 F-24




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 7.
    
    INCOME TAXES:Income taxes on continuing operations are as follows:
 2006
    
    
    2005
    
    
    2004Current
    
    $
    5.4
    
    
    $
    19.0
    
    
    $
    20.9Future
    
    
    (58.0
    )
    
    
    25.0
    
    
    
    16.5$
    (52.6
    )
    
    $
    44.0
    
    
    $
    37.4
 The following table reconciles the difference between the domestic statutory tax rate and the
effective tax rate of the Company and its subsidiaries in the determination of consolidated net
(loss) income:
 2006
    
    
    2005
    
    
    2004Statutory tax rate
    
    
    32.0
    %
    
    
    31.0
    %
    
    
    31.0
    %Increase (reduction) resulting from:Effect of provincial and foreign tax rates differences
    
    
    
    
    
    
    (0.2
    )
    
    
    0.2Effect of non-deductible charges, non-taxable income
and tax rate variations
    
    
    4.4
    
    
    
    4.2
    
    
    
    4.4Change in valuation allowance
    
    
    3.5
    
    
    
    (4.8
    )
    
    
    (6.3
    )Change in future income tax balances due to a change in
enacted tax rates
    
    
    5.8
    
    
    
    7.6
    
    
    
    Tax consolidation transaction with the parent company
    
    
    
    
    
    
    (10.1
    )
    
    
    Impairment of goodwill
    
    
    (21.4
    )
    
    
    
    
    
    
    Other
    
    
    (0.5
    )
    
    
    0.4
    
    
    
    (5.7
    )Effective tax rate
    
    
    23.8
    %
    
    
    28.1
    %
    
    
    23.6
    %
 F-25




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 7.
    
    INCOME TAXES (continued):The tax effects of significant items comprising the Companys net future income tax positions
are as follows:
 2006
    
    
    2005Loss carryforwards
    
    $
    336.1
    
    
    $
    296.0Accounts payable and accrued charges
    
    
    36.2
    
    
    
    32.2Deferred charges
    
    
    10.3
    
    
    
    (13.3
    )Property, plant and equipment
    
    
    (217.5
    )
    
    
    (226.0
    )Goodwill and other assets
    
    
    (27.5
    )
    
    
    (33.2
    )Other
    
    
    13.6
    
    
    
    25.8151.2
    
    
    
    81.5Valuation allowance
    
    
    (143.1
    )
    
    
    (152.3
    )Net future income tax assets (liabilities)
    
    $
    8.1
    
    
    $
    (70.8
    )
 The current and long-term future income tax assets and liabilities are as follows:
 2006
    
    
    2005Future income tax assets:Current
    
    $
    65.9
    
    
    $
    98.7Long-term
    
    
    61.1
    
    
    
    57.5127.0
    
    
    
    156.2Future income tax liabilities:Long-term
    
    
    (118.9
    )
    
    
    (227.0
    )Net future income tax assets (liabilities)
    
    $
    8.1
    
    
    $
    (70.8
    )
 Subsequent recognition of tax benefits relating to the valuation allowance as at December 31,
2006 will be mainly reported in the consolidated statement of income.As at December 31, 2006, the Company had loss carryforwards for income tax purposes available
to reduce future taxable income, including $599.1 million that will expire between 2007 and
2026 and $689.5 million that can be carried forward indefinitely. Of the latter amount, $665.7
million represent capital losses to be applied against future capital gains.
 F-26




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 7.
    
    INCOME TAXES (continued):The Company has not recognized a future income tax liability for the undistributed earnings of
its subsidiaries in the current or prior years since the Company does not expect to sell or
repatriate funds from those investments. Any such liability cannot reasonably be determined at
the present time.8.
    
    DISCONTINUED OPERATIONS AND BUSINESS DISPOSALS:Discontinued operationsOn May 25, 2004, 6.75 million Common Shares of Mindready Solutions Inc. held by Nurun Inc.,
Interactive Technologies and Communications segment, were sold for a cash consideration of $7.8
million, of which $4.4 million was received on the closing date of the bid and the balance of
$3.4 million in February 2005. In March 2005, Nurun Inc. sold its 9.6% remaining interest in
Mindready Solutions Inc. for cash proceeds of $0.4 million. The sale resulted in a loss on
disposal of $0.3 million (net of income taxes and non-controlling interest) in 2004.As of May 25, 2004, the results of this disposed business were reclassified and disclosed in
the consolidated statements of income as Income (loss) from discontinued operations, while
the cash flows related to the operations of this disposed business were reclassified and
disclosed in the consolidated statements of cash flows as Cash flows provided by discontinued
operations.
 F-27




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 9.
    
    ACCOUNTS RECEIVABLE:
 2006
    
    
    2005Trade
    
    $
    383.3
    
    
    $
    360.5Other
    
    
    42.9
    
    
    
    55.2$
    426.2
    
    
    $
    415.7
 10.
    
    INVENTORIES AND INVESTMENTS IN TELEVISUAL PRODUCTS AND MOVIES:
 2006
    
    
    2005Raw materials and supplies
    
    $
    42.0
    
    
    $
    32.0Work in progress
    
    
    12.8
    
    
    
    9.7Finished goods
    
    
    63.8
    
    
    
    68.7Investments in televisual products and movies
    
    
    40.1
    
    
    
    45.1$
    158.7
    
    
    $
    155.5
 11.
    
    PROPERTY, PLANT AND EQUIPMENT:
 2006AccumulatedCost
    
    
    amortization
    
    
    Net amountLand
    
    $
    26.4
    
    
    $
    
    
    
    $
    26.4Buildings and leasehold improvements
    
    
    185.2
    
    
    
    48.3
    
    
    
    136.9Machinery and equipment
    
    
    698.8
    
    
    
    409.1
    
    
    
    289.7Receiving, distribution and telecommunication networks
    
    
    1,952.2
    
    
    
    756.9
    
    
    
    1,195.3Projects under development
    
    
    181.8
    
    
    
    
    
    
    
    181.8$
    3,044.4
    
    
    $
    1,214.3
    
    
    $
    1,830.1
 2005AccumulatedCost
    
    
    amortization
    
    
    Net amountLand
    
    $
    32.7
    
    
    $
    
    
    
    $
    32.7Buildings and leasehold improvements
    
    
    176.6
    
    
    
    41.9
    
    
    
    134.7Machinery and equipment
    
    
    694.8
    
    
    
    352.7
    
    
    
    342.1Receiving, distribution and telecommunication networks
    
    
    1,648.3
    
    
    
    604.6
    
    
    
    1,043.7Projects under development
    
    
    78.3
    
    
    
    
    
    
    
    78.3$
    2,630.7
    
    
    $
    999.2
    
    
    $
    1,631.5
 F-28




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 12.
    
    OTHER ASSETS:
 2006
    
    
    2005Broadcasting licenses
    
    $
    84.2
    
    
    $
    109.3Deferred financing costs, net of accumulated amortization
    
    
    33.6
    
    
    
    42.6Investments in televisual products and movies
    
    
    29.4
    
    
    
    28.0Customer relationships and non-competition agreements, net of accumulated amortization
    
    
    27.4
    
    
    
    21.9Deferred connection costs
    
    
    18.2
    
    
    
    15.5Derivative instruments
    
    
    16.7
    
    
    
    11.7Long-term investments
    
    
    13.0
    
    
    
    11.2Deferred pension charge (note 24)
    
    
    9.5
    
    
    
    8.2Other
    
    
    11.6
    
    
    
    11.0$
    243.6
    
    
    $
    259.4
 13.
    
    GOODWILL:For the years ended December 31, 2006, 2005 and 2004, the changes in the carrying amounts of
goodwill were as follows:
 2006Adjustment ofBalance as at
    
    
    Business
    
    
    
    
    
    
    purchase price
    
    
    Balance as atDecember 31,
    
    
    acquisitions
    
    
    
    
    
    
    allocation and
    
    
    December 31,2005
    
    
    (disposals)
    
    
    Impairment
    
    
    other
    
    
    2006Cable
    
    $
    2,581.8
    
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    
    
    
    $
    2,581.7Newspapers
    
    
    1,002.0
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    1,002.5Broadcasting
    
    
    207.1
    
    
    
    
    
    
    
    (148.4
    )
    
    
    (7.3
    )
    
    
    51.4Leisure and Entertainment
    
    
    46.9
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (2.9
    )
    
    
    43.4Interactive Technologies and Communications
    
    
    3.6
    
    
    
    6.7
    
    
    
    
    
    
    
    0.9
    
    
    
    11.2Internet/Portals
    
    
    30.5
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    30.9Total
    
    $
    3,871.9
    
    
    $
    6.9
    
    
    $
    (148.4
    )
    
    $
    (9.3
    )
    
    $
    3,721.1
 F-29




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 13.
    
    GOODWILL (continued):
 2005Adjustment ofBalance as at
    
    
    Business
    
    
    purchase price
    
    
    Balance as atDecember 31,
    
    
    acquisitions
    
    
    allocation and
    
    
    December 31,2004
    
    
    (disposals)
    
    
    other
    
    
    2005Cable
    
    $
    2,581.8
    
    
    $
    
    
    
    $
    
    
    
    $
    2,581.8Newspapers
    
    
    1,011.2
    
    
    
    1.0
    
    
    
    (10.2
    )1
    
    
    1,002.0Broadcasting
    
    
    185.3
    
    
    
    22.3
    
    
    
    (0.5
    )
    
    
    207.1Leisure and Entertainment
    
    
    39.1
    
    
    
    7.8
    
    
    
    
    
    
    
    46.9Interactive Technologies and Communications
    
    
    3.1
    
    
    
    1.3
    
    
    
    (0.8
    )
    
    
    3.6Internet/Portals
    
    
    30.5
    
    
    
    
    
    
    
    
    
    
    
    30.5Total
    
    $
    3,851.0
    
    
    $
    32.4
    
    
    $
    (11.5
    )
    
    $
    3,871.9
 2004Adjustment ofBalance as at
    
    
    Business
    
    
    purchase price
    
    
    Balance as atDecember 31,
    
    
    acquisitions
    
    
    allocation and
    
    
    December 31,2003
    
    
    (disposals)
    
    
    other
    
    
    2004Cable
    
    $
    2,661.1
    
    
    $
    5.2
    
    
    $
    (84.5)1
    
    
    $
    2,581.8Newspapers
    
    
    1,010.8
    
    
    
    0.4
    
    
    
    
    
    
    
    1,011.2Broadcasting
    
    
    165.0
    
    
    
    20.3
    
    
    
    
    
    
    
    185.3Leisure and Entertainment
    
    
    43.6
    
    
    
    1.0
    
    
    
    (5.5
    )
    
    
    39.1Interactive Technologies and Communications
    
    
    
    
    
    
    2.8
    
    
    
    0.3
    
    
    
    3.1Internet/Portals
    
    
    25.7
    
    
    
    4.8
    
    
    
    
    
    
    
    30.5Total
    
    $
    3,906.2
    
    
    $
    34.5
    
    
    $
    (89.7
    )
    
    $
    3,851.0
 
 1
    Recognition of tax benefits not recognized as at the business acquisition date. F-30




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 14.
    
    ADDITIONAL AMOUNT PAYABLE:The value of the Additional Amount payable resulting from the repurchase of the redeemable
preferred shares of a subsidiary in 2003 fluctuates based on the market value of the Companys
Common Shares. Until the Company is listed on a stock exchange, the value of the Additional
Amount payable is based on a formula established as per the repurchase agreement. At the date
of the transaction, both parties had agreed to an initial value of $70.0 million. As at
December 31, 2006, the Additional Amount payable is valued at $122.0 million ($111.5 million as
at December 31, 2005). Changes in the amount payable are recorded as financial expenses in the
statement of income. The Additional Amount payable matures on December 15, 2008. The holder
has had the right to require payment at any time since December 15, 2004. If the Company files
a prospectus for an initial public offering, the holder has the right to require the Company to
pay the Additional Amount payable by delivering 3,740,682 Common Shares of the Company,
adjusted to take into account certain shareholders equity transactions. The Company holds an
option to pay this Additional Amount in cash, for a period of 30 days following each of June
15, 2007 and June 15, 2008. The Company may, under certain conditions and if its shares are
publicly traded at that time, pay the Additional Amount by delivering 3,740,682 Common Shares
to the holder.
 15.
    
    LONG-TERM DEBT:
 Effectiveinterest rate as at
    
    
    Year ofDecember 31, 2006
    
    
    maturity
    
    
    2006
    
    
    2005Quebecor Media Inc.:Bank credit facilities (i)
    
    
    7.09
    %
    
    
    2011-2013
    
    
    $
    520.6
    
    
    $
    Other credit facility (ii)
    
    
    4.77
    %
    
    
    2015
    
    
    
    59.2
    
    
    
    Senior Notes (iii)
    
    
    7.75
    %
    
    
    2016
    
    
    
    611.8
    
    
    
    Senior Notes (iv)
    
    
    
    %
    
    
    2011
    
    
    
    
    
    
    
    672.0Senior Discount Notes (v)
    
    
    
    %
    
    
    2011
    
    
    
    
    
    
    
    316.11,191.6
    
    
    
    988.1Videotron Ltd. and its subsidiaries (vi):Bank credit facility (vii)
    
    
    5.21
    %
    
    
    2009
    
    
    
    49.0
    
    
    
    Senior Notes (viii)
    
    
    6.59
    %
    
    
    2014
    
    
    
    769.1
    
    
    
    769.2Senior Notes (ix)
    
    
    6.44
    %
    
    
    2015
    
    
    
    203.1
    
    
    
    202.51,021.2
    
    
    
    971.7Sun Media Corporation and its subsidiaries (vi):Bank credit facilities (x)
    
    
    6.92
    %
    
    
    2008-2009
    
    
    
    250.8
    
    
    
    231.1Senior Notes (xi)
    
    
    7.88
    %
    
    
    2013
    
    
    
    236.0
    
    
    
    235.2486.8
    
    
    
    466.3TVA Group Inc. and its subsidiaries (vi):Revolving bank loan (xii)
    
    
    5.46
    %
    
    
    2010
    
    
    
    96.5
    
    
    
    107.12,796.1
    
    
    
    2,533.2Less current portion:Quebecor Media Inc.
    
    
    
    
    
    
    
    
    
    
    20.0
    
    
    
    Sun Media Corporation and its subsidiaries
    
    
    
    
    
    
    
    
    
    
    3.1
    
    
    
    2.7$
    2,773.0
    
    
    $
    2,530.5
 F-31




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 15.
    
    LONG-TERM DEBT (continued):
 (i)
    
    In January 2006, the Company entered into new bank credit facilities comprised of (i)
a $125.0 million term loan A credit facility, bearing interest at bankers acceptance
rate, London Interbanking Offered Rate (LIBOR) or Canadian prime rate, plus a premium
determined by a leverage ratio, and maturing in January 2011, (ii) a US$350.0 million term
loan B credit facility, bearing interest at US prime rate, plus a premium of 1.0%, or at
LIBOR, plus a premium of 2.0%, and maturing in January 2013, and (iii) a new $100.0
million revolving credit facility, bearing interest at bankers acceptance rate, LIBOR or
Canadian prime rate, plus a premium determined by a leverage ratio, and maturing in
January 2011. Financing fees of $2.1 million were paid. These new credit facilities
contain covenants concerning certain financial ratios and restricting the declaration and
payment of dividends and other distributions. They are collateralized by liens on all of
the movable property and assets of the Company (primarily shares of its subsidiaries), now
owned or hereafter acquired. As at December 31, 2006, the carrying value of the Companys
assets guaranteeing the credit facilities was $5,317.0 million. The Company shall repay
the term loan A in quarterly repayments equal to 2.5% of the principal amount during the
first three years term, 5.0% in the fourth year and 12.5% in the fifth year term. It
shall repay the principal amount of its term loan B in quarterly repayments of 0.25% of
the principal amount and the balance at the end of the term. The Company has fully hedged
the foreign currency risk associated with the new term B loan by using cross-currency
interest rate swaps, under which all payments have been set in Canadian dollars. As at
December 31, 2006, no amount had been drawn on the revolving credit facility, while $115.6
million and US$347.4 million were drawn down on the term A and B credit facilities,
respectively.(ii)
    
    In April 2006, the Company entered into a long-term committed credit facility with
Société Générale (Canada) for the Canadian dollar equivalent of 59.4 million, bearing
interest at bankers acceptance rate, plus a premium, and maturing in 2015. The facility
is secured by all the property and assets of the Company, now owned and hereafter
acquired. This facility mostly contains the same covenants as the bank facilities
described in (i).(iii)
    
    In January 2006, the Company issued new Senior Notes of US$525.0 million in
aggregate principal amount, before issuance fees of $9.0 million. The notes bear interest
at 7.75% and mature in March 2016. These notes contain certain restrictions on the
Company, including limitations on its ability to incur additional indebtedness and pay
dividends or make other distributions. The notes are unsecured and are redeemable at the
option of the Company at a decreasing premium, commencing on March 15, 2011. The Company
has fully hedged the foreign currency risk associated with the new Senior Notes by using
cross-currency interest rate swaps, under which all payments have been set in Canadian
dollars.(iv)
    
    The Senior Notes were repurchased during the year (note 4 (a)).(v)
    
    The Senior Discount Notes were repurchased during the year (note 4 (a)).(vi)
    
    The debts of these subsidiaries are non-recourse to the parent company, Quebecor
Media Inc.(vii)
    
    The credit facility of $450.0 million is a revolving credit facility maturing in
November 2009 and bears interest at bankers acceptance or Canadian prime rates, plus a
margin, depending on Videotron Ltd.s leverage ratio. The credit facility is secured by a
first ranking hypothec on the universality of all tangible and
intangible assets, current and future, of Videotron Ltd. and its
subsidiaries. As at December 31, 2006, the carrying
value of assets guaranteeing the credit facility of Videotron Ltd. was $4,253.5 million.
The credit facility contains covenants such as maintaining certain financial ratios and
some restrictions on the payment of dividends and asset acquisitions and dispositions.
 F-32




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 15.
    
    LONG-TERM DEBT (continued):
 (viii)
    
    In October 2003, a first series of Senior Notes was issued at discount for net proceeds
of US$331.9 million, before issuance fees of US$5.7 million. In November 2004, a second
series of Senior Notes was issued at premium on their face amount of US$315.0 million
resulting in gross proceeds of US$331.0 million before accrued interest and issuance fees
of US$6.2 million. These notes bear interest at a rate of 6.875%, payable every six months
on January 15 and July 15, and mature in January 2014. The notes contain certain
restrictions on Videotron Ltd., including limitations on its ability to incur additional
indebtedness, and are unsecured. The Senior Notes are guaranteed by specific
subsidiaries of Videotron Ltd. Videotron Ltd. has fully hedged the foreign currency risk
associated with the Senior Notes by using cross-currency interest rate swaps, under which
all payments were set in Canadian dollars. The notes are redeemable, in whole or in part,
at any time on or after January 15, 2009, at a decreasing premium.(ix)
    
    On September 16, 2005, Senior Notes were issued at discount for net proceeds of
US$174.1 million, before issuance fees of $3.8 million. These notes bear interest at a
rate of 6.375% payable every six months on December 15 and June 15, and mature on December
15, 2015. The notes contain certain restrictions for Videotron Ltd., including limitations
on its ability to incur additional indebtedness, and are unsecured. The Senior Notes are
guaranteed by specific subsidiaries of Videotron Ltd. Videotron Ltd. has fully hedged the
foreign currency risk associated with the Senior Notes by using cross-currency interest
rate swaps, under which all payments were set in Canadian dollars. The notes are
redeemable, in whole or in part, at any time on or after December 15, 2010, at a
decreasing premium.(x)
    
    The bank credit facilities amended on January 17, 2006, are comprised of (i) a
revolving credit facility amounting to $75.0 million, maturing in 2008, (ii) a term loan
B credit facility amounting to US$230.0 million maturing in 2009, and (iii) a new term
loan C credit facility amounting to $40.0 million entered into in January 2006 and
maturing in 2009. The credit facilities are collateralized by liens on all of the
property and assets of Sun Media Corporation and its operating subsidiaries, now owned or
hereafter acquired. The bank credit facilities contain covenants concerning certain
financial ratios and restrictions on the declaration and payment of dividends and other
distributions. As at December 31, 2006, the carrying value of assets guaranteeing the bank
credit facilities was $1,579.2 million. Any amount borrowed under the revolving credit
facility bears interest at Canadian bankers acceptance and/or Canadian prime rate plus an
applicable margin determined by financial ratios. Advances under the term loan B credit
facility bear interest at LIBOR plus a margin of 1.75% per annum (margin was reduced by
0.25% to 1.75% on April 27, 2006), or at US prime rate plus a margin of 0.75% per annum,
while advances under the term C credit facility bear interest at Canadian bankers
acceptance rate plus a margin of 1.50% per annum or Canadian prime rate plus a margin of
0.50% per annum. Sun Media Corporation has fully hedged the foreign currency risk
associated with the term B loan by using cross-currency interest rate swaps, under which
all payments were set in Canadian dollars. As at December 31, 2006, no amount had been
drawn on the revolving credit facility, while US$181.4 million and $39.3 million were
drawn down on the term loans B and C credit facilities, respectively.(xi)
    
    The Senior Notes were issued at discount for net proceeds of US$201.5 million, before
issuance fees of US$4.1 million. These notes bear interest at a rate of 7.625% and mature
in 2013. The notes contain certain restrictions for Sun Media Corporation, including
limitations on its ability to incur additional indebtedness and to
make other distributions, and are unsecured. The Senior Notes are guaranteed by specific
subsidiaries of Sun Media Corporation Inc. Sun Media Corporation has fully hedged the
foreign currency risk associated with the Senior Notes by using cross-currency interest
rate swaps and a foreign exchange forward contract, under which all payments were set in
Canadian dollars. The notes are redeemable, in whole or in part, at any time on or after
February 15, 2008, at a decreasing premium.
 F-33




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 15.
    
    LONG-TERM DEBT (continued):
 (xii)
    
    The revolving term bank loan of a maximum of $160.0 million bears interest at the
prime rate of a Canadian chartered bank or bankers acceptances rates, plus a variable
margin determined by certain financial ratios. In 2005, the revolving term loan maturity
as extended to June 15, 2010. The credit facility contains certain restrictions, including
the obligation to maintain certain financial ratios.
   2007
    
    $
    23.12008
    
    
    26.62009
    
    
    326.82010
    
    
    160.72011
    
    
    26.72012 and thereafter
    
    
    2,232.2
 16.
    
    OTHER LIABILITIES:
 2006
    
    
    2005Derivative instruments
    
    $
    231.3
    
    
    $
    261.0Accrued stock-based compensation
    
    
    57.2
    
    
    
    32.8Accrued post-retirement benefits liability (note 24)
    
    
    32.3
    
    
    
    30.3Deferred revenues
    
    
    24.0
    
    
    
    23.4Accrued pension benefits liability (note 24)
    
    
    4.7
    
    
    
    7.2Other
    
    
    7.0
    
    
    
    4.6$
    356.5
    
    
    $
    359.3
 17.
    
    NON-CONTROLLING INTEREST:Non-controlling interest represents the interest of non-controlling shareholders in the
participating shares of the Companys subsidiaries. As at December 31, 2006, the most
significant non-controlling interests were as follows:
 Non-controlling interestSubsidiary
    
    Segment
    
    % voting
    
    
    % equityTVA Group Inc.
    
    Broadcasting
    
    
    0.08
    %
    
    
    54.76
    %Nurun Inc.
    
    Interactive Technologies and Communications
    
    
    42.26
    %
    
    
    42.26
    %
 F-34




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 18.
    
    CAPITAL STOCK:
 (a)
    
    Authorized capital stock:
   
    
    An unlimited number of Cumulative First Preferred Shares, Series A (Preferred
A Shares), carrying a 12.5% annual fixed cumulative preferential dividend,
redeemable at the option of the holder and retractable at the option of the
Company;
    
    An unlimited number of Cumulative First Preferred Shares, Series B (Preferred
B Shares), carrying a fixed cumulative preferential dividend generally equivalent
to the Companys credit facility interest rate, redeemable at the option of the
holder and retractable at the option of the Company
    
    An unlimited number of Cumulative First Preferred Shares, Series C (Preferred
C Shares), carrying an 11.25% annual fixed cumulative preferential dividend,
redeemable at the option of the holder and retractable at the option of the
Company;
    
    An unlimited number of Cumulative First Preferred Shares, Series D (Preferred
D Shares), carrying an 11.00% annual fixed cumulative preferential dividend,
redeemable at the option of the holder and retractable at the option of the
Company;
    
    An unlimited number of Cumulative First Preferred Shares, Series F (Preferred
F Shares), carrying a 10.85% annual fixed cumulative preferential dividend,
redeemable at the option of the holder and retractable at the option of the
Company.
  (b)
    
    Issued capital stock:
 Common SharesNumber
    
    
    AmountBalance as at December 31, 2004 and 2005
    
    
    123,602,807
    
    
    $
    1,773.7Reduction of paid-up capital
    
    
    
    
    
    
    (21.3
    )Balance as at December 31, 2006
    
    
    123,602,807
    
    
    $
    1,752.4
   F-35




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 18.
    
    CAPITAL STOCK (continued):
 (c)
    
    Transactions during the year:2006On June 12 and December 28, 2006, the Company redeemed 255,000 and 500,000 Preferred A
Shares, respectively, owned by Sun Media Corporation and its subsidiaries, for a total
amount of $755.0 million. On the same respective days, the Company issued 120,000
Preferred F shares for an amount of $120.0 million and redeemed 55,000 Preferred F shares
for an amount of $55.0 million to Sun Media Corporation and its subsidiaries.On April 25, April 30, June 9 and June 29, 2006, the Company issued 25,000, 44,000, 50,000
and 40,000 Preferred C Shares respectively, for a total amount of $159.0 million, to
9101-0835 Québec Inc. On October 12, 2006, the Company redeemed 31,950 Preferred C Shares
owned by 9101-0835 Quebec inc. for an amount of $32.0 million.2005On January 14, 2005, the Company redeemed 150,000 Preferred A Shares for an amount of
$150.0 million from Sun Media Corporation and its subsidiaries and issued 255,000 Preferred
F Shares for an amount of $255.0 million to Sun Media Corporation and its subsidiaries.On March 9, 2005 and April 29, 2005, the Company issued 61,950 Preferred C Shares
respectively, to 9101-0835 Quebec inc. for a total amount of $61.9 million. On August 2,
2005, the Company redeemed 184,000 Preferred C Shares for an amount of $184.0 million.2004On January 14, 2004, the Company redeemed 450,000 Preferred A Shares owned by Sun Media
Corporation for an amount of $450.0 million.On January 16, June 1 and October 7, 2004, the Company issued 70,000, 100,000 and 100,000
Preferred C Shares respectively, for a total amount of $270.0 million, to 9101-0835 Québec
Inc.On January 16, 2004, the Company issued 1,100,000 Preferred D Shares, for an amount of
$1,100.0 million, to Vidéotron (1998) ltée. On December 16, 2004, the Company redeemed the
shares for an amount of $1,100.0 million.On November 30, 2004, the Company issued one Preferred E share, for an amount of $3.6
million to Sun Media Corporation and its subsidiaries. On the same day, the Company
redeemed the shares for an amount of $3.6 million.
 F-36




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 19.
    
    STOCK-BASED COMPENSATION PLANS:
 (a)
    
    Quebecor Media Inc. stock option plan:Under a stock option plan established by the Company, 6,185,714 Common Shares of the
Company were set aside for officers, senior employees, directors and other key employees of
the Company and its subsidiaries. Each option may be exercised within a maximum period of
10 years following the date of grant at an exercise price not lower than, as the case may
be, the fair market value of the Common Shares of Quebecor Media Inc. at the date of grant,
as determined by its Board of Directors (if the Common Shares of Quebecor Media Inc. are
not listed on a stock exchange at the time of the grant) or the five-day weighted average
closing price ending on the day preceding the date of grant of the Common Shares of the
Company on the stock exchanges where such shares are listed at the time of grant. Unless
authorized by the Company Compensation Committee in the context of a change of control, no
options may be exercised by an optionee if the shares of the Company have not been listed
on a recognized stock exchange. Should the Common Shares of Quebecor Media Inc. have not
been so listed on March 1, 2008, optionees may exercise from March 1 to March 30, from June
1 to June 29, from September 1 to September 29 and from December 1 to December 30 of each
year, starting March 1, 2008, their right to receive an amount in cash (equal to the
difference between the fair market value, as determined by the Companys Board of
Directors, and the exercise price of their vested options) or, subject to certain stated
conditions, Common Shares of Quebecor Media Inc. Except under specific circumstances, and
unless the Compensation Committee decides otherwise, options vest over a five-year period
in accordance with one of the following vesting schedules as determined by the Compensation
Committee at the time of grant: (i) equally over five years with the first 20% vesting on
the first anniversary of the date of the grant; (ii) equally over four years with the first
25.0% vesting on the second anniversary of the date of grant; and (iii) equally over three
years with the first 33.0% vesting on the third anniversary of the date of grant.The following table gives summary information on outstanding options granted as at December 31, 2006 and 2005:
 2006
    
    
    
    
    
    
    2005Weighted average
    
    
    
    
    
    
    Weighted averageOptions
    
    
    exercise price
    
    
    Options
    
    
    exercise priceBalance at beginning of year
    
    
    3,228,321
    
    
    $
    18.90
    
    
    
    3,135,040
    
    
    $
    17.99Granted
    
    
    795,393
    
    
    
    31.60
    
    
    
    255,630
    
    
    
    28.96Cancelled
    
    
    (241,947
    )
    
    
    21.86
    
    
    
    (162,349
    )
    
    
    17.13Balance at end of year
    
    
    3,781,767
    
    
    $
    21.38
    
    
    
    3,228,321
    
    
    $
    18.90Vested options at end of year
    
    
    1,639,460
    
    
    $
    17.59
    
    
    
    939,965
    
    
    $
    17.20
 F-37




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 19.
    
    STOCK-BASED COMPENSATION PLANS (continued):
 (a)
    
    Quebecor Media Inc. stock option plan (continued):The following table gives summary information on outstanding options as at December 31,
2006:
 Outstanding options
    
    
    
    
    
    
    Vested optionsWeighted
    
    
    
    
    
    
    WeightedWeighted
    
    
    average
    
    
    
    
    
    
    averageRange of
    
    
    
    
    
    average years
    
    
    exercise
    
    
    
    
    
    
    exerciseexercise price
    
    Number
    
    
    to maturity
    
    
    price
    
    
    Number
    
    
    price$15.19 to 21.77
    
    
    2,752,905
    
    
    
    6.00
    
    
    $
    17.96
    
    
    
    1,612,837
    
    
    $
    17.4322.98 to 33.41
    
    
    1,028,862
    
    
    
    9.04
    
    
    
    30.56
    
    
    
    26,623
    
    
    
    26.80$15.19 to 33.41
    
    
    3,781,767
    
    
    
    6.82
    
    
    $
    21.38
    
    
    
    1,639,460
    
    
    $
    17.59
 For the year ended December 31, 2006, a charge of $24.4 million related to the plan is
included in income ($10.8 million in 2005 and $15.1 million in 2004).(b)
    
    TVA Group Inc. plans:
 (i)
    
    Stock option plan for senior executives and directorsUnder this stock option plan, 1,400,000 Class B shares of TVA Group Inc. have been set
aside for senior executives and directors of TVA Group Inc. and its subsidiaries. The
terms and the conditions of options granted are determined by TVA Group Inc.s
Compensation Committee. The subscription price of an option cannot be less than the
closing price of Class B shares on the Toronto Stock Exchange the day before the option
is granted. Options granted under the plan may generally vest over a five-year period on
the basis of 25% each year, starting on the second anniversary of the grant. The term of
an option cannot exceed 10 years. Holders of options under the plan have the choice, at
the time of exercising their options, to opt to receive from TVA Group Inc. a cash
payment equal to the number of shares corresponding to the options exercised, multiplied
by the difference between the market value and the purchase price of the shares under
the option. The market value is defined by the average closing market price of the Class
B share for the last five trading days preceding the date on which the option was
exercised.On December 13, 2006, the Board of Directors adopted a resolution amending the stock
option plan. One of these amendments provides that, except under specific circumstances,
and unless the Compensation Committee decides otherwise, options will vest over a
five-year period in accordance with one of the following vesting schedules as determined
by the Compensation Committee at the time of grant: (i) equally over five years with the
first 20% vesting on the first anniversary of the date of the grant; (ii) equally over
four years with the first 25% vesting on the second anniversary of the date of grant;
and (iii) equally over three years with the first 33% vesting on the third anniversary
of the grant. The proposed amendments to the stock option plan are subject to the
approval of TVA Group Inc. shareholders and the Toronto Stock Exchange.
 F-38




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 19.
    
    STOCK-BASED COMPENSATION PLANS (continued):
 (b)
    
    TVA Group Inc. plans (continued):
 (i)
    
    Stock option plan for senior executives and directors (continued)The following table gives details on changes to outstanding options for the years ended
December 31, 2006 and 2005:
 2006
    
    
    
    
    
    
    2005Weighted average
    
    
    
    
    
    
    Weighted averageOptions
    
    
    exercise price
    
    
    Options
    
    
    exercise priceBalance at beginning of year
    
    
    310,177
    
    
    $
    20.27
    
    
    
    215,000
    
    
    $
    19.81Granted
    
    
    503,684
    
    
    
    15.62
    
    
    
    115,630
    
    
    
    20.85Exercised
    
    
    (27,500
    )
    
    
    14.00
    
    
    
    (6,000
    )
    
    
    14.00Cancelled
    
    
    (296,666
    )
    
    
    17.36
    
    
    
    (14,453
    )
    
    
    20.85Balance at end of year
    
    
    489,695
    
    
    $
    17.59
    
    
    
    310,177
    
    
    $
    20.27Vested options at end of year
    
    
    31,625
    
    
    $
    20.75
    
    
    
    72,500
    
    
    $
    18.50
  Outstanding options
    
    
    
    
    
    
    Vested optionsWeighted
    
    
    
    
    
    
    WeightedWeighted
    
    
    average
    
    
    
    
    
    
    averageRange of
    
    
    
    
    
    average years
    
    
    exercise
    
    
    
    
    
    
    exerciseexercise price
    
    Number
    
    
    to maturity
    
    
    price
    
    
    Number
    
    
    price$14.00 to 18.85
    
    
    295,564
    
    
    
    9.34
    
    
    $
    15.44
    
    
    
    
    
    
    $
    18.86 to 25.20
    
    
    194,131
    
    
    
    7.85
    
    
    
    20.87
    
    
    
    31,625
    
    
    
    20.75$14.00 to 25.20
    
    
    489,695
    
    
    
    8.75
    
    
    $
    17.59
    
    
    
    31,625
    
    
    $
    20.75
 F-39




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 19.
    
    STOCK-BASED COMPENSATION PLANS (continued):
 (b)
    
    TVA Group Inc. plans (continued):
 (i)
    
    Stock option plan for senior executives and directors (continued)Had the vested options been exercised as at December 31, 2006, Quebecor Media Inc.s
interest in TVA Group Inc. would have decreased from 45.24% to 45.23% (45.23% to 45.11%
as at December 31, 2005).No charge was recorded for the TVA Group Inc. plan for the year ended December 31, 2006
(a charge reversal of $0.1 million in 2005 and a charge of $0.2 million in 2004).(ii)
    
    Share purchase plan for executives and employeesIn 1998, TVA Group Inc. introduced a share purchase plan relating to 375,000 TVA Group
Inc. Class B shares for its executives and a share purchase plan relating to 375,000 TVA
Group Inc. Class B shares for its employees. The plans provide that participants can
acquire shares on certain terms related to their salary. The shares can be acquired at a
price equal to 90% of the average closing market price of TVA Group Inc. Class B shares.
The plans also provide financing terms free of interest. No Class B shares were issued
under the plans during the years ended December 31, 2006, 2005 and 2004. The remaining
balance that may be issued under the share purchase plan for executives is 332,643 TVA
Group Inc. Class B shares as at December 31, 2006 and 2005. The remaining balance that
may be issued under the share purchase plan for employees is 229,753 TVA Group Inc.
Class B shares as at December 31, 2006 and 2005.(iii)
    
    Deferred share unit planIn 2000, TVA Group Inc. introduced a long-term profit sharing plan for certain members
of senior management of TVA Group Inc., and its subsidiaries. The deferred share units
(DSUs) are redeemable only upon termination of the participants employment. The
redemption price is payable in cash or, at TVA Group Inc.s
discretion, in Class B shares of TVA Group Inc. or by a combination of cash and shares. Under this plan, a
maximum of 25,000 Class B shares of TVA Group Inc. can be issued. No DSUs were issued
under this plan during the years ended December 31, 2006, 2005 and 2004.
 F-40




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 20.
    
    COMMITMENTS AND CONTINGENCIES:
 (a)
    
    Leases and purchasing agreements:The Company rents premises and equipment under operating leases and has entered into
long-term commitments to purchase services, capital equipment, and distribution and
broadcasting rights that call for total future payments of $297.5 million. The minimum
payments for the coming years are as follows:
 OtherLeases
    
    
    commitments2007
    
    $
    39.6
    
    
    $
    103.12008
    
    
    33.6
    
    
    
    22.12009
    
    
    26.6
    
    
    
    10.92010
    
    
    20.6
    
    
    
    2.12011
    
    
    11.9
    
    
    
    0.52012 and thereafter
    
    
    26.5
    
    
    
    
 Operating lease expenses amounted to $44.8 million, $42.4 million and $35.1 million for the
years ended December 31, 2006, 2005 and 2004, respectively.(b)
    
    Other commitments:As part of the acquisition of Group TVA Inc. in 2001 and Sun TV in 2004, the Company is
committed, over period ending in 2012, to invest $58.2 million in the Canadian TV industry
and in the Canadian communications industry to promote Canadian TV content and the
development of communications. As at December 31, 2006, $8.6 million remained to be
invested.(c)
    
    Contingencies:On March 13, 2002, legal action was initiated by the shareholders of a cable company
against Videotron Ltd., Cable segment. They contend that Videotron Ltd. did not honor its
commitment related to a stock purchase agreement signed in August 2000. The plaintiffs are
requesting compensation totalling $26.0 million. Videotron Ltd.s management claims the
suit is not justified and intends to vigorously defend its case in Court.A number of other legal proceedings against the Company and its subsidiaries are still
outstanding. In the opinion of the management of the Company and its subsidiaries, the
outcome of these proceedings is not expected to have a material adverse effect on the
Companys results or its financial position.
 F-41




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 21.
    
    GUARANTEES:In the normal course of business, the Company enters into numerous agreements containing
guarantees including the following:Operating leases:The Company has guaranteed a portion of the residual values of certain assets under operating
leases for the benefit of the lessor. Should the Company terminate these leases prior to term
(or at the end of these lease term) and should the fair value of the assets be less than the
guaranteed residual value, then the Company must, under certain conditions, compensate the
lessor for a portion of the shortfall. In addition, the Company has provided guarantees to the
lessor of certain premise leases, with expiry dates through 2015. Should the lessee default
under the agreement, the Company must, under certain conditions, compensate the lessor. As at
December 31, 2006, the maximum exposure with respect to these guarantees is $16.2 million and
no liability has been recorded in the consolidated balance sheet since the Company does not
expect to make any payments pertaining to these guarantees.Business and asset disposals:In the sale of all or part of a business or an asset, in addition to possible indemnification
relating to failure to perform covenants and breach of representations or warranties, the
Company may agree to indemnify against claims related to its past conduct of the business.
Typically, the term and amount of such indemnification will be limited by the agreement. The
nature of these indemnification agreements prevents the Company from estimating the maximum
potential liability it could be required to pay to guaranteed parties. The Company has not
accrued any amount in respect of these items in the consolidated balance sheet.Outsourcing companies and suppliers:In the normal course of its operations, the Company enters into contractual agreements with
outsourcing companies and suppliers. In some cases, the Company agrees to provide
indemnifications in the event of legal procedures initiated against them. In other cases, the
Company provides indemnification to counterparties for damages resulting from the outsourcing
companies and suppliers. The nature of the indemnification agreements prevents the Company from
estimating the maximum potential liability it could be required to pay. No amount has been
accrued in the consolidated financial statements with respect to these indemnifications.
 F-42




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 22.
    
    FINANCIAL INSTRUMENTS:The Company is exposed to risks relating to foreign exchange fluctuations and is as well as
risks relating to interest rate fluctuations. To reduce these risks, the Company and its
subsidiaries use derivative financial instruments. None of these instruments is held or issued
for speculative purposes.
 (a)
    
    Description of derivative financial instruments:
 (i)
    
    Foreign exchange forward contracts:
 Average
    
    
    NotionalCurrencies (sold/bought)
    
    Maturing

    
    exchange rate
    
    
    amountQuebecor Media Inc.$/Euro
    
    Less than 1 year
    
    
    1.4459
    
    
    $
    25.1$/CHF
    
    Less than 1 year
    
    
    0.9265
    
    
    
    14.9Sun Media Corporation$ / US$
    
    February 15, 2013
    
    
    1.5227
    
    
    
    312.2Videotron Ltd. and its subsidiaries:$ / US$
    
    Less than 1 year
    
    
    1.1152
    
    
    
    50.4
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 22.
    
    FINANCIAL INSTRUMENTS (continued):
 (a)
    
    Description of derivative financial instruments (continued):
 (ii)
    
    Cross-currency interest rate swaps:
 CDN dollarexchange rateAnnual
    
    
    Annual
    
    
    of interesteffective
    
    
    nominal
    
    
    and capitalPeriod
    
    
    Notional
    
    
    interest
    
    
    interest
    
    
    payments percovered
    
    
    amount
    
    
    rate
    
    
    rate
    
    
    one US dollarQuebecor Media Inc.:Senior Notes
    
    
    2006 to 2016
    
    
    US$
    525.0
    
    
    
    7.39
    %
    
    
    7.75
    %
    
    
    1.1600Term loan B credit
facilities
    
    
    2006 to 2009
    
    
    US$
    198.9
    
    
    
    6.27
    %
    
    LIBOR
    
    
    1.1625+2.00
    %Term loan B credit
facilities
    
    
    2009 to 2013
    
    
    US$
    198.9
    
    
    Bankers
    
    LIBOR
    
    
    1.1625acceptances
    
    
    +2.00
    %3 months+2.22
    %Term loan B credit
facilities
    
    
    2006 to 2013
    
    
    US$
    148.9
    
    
    
    6.44
    %
    
    LIBOR
    
    
    1.1625+2.00
    %Videotron Ltd. and
its subsidiaries:Senior Notes
    
    
    2004 to 2014
    
    
    US$
    190.0
    
    
    Bankers
    
    
    6.875
    %
    
    
    1.2000acceptances3 months+2.80
    %Senior Notes
    
    
    2004 to 2014
    
    
    US$
    125.0
    
    
    
    7.45
    %
    
    
    6.875
    %
    
    
    1.1950Senior Notes
    
    
    2003 to 2014
    
    
    US$
    200.0
    
    
    Bankers
    
    
    6.875
    %
    
    
    1.3425acceptances3 months+2.73
    %Senior Notes
    
    
    2003 to 2014
    
    
    US$
    135.0
    
    
    
    7.66
    %
    
    
    6.875
    %
    
    
    1.3425Senior Notes
    
    
    2005 to 2015
    
    
    US$
    175.0
    
    
    
    5.98
    %
    
    
    6.375
    %
    
    
    1.1781
 F-44




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 22.
    
    FINANCIAL INSTRUMENTS (continued):
 (a)
    
    Description of derivative financial instruments (continued):
 (ii)
    
    Cross-currency interest rate swaps (continued):
 CDN dollarexchange rateAnnual
    
    
    Annual
    
    
    of interesteffective
    
    
    nominal
    
    
    and capitalPeriod
    
    
    Notional
    
    
    interest
    
    
    interest
    
    
    payments percovered
    
    
    amount
    
    
    rate
    
    
    rate
    
    
    one US dollarSun Media Corporation
and its subsidiaries:Senior Notes
    
    
    2003 to 2008
    
    
    US$
    155.0
    
    
    
    8.17
    %
    
    
    7.625
    %
    
    
    1.5227Senior Notes
    
    
    2008 to 2013
    
    
    US$
    155.0
    
    
    Bankers
    
    
    7.625
    %
    
    
    1.5227acceptances3 months+3.70
    %Senior Notes
    
    
    2003 to 2013
    
    
    US$
    50.0
    
    
    Bankers
    
    
    7.625
    %
    
    
    1.5227acceptances3 months+3.70
    %Term-loan B
credit facility
    
    
    2003 to 2009
    
    
    US$
    181.4
    
    
    Bankers
    
    LIBOR
    
    
    1.5175acceptances
    
    plus 1.75%3 months+2.29
    %
 F-45




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 22.
    
    FINANCIAL INSTRUMENTS (continued):
 (a)
    
    Description of derivative financial instruments (continued):
 (ii)
    
    Cross-currency interest rate swaps (continued):The cross-currency swap agreements settled as part of the refinancing of the Companys
debts on January 17, 2006, were subject to a floor limit on negative fair market value,
below which the Company was required to make prepayments to limit the exposure of the
counterparties. Such prepayments were offset by equal reductions in the Companys
commitments under the agreements. The Company was required to make prepayments of $75.9
million in 2005 and $197.7 million in 2004 under this provision.Also, certain cross-currency interest rate swaps entered into by the Company and its
subsidiaries include an option that allows each party to unwind the transaction on a
specific date at the then-market value.
 (b)
    
    Fair value of financial instruments:The carrying amount of cash and cash equivalents, temporary investments, accounts
receivable, bank indebtedness, accounts payable and accrued charges, dividend payable,
amounts payable to the parent company and companies under common control and the Additional
Amount payable approximates their fair value since these items will be realized or paid
within one year or are due on demand.
 F-46




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 22.
    
    FINANCIAL INSTRUMENTS (continued):
 (b)
    
    Fair value of financial instruments (continued):Carrying value and fair value of other financial instruments as at December 31, 2006 and
2005 are as follows:
 2006
    
    
    
    
    
    
    2005Carrying
    
    
    
    
    
    
    Carryingvalue
    
    
    Fair value
    
    
    value
    
    
    Fair valueQuebecor Media Inc.Long-term debt
    
    $
    (1,191.6
    )
    
    $
    (1,206.3
    )
    
    $
    (988.1
    )
    
    $
    (1,078.8
    )Cross-currency interest rate swaps
    
    
    3.8
    
    
    
    (17.8
    )
    
    
    (21.5
    )
    
    
    (261.3
    )Foreign exchange forward contracts
    
    
    2.2
    
    
    
    2.2
    
    
    
    
    
    
    
    (1.8
    )Videotron Ltd. and its subsidiariesLong-term debt
    
    
    (1,021.2
    )
    
    
    (1,010.6
    )
    
    
    (971.7
    )
    
    
    (967.4
    )Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    (0.9
    )
    
    
    (0.9
    )Cross-currency interest rate swaps
    
    
    (71.8
    )
    
    
    (141.1
    )
    
    
    (73.7
    )
    
    
    (135.0
    )Foreign exchange forward contract
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    (0.2
    )Sun Media Corporation and its subsidiariesLong-term debt
    
    
    (486.8
    )
    
    
    (492.9
    )
    
    
    (466.3
    )
    
    
    (476.1
    )Cross-currency interest rate swaps and
foreign exchange forward contract
    
    
    (148.8
    )
    
    
    (176.1
    )
    
    
    (154.1
    )
    
    
    (186.5
    )TVA Group Inc. and its subsidiariesLong-term debt
    
    
    (96.5
    )
    
    
    (96.5
    )
    
    
    (107.1
    )
    
    
    (107.1
    )
 The fair value of the financial liabilities are estimated based on discounted cash flows
using year-end market yields or market value of similar instruments with the same maturity.
The fair value of the derivative financial instruments is estimated using year-end market
rates, and reflects the amount the Company would receive or pay if the instruments were
closed out at those dates.(c)
    
    Credit risk management:The Company is exposed to credit losses resulting from defaults by counterparties when
using financial instruments.When the Company enters into derivative contracts, the counterparties (either foreign or
Canadian) must have at least credit ratings in accordance with the Companys credit risk
management policy and are subject to concentration limits. The Company does not foresee
any failure by counterparties in meeting their obligations.In the normal course of business, the Company continuously monitors the financial condition
of its customers and reviews the credit history of each new customer. As at December 31,
2006, no customer balance represented a significant portion of the Companys consolidated
trade receivables. The Company establishes an allowance for doubtful accounts based on the
specific credit risk of its customers and historical trends.
 F-47




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 22.
    
    FINANCIAL INSTRUMENTS (continued):
 (C)
    
    Credit risk management (continued):The Company believes that its product-lines and the geographic diversity of its customer
base is instrumental in reducing its credit risk, as well as the impact of fluctuations in
product-line demand. The Company does not believe that it is exposed to an unusual level
of customer credit risk.
 23.
    
    RELATED PARTY TRANSACTIONS:During the year, the Company made purchases and incurred rent charges from companies under
common control and from affiliated companies in the amount of $86.9 million ($88.4 million in
2005 and $75.1 million in 2004), included in the cost of sales and selling and administrative
expenses. The Company made sales to companies under common control and to an affiliated
company in the amount of $18.1 million ($21.7 million in 2005 and $11.1 million in 2004). These
transactions were concluded and accounted for at the exchange value.In 2005, the Company acquired certain assets from Quebecor World Inc., a company under common
control, for a cash consideration of $3.3 million. The transaction was recorded at the carrying
value of the assets transferred.In 2004, the Cable segment purchased some of the Quebecor World Inc.s information technology
(IT) infrastructure equipment of Quebecor World Inc., a company under common control, at a cost
of $3.0 million, as part of an IT outsourcing long-term agreement signed between the parties.
Both the price of the equipment transferred and revenues from this outsourcing agreement are
accounted for at the exchange value.Quebecor Inc. (the parent company) has entered into management arrangements with the Company.
Under these management arrangements, the parent company and the Company provide each other
management services on a cost reimbursement basis. The expenses subject to reimbursement
include the salaries of the Companys executive officers who also serve as executive officers
of the parent company. Also, in connection with the Companys previous credit facility, which
was secured by the Companys shareholders, an annual security fee equivalent to 1% of the
credit facility was charged to the Company by its shareholders. The new credit facilities,
entered into in January 2006, are not secured by the Companys shareholders. In 2006, the
Company received an amount of $3.0 million, which is included as a reduction in selling and
administrative expenses ($3.0 million in 2005 and 2004) and the Company has incurred management
and security fees of $1.1 million ($2.2 million in 2005 and $1.8 million in 2004) with the
shareholders.In addition, the Company incurred rent expense with a subsidiary of a shareholder and with a
shareholder of the parent company for an amount of $2.7 million ($2.6 million in 2005 and $3.7
million in 2004).During the year ended December 31, 2006, Nurun Inc., Interactive Technologies and
Communications segment, received interest of $0.9 million ($0.8 million in 2005 and $0.7
million in 2004) from Quebecor Inc. As at December 31, 2006, cash and cash equivalents
totalling $20.2 million ($22.3 million as at December 31, 2005) have been invested on a
revolving basis in Quebecor Inc. under the terms of an agreement for the consolidation of bank
operations. These advances on demand bear interest at prime rate less 1.4%.During the years ended December 31, 2006 and 2004, some of the Companys subsidiaries acquired
tax benefits amounting to $6.5 million and $12.9 million, respectively, from Quebecor World
Inc., a company under common control, that were recorded as income taxes receivable. These
transactions allowed the Company to realize a gain of $0.4 million and $0.1 million (net of
non-controlling interest), respectively, which was recorded as contributed surplus.On December 14, 2005, the Company entered into a tax consolidation transaction by which the
Company has transferred to its parent company $192.0 million of capital losses for a cash
consideration of $15.9 million. In addition, in 2006, Quebecor Inc., the parent company,
transferred to the Companys subsidiary, Sun Media Corporation, $74.2 million of non-capital
losses in exchange of a cash consideration of $16.1 million. These transactions were recorded
at the exchange amounts. As a result, the Company has recorded a reduction of $15.9 million of
its income tax expense in 2005 and expects to reduce its income tax expense by $8.4 million in
the future.
 F-48




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 24.
    
    PENSION PLANS AND POSTRETIREMENT BENEFITS:The Company maintains various flat-benefit plans, final-pay plans with indexation features from
none to 2%, and defined contribution plans. The Companys policy is to maintain its
contribution at a level sufficient to cover benefits. Actuarial valuations of the Companys
numerous pension plans were performed once at least in the last three years and the next
required valuations will be performed at least over the next three years.The Company provides postretirement benefits to eligible employees. The costs of these
benefits, which are principally health care, are accounted for during the employees active
service period.The following tables give a reconciliation of the changes in the plans benefit obligations and
the fair value of plan assets for the years ended December 31, 2006 and 2005, and a statement
of the funded status as at those dates:
 Pension benefits
    
    
    Postretirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Change in benefit obligations:Benefit obligations at beginning of year
    
    $
    555.9
    
    
    $
    444.9
    
    
    $
    40.4
    
    
    $
    35.5Service costs
    
    
    22.1
    
    
    
    15.3
    
    
    
    1.3
    
    
    
    1.8Interest costs
    
    
    29.0
    
    
    
    27.7
    
    
    
    1.9
    
    
    
    2.2Plan participants contributions
    
    
    11.7
    
    
    
    10.4
    
    
    
    
    
    
    
    Actuarial loss
    
    
    1.8
    
    
    
    68.7
    
    
    
    1.3
    
    
    
    4.5Benefits and settlements paid
    
    
    (25.6
    )
    
    
    (16.7
    )
    
    
    (1.7
    )
    
    
    (1.2
    )Plan amendments
    
    
    0.7
    
    
    
    5.6
    
    
    
    (3.1
    )
    
    
    Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )Other
    
    
    0.2
    
    
    
    
    
    
    
    0.6
    
    
    
    Benefit obligations at end of year
    
    $
    595.8
    
    
    $
    555.9
    
    
    $
    40.7
    
    
    $
    40.4
 Pension benefits
    
    
    Postretirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Change in plan assets:Fair value of plan assets at beginning of year
    
    $
    480.8
    
    
    $
    421.8
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    68.5
    
    
    
    47.2
    
    
    
    
    
    
    
    Employer contributions
    
    
    25.0
    
    
    
    18.1
    
    
    
    1.7
    
    
    
    1.2Plan participants contributions
    
    
    11.7
    
    
    
    10.4
    
    
    
    
    
    
    
    Benefits and settlements paid
    
    
    (25.6
    )
    
    
    (16.7
    )
    
    
    (1.7
    )
    
    
    (1.2
    )Fair value of plan assets at end of year
    
    $
    560.4
    
    
    $
    480.8
    
    
    $
    
    
    
    $
    
 The plan assets are comprised of:
 2006
    
    
    2005Equity securities
    
    
    59.8
    %
    
    
    55.8
    %Debt securities
    
    
    36.5
    
    
    
    43.4Other
    
    
    3.7
    
    
    
    0.8100.0
    %
    
    
    100.0
    %
 F-49




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 24.
    
    PENSION PLANS AND POSTRETIREMENT BENEFITS (continued):As at December 31, 2006, plan assets included shares of the parent company and of a company
under common control representing an amount of $2.5 million ($2.7 million as at December 31,
2005).
 Pension benefits
    
    
    Postretirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Reconciliation of funded status:Excess of benefit obligations over fair
value of plan assets at end of year
    
    $
    (35.4
    )
    
    $
    (75.1
    )
    
    $
    (40.7
    )
    
    $
    (40.4
    )Unrecognized actuarial loss
    
    
    47.9
    
    
    
    81.1
    
    
    
    13.0
    
    
    
    12.3Unrecognized net transition (asset) obligation
    
    
    (5.2
    )
    
    
    (5.7
    )
    
    
    0.5
    
    
    
    0.5Unrecognized prior service cost (benefit)
    
    
    17.0
    
    
    
    18.1
    
    
    
    (5.1
    )
    
    
    (2.7
    )Valuation allowance
    
    
    (19.5
    )
    
    
    (17.4
    )
    
    
    
    
    
    
    Net amount recognized
    
    $
    4.8
    
    
    $
    1.0
    
    
    $
    (32.3
    )
    
    $
    (30.3
    )
 Included in the above benefit obligations and fair value of plan assets at year-end are the
following amounts in respect of plans that are not fully funded:
 Pension benefits
    
    
    Postretirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Benefit obligations
    
    $
    (585.5
    )
    
    $
    (549.5
    )
    
    $
    (40.7
    )
    
    $
    (40.4
    )Fair value of plan assets
    
    
    548.8
    
    
    
    473.6
    
    
    
    
    
    
    
    Funded status  plan deficit
    
    $
    (36.7
    )
    
    $
    (75.9
    )
    
    $
    (40.7
    )
    
    $
    (40.4
    )
 Amounts recognized in the consolidated balance sheets are as follows:
 Pension benefits
    
    
    Postretirement benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Accrued benefit liability
    
    $
    (4.7
    )
    
    $
    (7.2
    )
    
    $
    (32.3
    )
    
    $
    (30.3
    )Deferred pension charge
    
    
    9.5
    
    
    
    8.2
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    4.8
    
    
    $
    1.0
    
    
    $
    (32.3
    )
    
    $
    (30.3
    )
 F-50




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 24.
    
    PENSION PLANS AND POSTRETIREMENT BENEFITS (continued):Components of the net benefit costs are as follows:
 Pension benefits
    
    
    Postretirement benefits2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Service costs
    
    $
    22.1
    
    
    $
    15.3
    
    
    $
    11.9
    
    
    $
    1.3
    
    
    $
    1.8
    
    
    $
    1.5Interest costs
    
    
    29.0
    
    
    
    27.7
    
    
    
    26.2
    
    
    
    1.9
    
    
    
    2.2
    
    
    
    1.9Actual return on plan assets
    
    
    (68.5
    )
    
    
    (47.2
    )
    
    
    (38.6
    )
    
    
    
    
    
    
    
    
    
    
    Current actuarial loss
    
    
    1.8
    
    
    
    68.7
    
    
    
    6.6
    
    
    
    1.3
    
    
    
    4.5
    
    
    
    2.6Current prior service costs (benefits)
    
    
    0.7
    
    
    
    5.6
    
    
    
    0.3
    
    
    
    (3.1
    )
    
    
    
    
    
    
    Curtailment (gain) loss and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    1.9Elements of net benefit
costs before adjustments to
recognize the long-term nature
and valuation allowance
    
    
    (14.9
    )
    
    
    70.1
    
    
    
    6.4
    
    
    
    1.4
    
    
    
    6.9
    
    
    
    7.9Difference between actual and
expected return on plan assets
    
    
    33.0
    
    
    
    15.1
    
    
    
    9.2
    
    
    
    
    
    
    
    
    
    
    
    Deferral of amounts arising
during the period:Actuarial loss
    
    
    (1.8
    )
    
    
    (68.7
    )
    
    
    (6.6
    )
    
    
    (1.3
    )
    
    
    (4.5
    )
    
    
    (2.6
    )Prior service costs
    
    
    (0.7
    )
    
    
    (5.6
    )
    
    
    (0.3
    )
    
    
    3.1
    
    
    
    
    
    
    
    Amortization of previously
deferred amounts:Actuarial loss
    
    
    2.0
    
    
    
    (0.2
    )
    
    
    1.3
    
    
    
    0.6
    
    
    
    (0.1
    )
    
    
    Prior service costs (benefits)
    
    
    1.8
    
    
    
    1.6
    
    
    
    1.2
    
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    (0.3
    )Transitional obligations
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    0.1
    
    
    
    0.1Total adjustments to recognize the
long-term nature of benefit costs
    
    
    33.8
    
    
    
    (58.3
    )
    
    
    4.3
    
    
    
    1.7
    
    
    
    (4.8
    )
    
    
    (2.8
    )Valuation allowance
    
    
    2.1
    
    
    
    1.0
    
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    Net benefit costs
    
    $
    21.0
    
    
    $
    12.8
    
    
    $
    13.3
    
    
    $
    3.1
    
    
    $
    2.1
    
    
    $
    5.1
 The expense related to defined contribution pension plans amounted to $10.9 million in 2006
($9.7 million in 2005 and $10.3 million in 2004).The total cash amount paid or payable for employee future benefits for all plans, consisting of
cash contributed by the Company to its funded pension plans, cash payment directly to
beneficiaries for its unfunded other benefit plans, and cash contributed to its defined
contribution plans, totalled $37.6 million for the year ended December 31, 2006 ($29.0 million
in 2005 and $28.3 million in 2004).
 F-51




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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 24.
    
    PENSION PLANS AND POSTRETIREMENT BENEFITS (continued):The weighted average rates used in the measurement of the Companys benefit obligations as at
December 31, 2006, 2005 and 2004 and current periodic costs are as follows:
 Pension benefits
    
    
    Postretirement benefits2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Benefit obligationsRates as at year-end:Discount rate
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50Current periodic costsRates as at preceding year-end:Discount
rate
    
    
    5.00
    %

    
    
    6.00
    %
    
    
    6.25
    %
    
    
    5.00
    %
    
    
    6.00
    %
    
    
    6.25
    %Expected return on plan assets 1
    
    
    7.25
    
    
    
    7.50
    
    
    
    7.75
    
    
    
    
    
    
    
    
    
    
    
    Rate of compensation increase
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
    
    
    
    3.50
 1
    After management and professional fees.
 The assumed health care cost trend rate used in measuring the accumulated postretirement
benefit obligations was 8.6% at the end of 2006. The cost, as per an estimate, is expected to
decrease gradually for the next nine years to 5.0% and remain at that level thereafter. A
one-percentage point change in the assumed health care cost trend would have the following
effects:
 Postretirement
benefits1%
    
    
    1%Sensitivity analysis
    
    increase
    
    
    decreaseEffect on service and interest costs
    
    $
    0.6
    
    
    $
    (0.4
    )Effect on benefit obligations
    
    
    6.6
    
    
    
    (5.1
    )
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 25.
    
    RATES SUBJECT TO CRTC REGULATIONThe Cable segment operations are subject to rate regulations on certain services based on
geographical regions, mainly by the Broadcasting Act (Canada) and the Telecommunications Act
(Canada), both managed by the Canadian Radio-television and Telecommunication Commissions.
Accordingly, the Cable segments operating revenues could be affected by changes in regulations
or decisions made by this regulating body. The Company does not select accounting policies
that would differ from GAAP, even though the Company is subject to these regulations.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 26.
    
    SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES:The Companys consolidated financial statements are prepared in accordance with GAAP in Canada,
which differ in some respects from those applicable in the United States. The following tables
set forth the impact of material differences between GAAP in Canada and in the United States on
the Companys consolidated financial statements:Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for
Fair Value Hedge RelationshipsThe following 2006, 2005 and 2004 U.S. GAAP financial information from the consolidated
statements of income, comprehensive loss and consolidated balance sheets have been restated to
reflect certain adjustments to previously reported financial information for the correction of
an error related to the accounting for certain fair value hedge relationships.As described in Note 26 (iii), the Company has entered into fair value hedges of its debt
with derivative instruments. The accounting for a fair value hedge in accordance with GAAP in
the United States requires that the change in fair value of the hedging instrument and the
change in fair value of the hedged item attributable to the hedged risk, be recognized
currently in earnings. The Company has determined that the adjustment to the carrying value of
the debt (hedged item) attributable to the hedged risks was calculated and recorded incorrectly
in previously presented financial information calculated in accordance with GAAP in the United
States due to a misinterpretation of the applicable GAAP in the United States.The following tables summarize the effects of the adjustments on previously reported financial
information.Consolidated statements of income and comprehensive income:
 2006
    
    
    2005
    
    
    2004Decrease in change in fair value and ineffective
portion of derivative instruments
    
    $
    (10.5
    )
    
    $
    (18.5
    )
    
    $
    (14.2
    )Decrease in income tax expense
    
    
    3.0
    
    
    
    6.1
    
    
    
    Net decrease of net income and comprehensive income
    
    $
    (7.5
    )
    
    $
    (12.4
    )
    
    $
    (14.2
    )
 Consolidated balance sheets:
 December 31,
    
    
    December 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2004Increase in long term debt
    
    $
    43.1
    
    
    $
    32.5
    
    
    $
    14.1Decrease in future income tax liabilities
    
    
    (9.1
    )
    
    
    (6.1
    )
    
    
    Increase in deficit
    
    
    34.0
    
    
    
    26.4
    
    
    
    14.1
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 26.
    
    SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (CONTINUED):Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for
Fair Value Hedge Relationships (continued)Adjustment to unaudited interim financial information calculated in accordance with U.S. GAAP :
 First quarter
    
    
    Second quarter
    
    
    Third quarter
    
    
    Fourth quarter2006
    
    
    2006
    
    
    2006
    
    
    2006Decrease in change in fair value and ineffective
portion of derivative instruments
    
    $
    (2.5
    )
    
    $
    (2.3
    )
    
    $
    (2.3
    )
    
    $
    (3.4
    )Decrease in income tax expense
    
    
    0.9
    
    
    
    0.5
    
    
    
    0.9
    
    
    
    0.7Net decrease of net income and
comprehensive income
    
    $
    (1.6
    )
    
    $
    (1.8
    )
    
    $
    (1.4
    )
    
    $
    (2.7
    )
 (a)
    
    Consolidated statements of income:
 2006
    
    
    2005
    
    
    2004(restated)
    
    
    (restated)
    
    
    (restated)Net (loss) income, as reported in the consolidated
statements of income per GAAP in Canada
    
    $
    (169.7
    )
    
    $
    96.5
    
    
    $
    88.2Adjustments:Development, pre-operating and start-up costs (i)
    
    
    (0.7
    )
    
    
    (1.3
    )
    
    
    (2.1
    )Pension and postretirement benefits (ii)
    
    
    0.9
    
    
    
    2.1
    
    
    
    0.9Change in fair value and ineffective portion
of derivative instruments (iii)
    
    
    71.6
    
    
    
    (7.2
    )
    
    
    (7.6
    )Stock-based compensation (iv)
    
    
    (4.8
    )
    
    
    
    
    
    
    Income taxes (v), (vi)
    
    
    (40.1
    )
    
    
    37.2
    
    
    
    (4.4
    )Non-monetary transactions (vii)
    
    
    
    
    
    
    1.5
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    6.9Net (loss) income, as adjusted per GAAP in the
United States (in Canadian dollars)
    
    $
    (142.8
    )
    
    $
    128.8
    
    
    $
    81.9
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 26.
    
    SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (CONTINUED):
 (b)
    
    Comprehensive (loss) income:The application of GAAP in the United States requires the disclosure of comprehensive (loss)
income in a separate financial statement, which includes net (loss) income as well as
revenues, charges, gains and losses recorded directly to equity. The details of the
comprehensive loss are as follows:
 2006
    
    
    2005
    
    
    2004(restated)
    
    
    (restated)
    
    
    (restated)Net (loss) income, as adjusted per GAAP in the United States
    
    $
    (142.8
    )
    
    $
    128.8
    
    
    $
    81.9Pension and post-retirement benefits (ii)
    
    
    17.6
    
    
    
    (18.8
    )
    
    
    (4.4
    )Derivative instruments (iii)
    
    
    132.0
    
    
    
    (22.0
    )
    
    
    (105.7
    )Translation adjustment 1
    
    
    1.2
    
    
    
    (1.3
    )
    
    
    0.5Income taxes (v), (vi)
    
    
    (64.4
    )
    
    
    73.3
    
    
    
    2.2Comprehensive (loss) income per GAAP in the United States
    
    $
    (56.4
    )
    
    $
    160.0
    
    
    $
    (25.5
    )
 1
    Change of the year
 Accumulated other comprehensive loss as at December 31, 2006, 2005 and 2004 is as follows:
 2006
    
    
    2005
    
    
    2004Pension and post-retirement benefits (ii)
    
    $
    (52.3
    )
    
    $
    (30.2
    )
    
    $
    (11.4
    )Derivative instruments (iii)
    
    
    (44.4
    )
    
    
    (176.4
    )
    
    
    (154.4
    )Translation adjustment
    
    
    (1.1
    )
    
    
    (2.3
    )
    
    
    (1.0
    )Income taxes (ii), (v), (vi)
    
    
    25.8
    
    
    
    77.8
    
    
    
    4.5Accumulated other comprehensive loss at end of year
    
    $
    (72.0
    )
    
    $
    (131.1
    )
    
    $
    (162.3
    )
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 26.
    
    SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued):
 (c)
    
    Consolidated balance sheets:
 2006
    
    
    
    
    
    
    2005Canada
    
    
    United States
    
    
    Canada
    
    
    United States(restated)
    
    
    
    
    
    
    (restated)Goodwill
    
    $
    3,721.1
    
    
    $
    3,717.1
    
    
    $
    3,871.9
    
    
    $
    3,868.0Other assets
    
    
    243.6
    
    
    
    197.1
    
    
    
    259.4
    
    
    
    251.9Current liabilities
    
    
    (956.4
    )
    
    
    (945.9
    )
    
    
    (964.3
    )
    
    
    (964.3
    )Long-term debt
    
    
    (2,773.0
    )
    
    
    (2,743.2
    )
    
    
    (2,530.5
    )
    
    
    (2,498.3
    )Other liabilities
    
    
    (356.5
    )
    
    
    (470.9
    )
    
    
    (359.3
    )
    
    
    (684.5
    )Future income tax liabilities
    
    
    (118.9
    )
    
    
    (81.0
    )
    
    
    (227.0
    )
    
    
    (97.7
    )Non-controlling interest
    
    
    (142.1
    )
    
    
    (137.1
    )
    
    
    (144.3
    )
    
    
    (144.0
    )Contributed surplus (vi), (viii)
    
    
    (3,217.2
    )
    
    
    (3,395.2
    )
    
    
    (3,216.8
    )
    
    
    (3,386.4
    )Deficit
    
    
    2,731.5
    
    
    
    2,920.3
    
    
    
    2,538.1
    
    
    
    2,753.7Accumulated other comprehensive loss
    
    
    1.1
    
    
    
    72.0
    
    
    
    2.3
    
    
    
    131.1
 (i)
    Under GAAP in Canada, certain development and pre-operating costs that
satisfy specified criteria for recoverability are deferred and amortized. Also, under
GAAP in Canada, certain start-up costs incurred in connection with various projects
have been recorded in the consolidated balance sheets under the item Other assets,
and are amortized over a period not exceeding five years. Under GAAP in the United
States, these costs must be included in income as incurred.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 26.
    
    SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued):
 (c)
    
    Consolidated balance sheets (continued):
 (ii)
    
    Under GAAP in the United States, Statement No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans (SFAS 158) was issued in 2006
and requires the recognition in the balance sheet of the over or under funded
positions of defined benefit pension and other postretirement plans, along with a
corresponding non-cash adjustment, which will be recorded in the accumulated other
comprehensive loss. The SFAS 158 was adopted prospectively on December 31, 2006 and
did not have an impact on the Companys consolidated statement of income.Under GAAP in the United States, for 2006 and prior years, if the accumulated benefit
obligation exceeded the fair value of a pension plans assets, the Company was required
to recognize a minimum accrued liability equal to the unfunded accumulated benefit
obligation, which was recorded in accumulated other comprehensive loss. The additional
minimum liability concept has been eliminated with the adoption of SFAS 158.On the adoption of SFAS 158, an adjustment of $27.3 million (net of income tax of $12.4
million and non-controlling interest of $14.5 million) was recorded as a component of
the ending balance of accumulated other comprehensive loss as at December 31, 2006 to
reflect the unfunded status of benefit plans and the reversal of the minimum pension
liability that was recognized in accordance with SFAS 87.Under GAAP in Canada, a company is not required to recognize the over or under funded
positions or to recognize an additional minimum liability. However, when a defined
benefit plan gives rise to an accrued benefit asset, a company must recognize a
valuation allowance for the excess of the adjusted benefit asset over the expected
future benefit to be realized from the plan asset. GAAP in the United States does not
provide for a valuation allowance against pension assets.(iii)
    
    Under GAAP in United States, Statement of Financial Accounting Standards
No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133)
establishes accounting and reporting standards for derivative instruments and hedging
activities and requires that all derivatives be recorded as either assets or
liabilities in the balance sheet at fair value. In accordance with SFAS 133, for
derivative instruments designated as fair value hedges, such as certain cross-currency
interest rate swaps of Videotron Ltd. and Sun Media Corporation, changes in the fair
value of the derivative instrument are substantially offset in the statement of income
by changes in the fair value of the hedged item. For derivative instruments designated
as cash flow hedges, such as the Companys cross-currency interest rate swaps and
certain cross-currency interest rate swaps or forward exchange contracts of Videotron
Ltd. and Sun Media Corporation, the effective portion of any hedge is reported in
other comprehensive income (loss) until it is recognized in income during the same
period in which the hedged item affects income, while the current ineffective portion
of hedges is recognized in the statement of income each period.Under GAAP in Canada, derivative financial instruments are accounted for on an accrual
basis. Realized and unrealized gains and losses are deferred and recognized in income
in the same period and in the same financial statement category as the income or
expense arising from the corresponding hedged positions.Further differences result from the different transition rules and timing of the
adoption of the current standards in Canada and in the United States for derivative
financial instruments and hedge accounting.
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated
financial statements (continued)
 
 26.
    
    SIGNIFICANT DIFFERENCES BETWEEN GAAP IN CANADA AND IN THE UNITED STATES (continued):
 (c)
    
    Consolidated balance sheets (continued):
 (iv)
    
    Under U.S. GAAP, the Company adopted the new standards of FASB No. 123(R),
Share-Based Payment (SFAS 123(R)) in 2006. In accordance with SFAS 123(R), the
liability related to stock-based awards that call for settlement in cash or other
asset, must be measured at its fair value based on the fair value of stock options
awards, and shall be remeasured at the end of each reporting period through
settlement. Under Canadian GAAP, the liability is measured and remeasured based on the
intrinsic value of the stocks options awards instead of the fair value.(v)
    
    This adjustment represents the tax impact of United States GAAP adjustments.
Furthermore, the Company concluded, in 2005, that the realization of future income tax
assets related to its derivative financial instruments was now considered more likely
than not. Consequently, the tax benefits are recognized since that period in the
statement of income and in the statement of comprehensive income.(vi)
    
    The Company entered into a tax consolidation transactions by which in 2006,
the parent company transferred to the Companys subsidiary, Sun Media Corporation,
non-capital losses in exchange of a cash consideration of $16.1 million and by which
in 2005, the Company has transferred to its parent company capital losses for a cash
consideration of $15.9 million (note 7). Under GAAP in Canada, these transactions were
recorded in accordance with CICA Handbook 3840, Related Party Transactions. It
resulted in the recognition of a deferred credit of $8.4 million in 2006 and in a
reduction of $15.9 million of the Companys income tax expense in 2005. Under GAAP in
the United States, since these transactions related to assets transfer between a
subsidiary and its parent company, the difference between the carrying value of the
tax benefits transferred and the cash consideration received or paid were recognized
in contributed surplus.(vii)
    
    In April 2005, Sun Media Corporation, Newspaper segment, exchanged a
community publication for another community publication. Under U.S. GAAP, this exchange
of businesses is recorded in accordance with FASB Statement No. 141, Business
Combinations and the cost of the purchase should be determined as the fair value of
the consideration given or the fair value of the net assets or equity interest
received, whichever is more reliably measurable. Under Canadian GAAP, since this
exchange of businesses is a non-monetary transaction, it is accounted for in
accordance with CICA Handbook 3830, Non-monetary Transactions, and recorded at the
carrying value of the asset or service given up in the exchange adjusted by any
monetary consideration received or given.Accordingly, under US GAAP, this transaction resulted in a gain on disposal of a
publication and also resulted in an increase of the purchase price of the publication
acquired.(viii)
    
    Under GAAP in Canada, in 2003, the Company recorded a gain on repurchase of
redeemable preferred shares of a subsidiary of $153.7 million in the statement income.
Under GAAP in the United States, this gain is recognized in contributed surplus.
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##### Table of Contents



QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 27.
    
    NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY:
    2006
    
    
    2005
    
    
    2004RevenuesManagement fees
    
    $
    41.8
    
    
    $
    30.0
    
    
    $
    20.4Interest on loan to subsidiaries
    
    
    0.7
    
    
    
    6.9
    
    
    
    6.0Other
    
    
    7.3
    
    
    
    28.0
    
    
    
    20.849.8
    
    
    
    64.9
    
    
    
    47.2ExpensesGeneral and administrative
    
    
    (49.1
    )
    
    
    (53.7
    )
    
    
    (46.4
    )Depreciation and amortization
    
    
    (0.8
    )
    
    
    (1.2
    )
    
    
    (1.4
    )Financial
    
    
    (106.4
    )
    
    
    (171.3
    )
    
    
    (181.0
    )Loss before undernoted items
    
    
    (106.5
    )
    
    
    (161.3
    )
    
    
    (181.6
    )Gain on disposal of investments and other assets
    
    
    0.1
    
    
    
    
    
    
    
    1.4Loss on debt refinancing
    
    
    (342.1
    )
    
    
    (60.8
    )
    
    
    Loss before income taxes
    
    
    (448.5
    )
    
    
    (222.1
    )
    
    
    (180.2
    )Income taxes
    
    
    (93.6
    )
    
    
    (24.9
    )
    
    
    (48.2
    )(354.9
    )
    
    
    (197.2
    )
    
    
    (132.0
    )Equity income from subsidiaries
    
    
    185.2
    
    
    
    293.7
    
    
    
    220.2Net (loss) income
    
    $
    (169.7
    )
    
    $
    96.5
    
    
    $
    88.2
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)
 
 27.
    
    NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued):
  2006
    
    
    2005
    
    
    2004Cash flows related to operationsNet (loss) income
    
    $
    (169.7
    )
    
    $
    96.5
    
    
    $
    88.2Amortization of plant, property and equipment
    
    
    0.8
    
    
    
    1.2
    
    
    
    1.4Gain on disposal of investments and other assets
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.4
    )Loss on debt refinancing
    
    
    342.1
    
    
    
    60.8
    
    
    
    Repayment of accrued interest on Senior Discount Notes
    
    
    (197.3
    )
    
    
    (3.0
    )
    
    
    Amortization of deferred financing costs and of long term debt discount
    
    
    4.8
    
    
    
    61.2
    
    
    
    55.0Loss on revaluation of the Additional Amount payable
    
    
    13.8
    
    
    
    
    
    
    
    Future income taxes
    
    
    (93.3
    )
    
    
    (25.7
    )
    
    
    (48.5
    )Excess of equity income over equity distributions
from subsidiaries
    
    
    (86.3
    )
    
    
    (111.2
    )
    
    
    (76.1
    )Net change in non-cash balances related to operations
    
    
    21.2
    
    
    
    (29.7
    )
    
    
    9.4Cash flows (used in) provided by operations
    
    
    (164.0
    )
    
    
    50.1
    
    
    
    28.0Cash flows related to investing activitiesNet acquisitions of investments in subsidiaries
    
    
    (100.3
    )
    
    
    (39.9
    )
    
    
    (26.3
    )Dividends received in excess of accumulated equity income
from subsidiaries
    
    
    10.0
    
    
    
    210.0
    
    
    
    205.2Reduction to paid-up capital of subsidiaries
    
    
    164.6
    
    
    
    
    
    
    
    Proceeds from disposal of a business to a subsidiary
    
    
    7.7
    
    
    
    
    
    
    
    Proceeds from disposal of tax deductions to a subsidiary
    
    
    
    
    
    
    35.2
    
    
    
    Net decrease (increase) in temporary investments
    
    
    
    
    
    
    78.4
    
    
    
    (59.9
    )Other
    
    
    8.3
    
    
    
    (1.6
    )
    
    
    1.4Cash flows provided by investing activities
    
    
    90.3
    
    
    
    282.1
    
    
    
    120.4Cash flows related to financing activitiesProceeds from issuance of redeemable preferred shares
    
    
    279.0
    
    
    
    316.9
    
    
    
    1,370.0Repurchases of redeemable preferred shares
    
    
    (842.0
    )
    
    
    (334.0
    )
    
    
    (1,550.0
    )Net increase in bank indebtedness
    
    
    1.9
    
    
    
    
    
    
    
    Net repayments of revolving credit facilities
    
    
    
    
    
    
    
    
    
    
    (97.0
    )Repayments of long-term debt and unwinding of
hedging contracts
    
    
    (1,174.2
    )
    
    
    (212.7
    )
    
    
    Issuance of long-term debt, net of financing fees
    
    
    1,186.5
    
    
    
    
    
    
    
    Net decrease (increase) in prepayments under cross-currency
swap agreements
    
    
    21.6
    
    
    
    (34.1
    )
    
    
    (184.4
    )Dividends and reduction of Common Shares paid-up capital
    
    
    (105.0
    )
    
    
    (45.0
    )
    
    
    (20.0
    )Net decrease (increase) in advances to or from subsidiaries
    
    
    687.9
    
    
    
    (19.8
    )
    
    
    254.3Cash flows provided by (used in) financing activities
    
    
    55.7
    
    
    
    (328.7
    )
    
    
    (227.1
    )Net (decrease) increase in cash and cash equivalents
    
    
    (18.0
    )
    
    
    3.5
    
    
    
    (78.7
    )Cash and cash equivalents at beginning of year
    
    
    18.0
    
    
    
    14.5
    
    
    
    93.2Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    18.0
    
    
    $
    14.5
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QUEBECOR MEDIA INC. AND ITS SUBSIDIARIES  Notes to consolidated financial statements (continued)





27.
    
    NON-CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY (continued):




2006
    
    
    2005AssetsCurrent assets
    
    $
    101.4
    
    
    $
    153.6Advances to subsidiaries
    
    
    216.3
    
    
    
    175.9Investments in subsidiaries
    
    
    3,448.7
    
    
    
    3,372.9Convertible obligation and notes receivable  subsidiaries
    
    
    830.0
    
    
    
    1,392.9Other assets
    
    
    155.5
    
    
    
    84.8$
    4,751.9
    
    
    $
    5,180.1Liabilities and Shareholders equityCurrent liabilities
    
    $
    199.4
    
    
    $
    207.8Long-term debt
    
    
    1,171.4
    
    
    
    988.2Advances from subsidiaries
    
    
    245.3
    
    
    
    77.7Other liabilities
    
    
    68.8
    
    
    
    63.4Redeemable preferred shares issued to subsidiaries
    
    
    830.0
    
    
    
    1,392.9Shareholders equity
    
    
    2,237.0
    
    
    
    2,450.1$
    4,751.9
    
    
    $
    5,180.1


28.
    
    SUBSEQUENT EVENTS:On May 31, 2007, the Company announced that it had
entered into an acquisition and support agreement pursuant to which
the Company will make a take-over bid to acquire all outstanding
units of Osprey Media Income Fund (Osprey Media)
resulting in a total purchase consideration of approximately
$518.0 million, including the repayment of the assumed debt of
$161.5 million and estimated transaction fees of
$1.0 million. Osprey Media is one of Canadas leading publishers
of daily and non-daily newspapers, magazines and specialty
publications. Its publications include 20 daily newspapers and
34 non-daily newspapers together with shopping guides, magazines and
other publications.On May 31, 2007, the Company also announced that it has
made a proposed bid to acquire all of the minority interest in Nurun
Inc. for a total cash consideration of approximately
$63.4 million. Following the transaction, Nurun would become a
wholly-owned subsidiary  of Quebecor Media and it would be delisted
from the Toronto Stock Exchange. F-62