##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 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 033-51000
 VIDEOTRON LTD. / VIDÉOTRON LTÉE
 Province of Québec, Canada   300 Viger Avenue East
Montréal, Québec, Canada H2X 3W4
  Title of each class
    
    Name of each exchange on which registeredNone
    
    None
  None
  6
7/8% Senior Notes due January 15, 2014
6 3/8% Senior Notes due December 15, 2015
  11,174,813 Common Shares
170,000 Preferred Shares, Series G
  o þ
  o þ
  þ o
  Large accelerated filer   o
    
    Accelerated filer   o
    
    Non-accelerated filer   þ
  þ o
  o þ




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##### 



TABLE OF CONTENTS
 PageExplanatory Notes
    
    
    iForward-Looking Statements
    
    
    iiIndustry And Market Data
    
    
    iExchange Rate Information
    
    
    iiiPART IItem 1  Identity Of Directors, Senior Management And Advisers
    
    
    1Item 2  Offer Statistics And Expected Timetable
    
    
    1Item 3  Key Information
    
    
    1Item 4  Information on The Company
    
    
    17Item 4A.
 Unresolved Staff Comments
    
    
    43Item 5  Operating And Financial Review And Prospects
    
    
    43Item 6  Directors, Senior Management And Employees
    
    
    59Item 7  Major Shareholders And Related Party Transactions
    
    
    66Item 8  Financial Information
    
    
    69Item 9  The Offer And Listing
    
    
    70Item 10  Additional Information
    
    
    71Item 11  Quantitative And Qualitative Disclosures About Market Risk
    
    
    87Item 12  Description Of Securities Other Than Equity Securities
    
    
    89PART IIItem 13  Defaults, Dividend Arrearages And Delinquencies
    
    
    90Item 14  Material Modifications To The Rights Of Security Holders And Use Of Proceeds
    
    
    90Item 15  Controls And Procedures
    
    
    90Item 16  [Reserved]
    
    
    90Item 16A  Audit Committee Financial Expert
    
    
    90Item 16B  Code of Ethics
    
    
    90Item 16C  Principal Accountant Fees and Services
    
    
    90Item 16D  Exemptions from the Listing Standards for Audit Committees
    
    
    91Item 16E  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    91PART IIIItem 17  Financial Statements
    
    
    91Item 18  Financial Statements
    
    
    91Item 19  Exhibits
    
    
    92Signature
    
    95Index
to Consolidated Financial Statements
    
    F-1Articles of Amalgamation of Videotron Ltd.By-Laws of Videotron Ltd.Articles of Amalgamation of CF Cable TV Inc.By-Laws of CF Cable TV Inc.Statement Regarding Calculation of Ratio of Earnings to Fixed ChargesSubsidaries of Videotron Ltd.Certification of Robert Depatie (s.302-SOX)Certification of Yvan Gingras (s.302-SOX)Certification of Robert Depatie (s.906-SOX)Certification of Yvan Gingras (s.906-SOX)




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##### Table of Contents



EXPLANATORY NOTES
      
 INDUSTRY AND MARKET DATA




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    general economic, financial or market conditions;
    
    the intensity of competitive activity in the industries in which we operate;
    
    unanticipated higher capital spending required to address continued development of
competitive alternative technologies or the inability to obtain additional capital to
continue the development of our business;
    
    our ability to implement successfully our business and operating strategies and
manage our growth and expansion;
    
    our ability to continue to distribute a wide range of television programming and to attract large audiences;
    
    labor disputes or strikes;
    
    exchange rate fluctuations that affect our ability to repay our U.S. dollar-denominated debt; and
    
    interest rate fluctuations that affect a portion of our interest payment requirements on long-term debt.




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##### Table of Contents



EXCHANGE RATE INFORMATION
  Year Ended:
    
    Average(1)
    
    High
    
    Low
    
    Period EndDecember 31, 2005
    
    
    0.8282
    
    
    
    0.8690
    
    
    
    0.7872
    
    
    
    0.8579December 31, 2004
    
    
    0.7719
    
    
    
    0.8493
    
    
    
    0.7158
    
    
    
    0.8310December 31, 2003
    
    
    0.7205
    
    
    
    0.7738
    
    
    
    0.6349
    
    
    
    0.7738December 31, 2002
    
    
    0.6370
    
    
    
    0.6619
    
    
    
    0.6200
    
    
    
    0.6329December 31, 2001
    
    
    0.6446
    
    
    
    0.6697
    
    
    
    0.6241
    
    
    
    0.6279
 Month Ended:
    
    Average(2)
    
    High
    
    Low
    
    Period EndMarch 2006 (through March 15, 2006)
    
    
    0.8704
    
    
    
    0.8834
    
    
    
    0.8609
    
    
    
    0.8656February 28, 2006
    
    
    0.8704
    
    
    
    0.8788
    
    
    
    0.8638
    
    
    
    0.8788January 31, 2006
    
    
    0.8642
    
    
    
    0.8744
    
    
    
    0.8528
    
    
    
    0.8744December 31, 2005
    
    
    0.8610
    
    
    
    0.8690
    
    
    
    0.8521
    
    
    
    0.8579November 30, 2005
    
    
    0.8463
    
    
    
    0.8579
    
    
    
    0.8361
    
    
    
    0.8569October 31, 2005
    
    
    0.8493
    
    
    
    0.8579
    
    
    
    0.8413
    
    
    
    0.8477September 30, 2005
    
    
    0.8491
    
    
    
    0.8615
    
    
    
    0.8418
    
    
    
    0.8615
 
 (1)
    
    The average of the exchange rates on the last day of each month during the applicable year.(2)
    
    The average of the exchange rates for all days during the applicable month.




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##### Table of Contents



PART I
 
 ITEM 1   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2   OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3   KEY INFORMATION
 SELECTED FINANCIAL DATA
   Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(restated)(1)
    
    
    (restated)(1)(dollars in thousands)AMOUNTS UNDER CANADIAN GAAPStatement of Operations Data:Operating revenues:Cable television
    
    $
    607,942
    
    
    $
    579,200
    
    
    $
    558,887
    
    
    $
    576,825
    
    
    $
    618,346Internet access
    
    
    99,629
    
    
    
    135,514
    
    
    
    183,268
    
    
    
    222,458
    
    
    
    270,791Telephony
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,088Video stores
    
    
    35,155
    
    
    
    35,344
    
    
    
    38,450
    
    
    
    48,058
    
    
    
    55,146Other(1)
    
    
    22,728
    
    
    
    30,982
    
    
    
    24,396
    
    
    
    24,277
    
    
    
    36,623Total operating revenues
    
    
    765,454
    
    
    
    781,040
    
    
    
    805,001
    
    
    
    871,618
    
    
    
    1,001,994Direct cost(1)
    
    
    227,322
    
    
    
    259,686
    
    
    
    245,967
    
    
    
    250,442
    
    
    
    287,455Operating, general and administrative expenses(1)
    
    
    274,202
    
    
    
    285,816
    
    
    
    283,784
    
    
    
    279,999
    
    
    
    332,187Depreciation and amortization(1)
    
    
    116,692
    
    
    
    120,016
    
    
    
    122,958
    
    
    
    130,215
    
    
    
    131,841Financial expenses(2)
    
    
    101,307
    
    
    
    76,188
    
    
    
    64,602
    
    
    
    177,985
    
    
    
    65,206Dividend income from parent company(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,055
    )
    
    
    Other items(3)
    
    
    95,570
    
    
    
    25,000
    
    
    
    (2,500
    )
    
    
    
    
    
    
    Income taxes (recovery) expense (1)
    
    
    (10,076
    )
    
    
    2,663
    
    
    
    26,830
    
    
    
    (3,440
    )
    
    
    71,328Non-controlling interest in a subsidiary
    
    
    145
    
    
    
    188
    
    
    
    49
    
    
    
    100
    
    
    
    102Amortization of goodwill(4)
    
    
    13,331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income(1)(4)
    
    $
    (53,039
    )
    
    $
    11,483
    
    
    $
    63,311
    
    
    $
    147,372
    
    
    $
    113,875
 - 1 -




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##### Table of Contents



Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(restated)(1)
    
    
    (restated)(1)(dollars in thousands)Balance Sheet Data (at period end):Cash and cash equivalents
    
    $
    80,935
    
    
    $
    16,041
    
    
    $
    28,329
    
    
    $
    36,230
    
    
    $
    32,223Total assets(1)(6)
    
    
    1,728,715
    
    
    
    1,570,463
    
    
    
    1,525,605
    
    
    
    1,630,861
    
    
    
    1,719,265Long-term debt, excluding QMI subordinated
loans(5)(6)(7)
    
    
    1,310,179
    
    
    
    1,119,625
    
    
    
    886,677
    
    
    
    888,908
    
    
    
    971,697QMI subordinated loans(6)
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000Common shares(5)
    
    
    1
    
    
    
    1
    
    
    
    173,326
    
    
    
    173,236
    
    
    
    173,236Shareholders equity(5)
    
    $
    (328,673
    )
    
    $
    (345,189
    )
    
    $
    70,817
    
    
    $
    38,030
    
    
    $
    (58,072
    )
 Year Ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(restated)(1)
    
    (restated)(1)(dollars in thousands, except ARPU and ratio)Other Financial DataOperating income(1)(8)
    
    $
    263,930
    
    
    $
    235,538
    
    
    $
    275,250
    
    
    $
    341,177
    
    
    $
    382,352Operating income margin(1)(8)
    
    
    34.5
    %
    
    
    30.2
    %
    
    
    34.2
    %
    
    
    39.1
    %
    
    
    38.2
    %Cash flows from operating activities
    
    
    208,005
    
    
    
    195,934
    
    
    
    194,078
    
    
    
    310,675
    
    
    
    354,368Cash flows used in investing activities
    
    
    (135,305
    )
    
    
    (91,878
    )
    
    
    (110,802
    )
    
    
    (128,867
    )
    
    
    (246,882
    )Cash flows from (used in) financing activities
    
    
    5,327
    
    
    
    (159,372
    )
    
    
    (72,094
    )
    
    
    (174,759
    )
    
    
    (113,180
    )Capital expenditures(9)
    
    $
    133,319
    
    
    $
    93,041
    
    
    $
    90,284
    
    
    $
    123,030
    
    
    $
    191,827Operating Data (unaudited):Homes passed(10)
    
    
    2,330,648
    
    
    
    2,329,023
    
    
    
    2,351,344
    
    
    
    2,383,443
    
    
    
    2,419,335Basic cable customers(11)(12)
    
    
    1,510,408
    
    
    
    1,431,060
    
    
    
    1,424,144
    
    
    
    1,452,554
    
    
    
    1,506,113Basic cable penetration(12)(13)
    
    
    64.8
    %
    
    
    61.4
    %
    
    
    60.6
    %
    
    
    60.9
    %
    
    
    62.3
    %Digital customers
    
    
    114,634
    
    
    
    171,625
    
    
    
    240,863
    
    
    
    333,664
    
    
    
    474,629Digital penetration(14)
    
    
    7.6
    %
    
    
    12.0
    %
    
    
    16.9
    %
    
    
    23.0
    %
    
    
    31.5
    %Cable Internet customers
    
    
    228,759
    
    
    
    305,054
    
    
    
    406,277
    
    
    
    502,630
    
    
    
    637,971Cable Internet penetration(13)
    
    
    9.8
    %
    
    
    13.1
    %
    
    
    17.3
    %
    
    
    21.1
    %
    
    
    26.4
    %ARPU(12)(15)
    
    $
    38.53
    
    
    $
    40.70
    
    
    $
    43.68
    
    
    $
    46.50
    
    
    $
    51.86Ratio of earnings to fixed charges(16)
    
    
    0.3
    x
    
    
    1.2
    x
    
    
    2.0
    x
    
    
    3.2
    x
    
    
    4.0
    x
 Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(restated)(1)
    
    
    (restated)(1)(dollars in thousands)AMOUNTS UNDER U.S. GAAPStatement of Operations Data:Operating revenues:Cable television
    
    $
    607,942
    
    
    $
    579,200
    
    
    $
    558,887
    
    
    $
    584,187
    
    
    $
    621,493Internet access
    
    
    99,629
    
    
    
    135,514
    
    
    
    183,268
    
    
    
    224,450
    
    
    
    272,926Telephony
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,983Video stores
    
    
    35,155
    
    
    
    35,344
    
    
    
    38,450
    
    
    
    48,058
    
    
    
    55,146Other(1)
    
    
    22,728
    
    
    
    30,982
    
    
    
    24,396
    
    
    
    24,277
    
    
    
    36,623Total operating revenues
    
    
    765,454
    
    
    
    781,040
    
    
    
    805,001
    
    
    
    880,972
    
    
    
    1,008,171Direct cost(1)
    
    
    227,800
    
    
    
    259,044
    
    
    
    245,967
    
    
    
    250,442
    
    
    
    287,455Operating, general and administrative expenses(1)
    
    
    281,833
    
    
    
    285,952
    
    
    
    280,804
    
    
    
    290,932
    
    
    
    340,192Depreciation and amortization(1)
    
    
    260,352
    
    
    
    137,687
    
    
    
    133,003
    
    
    
    142,585
    
    
    
    143,205Financial expenses(2)
    
    
    128,504
    
    
    
    72,850
    
    
    
    62,424
    
    
    
    165,452
    
    
    
    57,026Dividend income from parent company(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,055
    )
    
    
    Other items(3)
    
    
    3,807
    
    
    
    606
    
    
    
    
    
    
    
    
    
    
    
    Income taxes(1)
    
    
    (2,827
    )
    
    
    5,166
    
    
    
    24,079
    
    
    
    1,821
    
    
    
    64,672Non-controlling interest in a subsidiary
    
    
    145
    
    
    
    188
    
    
    
    49
    
    
    
    100
    
    
    
    102Impairment of goodwill(4)
    
    
    
    
    
    
    2,004,000
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)(1)(4)
    
    $
    (134,160
    )
    
    $
    (1,984,453
    )
    
    $
    58,675
    
    
    $
    140,695
    
    
    $
    115,519
 - 2 -




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##### Table of Contents



2001
    
    2002
    
    2003
    
    2004
    
    2005(restated)(1)
    
    (restated)(1)Balance Sheet Data (at period end):Cash and cash equivalents
    
    $
    80,935
    
    
    $
    16,041
    
    
    $
    28,329
    
    
    $
    36,230
    
    
    $
    32,223Total assets(1)(6)
    
    
    6,137,269
    
    
    
    3,956,549
    
    
    
    3,899,915
    
    
    
    3,897,848
    
    
    
    3,967,521Long-term debt, excluding QMI subordinated loans(5)(6)(7)
    
    
    1,310,179
    
    
    
    1,119,625
    
    
    
    888,017
    
    
    
    884,182
    
    
    
    943,835QMI subordinated loans(6)
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000Common shares(5)
    
    
    1
    
    
    
    1
    
    
    
    173,236
    
    
    
    173,236
    
    
    
    173,236Shareholders equity(5)
    
    
    3,975,890
    
    
    
    1,963,438
    
    
    
    2,373,352
    
    
    
    2,252,863
    
    
    
    2,150,955
 Year Ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(restated)(1)
    
    (restated)(1)(dollars in thousands, except ratio)Other Financial Data:Operating income(1)(8)
    
    $
    255,821
    
    
    $
    236,044
    
    
    $
    278,230
    
    
    $
    339,598
    
    
    $
    380,524Operating income margin(1)(8)
    
    
    33.4
    %
    
    
    30.2
    %
    
    
    34.6
    %
    
    
    38.5
    %
    
    
    37.7
    %Cash flows from operating activities
    
    $
    203,056
    
    
    $
    189,617
    
    
    $
    193,878
    
    
    
    309,096
    
    
    
    352,540Cash flows used in investing activities
    
    
    (130,356
    )
    
    
    (85,561
    )
    
    
    (110,602
    )
    
    
    (127,288
    )
    
    
    (254,054
    )Cash flows from (used) in financing activities
    
    
    5,327
    
    
    
    (159,372
    )
    
    
    (72,094
    )
    
    
    (174,759
    )
    
    
    (113,180
    )Capital expenditures(9)
    
    
    115,577
    
    
    
    92,414
    
    
    
    90,284
    
    
    
    123,030
    
    
    
    191,827Ratio of earnings to fixed charges(16)
    
    
    
    
    
    
    
    
    
    
    2.0
    x
    
    
    3.7
    x
    
    
    4.4
    x
 
 (1)
    
    During the fourth quarter ended December 31, 2003, we revised our accounting policies in
accordance with Canadian Institute of Chartered Accountants Handbook Section 1100, Generally
Accepted Accounting Principles. This new accounting policy requires, among other things, that
we expense, as they are incurred, the costs related to equipment subsidies granted to our
customers, as well as customer reconnection costs. This change in our accounting policies has
been applied retroactively, and the amounts presented for the prior periods have been restated
for this change. Because this new accounting policy with respect to equipment subsidies and
customer reconnection costs is consistent with the applicable existing accounting policy under
U.S. GAAP, the retroactive application of this change has not affected the amounts presented
for prior periods under U.S. GAAP.(2)
    
    In the first quarter of 2004, our wholly-owned subsidiary, Vidéotron (1998) ltée, entered
into a back-to-back transaction with Quebecor Media. With respect to this back-to-back
transaction, we made cash interest payments of $108.5 million to Quebecor Media in the year
ended December 31, 2004, but we received $111.1 million in dividends from Quebecor Media in
that same year. See Item 5  Operating and Financial Review and Prospects  Purchase of
Shares of Quebecor Media and Service of Subsidiary Subordinated Loan.(3)
    
    Following the acquisition of us by Quebecor Media in 2000, our former employees exercised
in-the-money options and we introduced a restructuring program in 2001. Other items for the
year ended December 31, 2000 consisted primarily of payments made to our employees under our
employee stock option plan and a restructuring provision. In 2001, our residential Internet
protocol telephony project was suspended, and other items for the year ended December 31, 2001
consisted primarily of the write-off of fixed assets and deferred charges related to that
project. In 2002, in connection with the renegotiation of two of our collective bargaining
agreements, we put in place a second restructuring initiative resulting in a reduction of 300
employees, and other items consisted primarily of severance costs relating to this
restructuring. Because the final severance costs relating to this restructuring were lower
than estimated, the difference between the final severance costs and the estimated severance
costs was reversed in 2003 and increased our net income in 2003 by approximately $2.5 million.(4)
    
    Effective January 1, 2002, we implemented Canadian Institute of Chartered Accountants
Handbook Section 3062, Goodwill and Other Intangible Assetsand its US equivalent, FAS 142.
The new standards require that goodwill and intangible assets with indefinite lives no longer
be amortized, but instead be tested for impairment at least annually. At January 1, 2002, we
had unamortized goodwill in the amount of $432.3 million under Canadian GAAP and $4,666.9
million under U.S. GAAP, which is no longer being amortized. This change in accounting policy
is not applied retroactively and the amounts presented for the prior period have not been
restated for this change. If this change in accounting policy were applied to the reported
combined statements of operations for the prior period, the impact of the change, in respect
of goodwill and intangible assets with indefinite useful lives not being amortized, would be
as follows: - 3 -




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##### Table of Contents



Year EndedDecember 31, 2001(restated; in thousands)Net loss
    
    $
    (53,039
    )Goodwill amortization
    
    
    13,331Net (loss) before goodwill amortization
    
    $
    (39,708
    )AMOUNTS UNDER U.S. GAAPNet loss
    
    $
    (134,160
    )Goodwill amortization
    
    
    119,142Net (loss) before goodwill amortization
    
    $
    (15,018
    )
 (5)
    
    Long-term debt, excluding QMI subordinated loans, means long-term debt and a promissory note
payable to a company under common control less the QMI subordinated loans, and it does not
include the retractable preferred shares held by Quebecor Media. The retraction price of the
retractable preferred shares was $300.0 million as of December 31, 2001 and $332.5 million as
of December 31, 2002. During the year ended December 31, 2003, $332.5 million of the
retractable preferred shares were converted into our common shares. The excess of the
retraction price of the preferred shares over the stated capital converted into common shares
was credited to our contributed surplus account in an amount of $301.2 million. The
outstanding $2.0 million of retractable preferred shares as of December 31, 2003 was redeemed
for an amount of $3.7 million. The excess of the consideration paid over the preferred shares
was charged to deficit in an amount of $1.7 million. No retractable preferred share was
outstanding as at December 31, 2005.(6)
    
    The term QMI subordinated loans refers to the $150.0 million subordinated loan due 2015 we
entered into in favor of Quebecor Media and the $1.1 billion subordinated loan due 2019 our
subsidiary Vidéotron (1998) ltée, which was a guarantor of our notes, entered into on January
16, 2004 in favor of Quebecor Media. Interest on the $150.0 million subordinated loan
throughout its term is payable in cash at our option. The QMI subordinated loans have been
excluded from long-term debt because under the terms of our notes, all payments on the $150.0
million subordinated loan are restricted payments treated in the same manner as dividends on
our common shares, and the proceeds of our $1.1 billion subordinated loan has been invested in
retractable preferred shares of Quebecor Media as part of a back-to-back transaction to reduce
our income tax obligations. On December 16, 2004, Quebecor Media redeemed its $1.1 billion of
retractable preferred shares, and we used the proceeds to repay our $1.1 billion subordinated
loan. On January 17, 2006, we reimbursed the $150.0 million subordinated loan due 2015 and all
interest owed at that date for a total consideration of $168.0 million. The QMI subordinated
loans are reflected as long-term debt on our consolidated balance sheet. See Item 5 
Operating and Financial Review and Prospects  Operating Results  Liquidity and Capital
Resources  Purchase of Shares of Quebecor Media and Service of Subsidiary Subordinated
Loan.(7)
    
    We believe that long-term debt, excluding QMI subordinated loans, is a meaningful measure of
the amount of our indebtedness we have from the perspective of a holder of the notes because
the QMI subordinated loans are subordinated in right of payment to the prior payment in full
of senior indebtedness, including the notes; all payments on the $150.0 million subordinated
loan are restricted payments, under the terms of the notes, treated in the same manner as
dividends on our common shares; and the proceeds of our $1.1 billion subordinated loan were
invested in retractable preferred shares of Quebecor Media as part of a back-to-back
transaction to reduce our income tax obligations. This back-to-back transaction was unwound on
December 16, 2004. Consequently, we use long-term debt, excluding QMI subordinated loans, in
this annual report. Long-term debt, excluding QMI subordinated loans, is not intended to be a
measure that should be regarded as an alternative to other financial reporting measures, and
it should not be considered in isolation as a substitute for measures of liabilities prepared
in accordance with U.S. GAAP or Canadian GAAP. Long-term debt, excluding QMI subordinated
loans, is calculated from and reconciled to long-term debt as follows: - 4 -




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##### Table of Contents



Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(restated)(unaudited; dollars in millions)AMOUNTS UNDER CANADIAN GAAPLong-term debt
    
    $
    1,287.7
    
    
    $
    1,119.6
    
    
    $
    1,036.7
    
    
    $
    1,038.9
    
    
    $
    1,121.7Promissory note to a
company under common
control
    
    
    22.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    QMI subordinated loans
    
    
    
    
    
    
    
    
    
    
    (150.0
    )
    
    
    (150.0
    )
    
    
    (150.0
    )Long-term debt, excluding
QMI subordinated loans, as
defined
    
    $
    1,310.2
    
    
    $
    1,119.6
    
    
    $
    886.7
    
    
    $
    888.9
    
    
    $
    971.7AMOUNTS UNDER U.S. GAAPLong-term debt
    
    $
    1,287.7
    
    
    $
    1,119.6
    
    
    $
    1,038.0
    
    
    $
    1,034.2
    
    
    $
    1,093.8Promissory note to a
company under common
control
    
    
    22.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    QMI subordinated loans
    
    
    
    
    
    
    
    
    
    
    (150.0
    )
    
    
    (150.0
    )
    
    
    (150.0
    )Long-term debt,
excluding QMI
subordinated loans, as
defined
    
    $
    1,310.2
    
    
    $
    1,119.6
    
    
    $
    888.0
    
    
    $
    884.2
    
    
    $
    943.8
 (8)
    
    We define operating income, as reconciled to net income, as net income (loss) before
depreciation and amortization, financial expenses, dividend income from parent company, other
items (consisting primarily of restructuring charges), income taxes, non-controlling interest
in a subsidiary and goodwill amortization. Operating income is not a measure of results that
is consistent with Canadian GAAP or U.S. GAAP. It is not intended to be regarded as an
alternative to other financial operating performance measures or to the statement of cash
flows as a measure of liquidity. It is not intended to represent funds available for debt
service, dividends, reinvestment or other discretionary uses, and should not be considered in
isolation as a substitute for measures of performance prepared in accordance with generally
accepted accounting principles. We use operating income because management believes that it is
a meaningful measure of performance commonly used in the cable industry and by the investment
community to analyze and compare companies. It also facilitates year-over-year comparison of
results since operating income excludes, among other things, unusual items that are not
readily comparable from year to year. Our definition of operating income may not be identical
to similarly titled measures reported by other companies. Operating income margin is operating
income as a percentage of operating income. Our operating income is calculated from and
reconciled to net income (loss) as follows: Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(restated)
    
    
    (restated)
    
    
    (restated)(dollars in millions)AMOUNTS UNDER CANADIAN GAAPNet (loss) income(1)(4)
    
    $
    (53.0
    )
    
    $
    11.5
    
    
    $
    63.3
    
    
    $
    147.4
    
    
    $
    113.9Depreciation and amortization(1)
    
    
    116.7
    
    
    
    120.0
    
    
    
    123.0
    
    
    
    130.2
    
    
    
    131.9Financial expenses(2)
    
    
    101.3
    
    
    
    76.2
    
    
    
    64.6
    
    
    
    178.0
    
    
    
    65.2Dividend income from parent company(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111.1
    )
    
    
    Other items(3)
    
    
    95.6
    
    
    
    25.0
    
    
    
    (2.5
    )
    
    
    
    
    
    
    Income taxes (recovery) expense (1)
    
    
    (10.1
    )
    
    
    2.6
    
    
    
    26.8
    
    
    
    (3.4
    )
    
    
    71.3Non-controlling interest in a subsidiary
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Goodwill amortization(4)
    
    
    13.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income as defined
    
    $
    263.9
    
    
    $
    235.5
    
    
    $
    275.3
    
    
    $
    341.2
    
    
    $
    382.4AMOUNTS UNDER U.S. GAAPNet income (loss)(1)(4)
    
    $
    (134.2
    )
    
    $
    (1,984.5
    )
    
    $
    58.7
    
    
    $
    140.7
    
    
    $
    115.5Depreciation and amortization(1)
    
    
    260.4
    
    
    
    137.6
    
    
    
    133.0
    
    
    
    142.6
    
    
    
    143.2Financial expenses(2)
    
    
    128.5
    
    
    
    72.9
    
    
    
    62.4
    
    
    
    165.5
    
    
    
    57.0Dividend income from parent company(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111.1
    )
    
    
    Other items(3)
    
    
    3.8
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    Income taxes(1)
    
    
    (2.8
    )
    
    
    5.2
    
    
    
    24.1
    
    
    
    1.8
    
    
    
    64.7Non-controlling interest in a subsidiary
    
    
    0.1
    
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Goodwill amortization(4)
    
    
    
    
    
    
    2,004.0
    
    
    
    
    
    
    
    
    
    
    
    Operating income as defined
    
    $
    255.8
    
    
    $
    236.0
    
    
    $
    278.2
    
    
    $
    339.6
    
    
    $
    380.5
 (9)
    
    Capital expenditures is comprised of acquisition of fixed assets. - 5 -




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(10)
    
    Homes passed means the number of residential premises, such as single dwelling units or
multiple dwelling units, and commercial premises passed by the cable television distribution
network in a given cable system service area in which the programming services are offered.(11)
    
    Basic cable customers are customers who receive basic cable television service, including
analog and digital customers.(12)
    
    The numbers of basic customers for the years 2000-2003, inclusive, were restated in order to
permit such numbers to be compared to the 2004 number of basic customers.(13)
    
    Represents customers as a percentage of total homes passed.(14)
    
    Represents customers as a percentage of basic customers.(15)
    
    Average monthly revenue per user, or ARPU, is an industry term that we use to measure our
average cable and Internet revenue per month per basic cable customer. ARPU is not a
measurement under Canadian GAAP or U.S. GAAP, and our definition and calculation of ARPU may
not be the same as identically titled measures reported by other companies. We calculate ARPU
by dividing our combined cable television and Internet-access revenues for the applicable year
by the average number of our basic cable customers during such year, and then dividing the
resulting amount by the number of months in the year.(16)
    
    For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings
consist of net (loss) income plus non-controlling interest in a subsidiary, income taxes,
fixed charges, amortized capitalized interest, less interest capitalized, and (ii) fixed
charges consist of interest expensed and capitalized, excluding interest on QMI subordinated
loans, plus amortized premiums, discounts and capitalized expenses relating to indebtedness
and an estimate of the interest within rental expense. For the year ended December 31, 2001,
earnings, as calculated under Canadian GAAP, were inadequate to cover our fixed charges, and
the coverage deficiency was $63.0 million. For the years ended December 31, 2001 and 2002,
earnings, as calculated under U.S. GAAP, were inadequate to cover our fixed charges, and the
coverage deficiency was $136.8 million and $1,980.0 million, respectively. CAPITALIZATION AND INDEBTEDNESS
  REASONS FOR THE OFFER AND USE OF PROCEEDS
  RISK FACTORS
 This section describes some of the risks that could affect our business, financial condition
and results of operations. The factors below should be considered in connection with any
forward-looking statements in this document and with the cautionary statements contained in
Forward-Looking Statements at the beginning of this document.
 The risks below are not the only ones that we face. Some risks may not yet be known to us and
some that we do not currently believe to be material could later turn out to be material. Any of
these risks could materially affect our business, financial condition and results of operations.
 We operate in highly competitive industries and our inability to effectively compete could
have a material adverse effect on our business.
  - 6 -




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We compete, and will continue to compete, with alternative technologies, and we may be
required to invest a significant amount of capital to address continued technological development.
  We may not be able to obtain additional capital to continue the development of our business.
  Our financial performance could be materially adversely affected if we cannot continue to
distribute a wide range of television programming on reasonable terms.
   - 7 -




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We may not successfully implement our business and operating strategies.
  We provide our digital television, Internet access and telephony services through a single
clustered network, which may be more vulnerable to widespread disruption.
  We depend on third-party suppliers and providers for services and other items critical to our
operations.
   We are dependent on our information technology systems and those of certain third-parties
and the inability to enhance our systems or a security breach or disaster could have an adverse
impact on our financial results and operations.
  - 8 -




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##### Table of Contents



Malicious and abusive Internet practices could impair our cable data services.
  We may not be able to protect our services from piracy, which may have a negative effect on
our customer base and lead to a possible decline in revenues.
  We may be adversely affected by strikes and other labor protests.
   We have substantial debt and significant interest payment requirements which could adversely
affect our financial condition and therefore make it more difficult to fulfill our obligations
under our indebtedness.
  
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of our cash flow from operations to
making interest and principal payments on our indebtedness, reducing the availability of
our cash flow to fund capital expenditures, working capital and other general corporate
purposes;
    
    limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate;
    
    place us at a competitive disadvantage compared to our competitors that have less
debt or greater financial resources; and
    
    limit, along with the financial and other restrictive covenants in our indebtedness,
our ability to borrow additional funds on commercially reasonable terms, if at all.
 - 9 -




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We will need a significant amount of cash to service our debt. Our ability to generate cash
depends on many factors beyond our control.
 3 8 7 8 3 8 7 8
 We depend, to a certain extent, on our subsidiaries for cash needed to service our debt
obligations.
   Restrictive covenants in our debt instruments may reduce our operating and financial
flexibility, which may prevent us from capitalizing on business opportunities.
  
    
    incur additional debt, including guarantees by our restricted subsidiaries;
    
    pay dividends and make restricted payments;
 - 10 -




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##### Table of Contents




    
    create liens;
    
    use the proceeds from sales of assets and subsidiary stock;
    
    create or permit restrictions on the ability of our restricted subsidiaries to pay
dividends or make other distributions to us;
    
    enter into transactions with affiliates;
    
    enter into sale and leaseback transactions; and
    
    consolidate or merge or sell all or substantially all of our assets.
  We may not be able to finance an offer to purchase our outstanding notes following a change of
control as required by each of the indentures governing our outstanding notes because we may not
have sufficient funds at the time of the change of control or our credit facilities may not allow
the repurchases.
   We are subject to extensive government regulation. Changes in government regulation could
adversely affect our business, financial condition or results of operations.
  Broadcasting Act Telecommunications Act Broadcasting Act Telecommunications Act Broadcasting Act Telecommunications Act Radiocommunication Act
  - 11 -




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Radiocommunication Act i.e. i.e. Radiocommunication Act
   The CRTC may not renew our existing broadcast and distribution licenses or grant us new
licenses on acceptable terms, or at all.
   - 12 -




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##### Table of Contents



We are required to provide third-party Internet service providers with access to our cable
systems, which may result in increased competition.
     We may have to support increasing costs in securing access to support structures needed for
our network.
 Telecommunications Act Commission municipale du
Québec
 We depend on key personnel.
  - 13 -




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##### Table of Contents



There is no public market for our notes.
   Non-U.S. holders of our notes are subject to restrictions on the resale and transfer of the
notes.
  Canadian bankruptcy and insolvency laws may impair the trustees ability to enforce remedies
under our notes.
 Bankruptcy and Insolvency Act Companies Creditors
Arrangement Act
 Bankruptcy and Insolvency Act Companies Creditors Arrangement Act
 Applicable statutes allow courts, under specific circumstances, to void the guarantees of the
notes provided by certain of our subsidiaries.
  
    
    a guarantor delivered its guarantee with the intent to defeat, hinder, delay or
defraud its existing or future creditors;
 - 14 -




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##### Table of Contents




    
    the guarantor did not receive fair consideration for the delivery of the guarantee; or
    
    the guarantor was insolvent at the time it delivered the guarantee.
   U.S. investors in the notes may have difficulties enforcing certain civil liabilities.
  If we fail to maintain proper and effective internal controls, our ability to produce accurate
financial statements could be impaired, which could adversely affect our ability to operate our
business, our financial results and investors view of us.
  - 15 -




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##### Table of Contents



We may be adversely affected by fluctuations of exchange rates.
  We are controlled by Quebecor Media
   We are subject to environmental regulations.
  - 16 -




---



##### Table of Contents



ITEM 4  INFORMATION ON THE COMPANY
 HISTORY AND DEVELOPMENT OF THE COMPANY
 Companies Act Companies Act
 www.videotron.com
      - 17 -




---



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BUSINESS OVERVIEW
 Overview
     - 18 -




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Strengths
 Leading Market Positions.
 Single, Highly Contiguous Cluster.
 
    
    a higher quality and more reliable network;
    
    reduced capital required to launch and deploy new products and services;
    
    a lower cost structure through reduced maintenance and technical support costs; and
    
    more rapid and effective introduction of new products and services, enhancing our
ability to increase both customers and revenues.
 Differentiated, Bundled Service Offerings.
 - 19 -




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Advanced Broadband Network.
 Strong, Market-Focused Management Team.
 Broadcast Distribution Industry Overview
 Cable Television Industry Overview
  Twelve Months Ended August 31,2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    CAGR(1)(Homes passed and basic cable customers in millions; dollars in billions)CanadaIndustry Revenue
    
    $
    3.2
    
    
    $
    3.4
    
    
    $
    3.7
    
    
    $
    4.2
    
    
    $
    4.5
    
    
    
    9.6
    %Homes Passed(2)
    
    
    9.4
    
    
    
    9.5
    
    
    
    9.7
    
    
    
    10.0
    
    
    
    10.2
    
    
    
    2.0
    %Basic Cable Customers
    
    
    7.0
    
    
    
    6.9
    
    
    
    6.7
    
    
    
    6.6
    
    
    
    6.6
    
    
    
    -1.2
    %Basic Penetration
    
    
    73.8
    %
    
    
    72.0
    %
    
    
    69.3
    %
    
    
    65.5
    %
    
    
    65.0
    %
 Twelve Months Ended August 31,2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    CAGR(3)(Homes passed and basic cable customers in millions; US$ in billions)United StatesIndustry Revenue
    
    US$
    43.5
    
    
    US$
    49.4
    
    
    US$
    51.3
    
    
    US$
    57.6
    
    
    US$
    69.5
    
    
    
    9.8
    %Homes Passed(2)
    
    
    100.6
    
    
    
    102.7
    
    
    
    102.9
    
    
    
    108.2
    
    
    
    110.8
    
    
    
    2.0
    %Basic Cable Customers
    
    
    73.0
    
    
    
    73.5
    
    
    
    73.4
    
    
    
    73.6
    
    
    
    73.1
    
    
    
    0.0
    %Basic Penetration
    
    
    72.6
    %
    
    
    71.6
    %
    
    
    71.3
    %
    
    
    68.0
    %
    
    
    66.0
    %
 
 Source of Canadian data: CRTC. Source of U.S. data: NCTA, A.C. Nielsen Media Research and Kagan
Research LLC.(1)
    
    Compounded annual growth rate from 2000 through 2004.(2)
    
    Homes passed means the number of residential premises, such as single dwelling units or
multiple dwelling units, and commercial premises passed by the cable television distribution
network in a given cable system service area in which the programming services are offered.(3)
    
    Compounded annual growth rate from 2001 through 2005.   - 20 -




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Expansion of Digital Distribution and Programming
      Products and Services
    - 21 -




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Year Ended December 31,2004
    
    
    2005(dollars in millions)Net (loss) income
    
    $
    (9.5
    )
    
    $
    (0.2
    )Depreciation and amortization
    
    
    33.7
    
    
    
    34.5Financial expenses
    
    
    0.1
    
    
    
    Other items
    
    
    1.5
    
    
    
    Income taxes
    
    
    (3.5
    )
    
    
    (2.9
    )Operating income as defined
    
    $
    22.3
    
    
    $
    31.4
 Traditional Cable Television Services
   
    
    Basic Service.All of our customers receive a package of basic programming,
consisting of local broadcast television stations, the four U.S. commercial networks and
PBS, selected Canadian specialty programming services, and local and regional community
programming. Our basic service customers generally receive 29 channels on basic cable.
    
    Extended Basic Service.This expanded programming level of services, which is
generally comprised of approximately 24 channels, includes a package of French- and
English-language specialty television programming and U.S. cable channels in addition to
the basic service channel line-up described above. Branded as Telemax, this service
was introduced in almost all of our markets largely to satisfy customer demand for
greater flexibility and choice.
 Advanced Products and Services
  
    
    Cable Internet Access.Leveraging our advanced cable infrastructure, we offer cable
Internet access to our residential customers primarily via cable modems attached to
personal computers. We provide this service at speeds up to 290 times the speed of a
conventional telephone modem. As of December 31, 2005, we had 637,971 high-speed
Internet access customers, representing 42.4% of our basic customers and 26.4% of our
total homes passed. In addition, as of December 31, 2005, we had 18,034 dial-up Internet
access customers. Based on internal estimates, we are the largest provider of high-speed
Internet access services in the areas we serve with an estimated market share of 51% as
of December 31, 2005.
 - 22 -




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
    
    Digital Television.As part of our network modernization program, we have installed
headend equipment capable of delivering digitally encoded transmissions to a two-way
digital-capable set-top box in the customers home. This digital connection provides
significant advantages. In particular, it increases channel capacity, which allows us to
increase both programming and service offerings while providing increased flexibility in
packaging our services. We launched our digital television service in March 1999 with
the introduction of digital video compression terminals in the greater Montréal area.
Since introducing our digital television service in the greater Montréal area, we have
also introduced the service in other major markets. In September 2001, we launched a new
digital service offering under the illico brand. In addition to providing high quality
sound and image quality, illico offers our customers significant programming
flexibility. Our basic digital package includes 24 television channels, 45 audio
services providing CD quality music, 18 AM/FM radio channels, an interactive programming
guide as well as television-based e-mail capability. Our extended digital basic
television service, branded as Self-Service, offers customers the ability to select more
than 200 additional channels of their choice, including U.S. super-stations and other
special entertainment program, allowing them to customize their choices. This service
also offers customers significant programming flexibility including the option of
French-language only, English-language only or a combination of French- and
English-language programming. We also offer pre-packaged themed service tiers in the
areas of news, sports and discovery. Customers who purchase basic service and one
customized package can also purchase channels on an à la cartebasis at a specified cost
per channel per month. As part of our digital service offering, customers can also
purchase near-video-on-demand services on a per-event basis. Our customers currently
have the option to purchase or lease the digital set-top boxes required for digital
service. As of December 31, 2005, we had 474,629 customers for our digital television
service, representing 31.5% of our basic customers and 19.6% of our total homes passed.
Our customers currently have the option to purchase or lease the digital set-top boxes
required for digital service. We believe that the sale of equipment to customers
improves customer retention, and, as of December 31, 2005, approximately 92% of our
digital television customers have purchased and 8% lease our digital set-top boxes.
    
    Voice over IP.In January 2005, we launched our new telephony service using Voice
over IP technology in selected areas of the Province of Québec (South Shore and North
Shore of Montréal, Montréal, Laval and Québec City), and we have continued to launch
this service progressively among our other residential and commercial customers in the
Province of Québec. Our new telephony service includes both local and long-distance
calling, and permits all of our telephony customers, both residential and commercial, to
access all service features mandated by CRTC Decision 97-8 and other regulatory
decisions and orders, including: enhanced 911 Emergency service; number portability from
and to any local exchange carrier; a message relay service allowing subscribers to
communicate with the hearing impaired; and a variety of personal privacy features
including universal call tracing. We also offer free basic listings in local telephone
directories, as well as full operator assistance, including: operator-assisted calls;
collect and third-party calls; local, national and international directory assistance;
person-to-person calls; and busy-line verification. Finally, we offer as part of our new
telephony service a host of convenient, optional features, including: name and number
caller ID; call waiting with long-distance distinctive ring and audible indicator tone;
name and number caller ID on call waiting; visual indicator of a full voice mail box and
audible message waiting indicators; automatic call forwarding; three-way conference
calling; automatic recalling; and last incoming call identification and recall. In the
future, Voice over IP will allow us to deliver new cutting-edge features, such as
voice-mail to e-mail functionality launched in December 2005, which allows customers
access their voice-mail via e-mail in the form of audio-file attachments. In keeping
with our competitive strength of providing differentiated, bundled service offerings, we
offer free installation of our new telephony service to existing cable television and/or
Internet customers and to new bundled customers. We also offer discounts to our bundled
customers, when compared to the sum of the prices of the individual services provided to
these customers. In addition, we offer discounts for a second telephone line
subscription. As of December 31, 2005, we had 162,979 customers of our Voice over IP
telephony service.
    
    Interactive Services. In September 2001, we also launched digital interactive
services under the illico Interactive brand. These services, which combine our digital
television and Internet access services,
 - 23 -




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##### Table of Contents



enable customers equipped with wireless
keyboards to access the Internet and send and receive e-mail. In the near
future, we intend to provide additional functionality including e-commerce. We believe
interactive services will be increasingly desired by customers, and we intend to
continue to develop and deploy advanced products and services to add greater
functionality to our interactive services offering.
    
    Video-On-Demand.Video-on-demand service enables digital cable customers to rent
from a library of movies, documentaries and other programming through their digital
set-top box. Our digital cable customers are able to rent their video-on-demand
selections for a period of 24 hours, which they are then able to watch at their
convenience with full stop, rewind, fast forward, pause and replay functionality during
that period. Our video-on-demand service is available to 98% of the homes passed by us.
We also offer pay television channels on a subscription basis that permit our customers
to access and watch any of their video-on-demand selections at any time at their
convenience.
    
    Other New Business.To maintain and enhance our market position, we are focused on
increasing penetration of high-definition television and personal video recorders, as
well as other high-value products and services. On September 20, 2005, we announced that
we had signed a strategic relationship agreement with Rogers Wireless, the operator of
Canadas largest integrated wireless voice and data network, that will enable us to
offer Québec consumers a quadruple play of television, broadband Internet, cable
telephony and Videotron branded mobile wireless services. We will operate as a Mobile
Virtual Network Operator, or MVNO, utilizing wireless voice and data services provided
by Rogers Wireless across its GSM/GPRS network. We currently intend to launch our mobile
wireless offering during the second half of 2006, with services to include international
roaming and popular options. We will be responsible for acquiring and billing customers,
as well as for providing customer support under our own brand.
  As of December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Basic analog cableHomes passed(1)
    
    
    2,330,648
    
    
    
    2,329,023
    
    
    
    2,351,344
    
    
    
    2,383,443
    
    
    
    2,419,335Basic customers(2)
    
    
    1,510,408
    
    
    
    1,431,060
    
    
    
    1,424,144
    
    
    
    1,452,554
    
    
    
    1,506,113Penetration(3)
    
    
    64.8
    %
    
    
    61.4
    %
    
    
    60.6
    %
    
    
    60.9
    %
    
    
    62.3
    %Digital cableDigital customers
    
    
    114,634
    
    
    
    171,625
    
    
    
    240,863
    
    
    
    333,664
    
    
    
    474,629Penetration(4)
    
    
    7.6
    %
    
    
    12.0
    %
    
    
    16.9
    %
    
    
    23.0
    %
    
    
    31.5
    %Number of digital terminals
    
    
    121,210
    
    
    
    182,010
    
    
    
    257,350
    
    
    
    362,053
    
    
    
    537,364Dial-up Internet accessDial-up customers
    
    
    55,427
    
    
    
    43,627
    
    
    
    28,821
    
    
    
    23,973
    
    
    
    18,034Cable Internet accessCable modem customers
    
    
    228,759
    
    
    
    305,054
    
    
    
    406,277
    
    
    
    502,630
    
    
    
    637,971Penetration(3)
    
    
    9.8
    %
    
    
    13.1
    %
    
    
    17.3
    %
    
    
    21.1
    %
    
    
    26.4
    %Telephony ServicesVoIP customers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,135
    
    
    
    162,979Penetration(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    %
    
    
    6.7
    %
 
 (1)
    
    Homes passed means the number of residential premises, such as single dwelling units or
multiple dwelling units, and commercial premises passed by the cable television distribution
network in a given cable system service area in which the programming services are offered.(2)
    
    Basic customers are customers who receive basic cable service in either the analog or digital
mode. The numbers of basic customers for the years 2000-2003, inclusive, were restated in
order to permit such numbers to be compared to the 2004 number of basic customers.(3)
    
    Represents customers as a percentage of total homes passed.(4)
    
    Represents customers for the digital service as a percentage of basic customers. - 24 -




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Business Telecommunications Services
  Video Stores
  Pricing of Our Products and Services
    Service
    
    Price Range (1)Basic analog cable
    
    $
    15.07  $28.19Extended basic analog cable
    
    $
    26.81  $40.50Basic digital cable
    
    $
    12.98  $14.98Extended basic digital cable
    
    $
    25.98  $73.98Pay-television
    
    $
    6.00  $19.95Pay-per-view (per movie or event)
    
    $
    3.99  $79.95Video-on-demand (per movie or event)
    
    $
    0.99  $24.95Dial-up Internet access
    
    $
    9.95  $19.95Cable Internet access
    
    $
    26.95  $74.90VoIP Telephony
    
    $
    15.95  $22.95
 
 (1)
    
    These rates reflect price increases, effective March 1, 2006, of $0.60 on basic analog cable and extended basic analog cable, $1.00 on basic digital cable, between $1.00 and $3.00 on extended digital cable and $1.00 on cable internet access and VoIP telephone. - 25 -




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Our Network Technology
   450 MHz
    
    480 to
    
    750 to
    
    Two-Wayand Under
    
    625 MHz
    
    860 MHz
    
    CapabilityDecember 31, 2001
    
    3%
    
    25%
    
    72%
    
    97%December 31, 2002
    
    3%
    
    23%
    
    74%
    
    97%December 31, 2003
    
    3%
    
    23%
    
    74%
    
    97%December 31, 2004
    
    3%
    
    23%
    
    74%
    
    97%December 31, 2005
    
    2%
    
    23%
    
    75%
    
    98%
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Marketing and Customer Care
  
    
    continue to rapidly deploy advanced products and services such as cable Internet
access, digital television and Voice over IP telephony;
    
    design product offerings that provide greater opportunity for customer entertainment
and information choices;
    
    target marketing opportunities based on demographic data and past purchasing
behavior;
    
    develop targeted marketing programs to attract former customers, households that have
never subscribed to our services and customers of alternative or competitive services;
    
    enhance the relationship between customer service representatives and our customers
by training and motivating customer service representatives to promote advanced products
and services;
    
    leverage the retail presence of SuperClub Vidéotron, Archambault Group Inc. and
third-party commercial retailers;
    
    cross-promote the wide variety of content and services offered within the Quebecor
Media group (including, for example, the content of TVA Group productions and the 1-900
service for audience voting during television programs such as Star Académie, Occupation
Doubleand other reality shows popular in Québec) in order to distribute our cable, data
transmission and telephony services to our existing and future customers;
    
    introduce new value-added packages of products and services, which we believe
increases average revenue per user, or ARPU, and improves customer retention; and
    
    leverage our business market, using the Videotron Telecom network and expertise with
our commercial customer base, which should enable us to offer additional bundled
services to our customers and may result in new business opportunities.
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Programming
   Competition
  
    
    Over-the-air Television and Providers of Other Entertainment.Cable television has
long competed with broadcast television, which consists of television signals that the
viewer is able to receive without charge using an over-the air antenna. The extent of
such competition is dependent upon the quality and quantity of broadcast signals
available through over-the-air reception compared to the services provided by the local
cable system. Cable systems also face competition from alternative methods of
distributing and receiving television signals and from other sources of entertainment
such as home video products, including videotape recorders, DVD players and video games.
The extent to which a cable television service is competitive depends in significant
part upon the cable systems ability to provide a greater variety of programming,
superior technical performance and superior customer service than are available over the
air or through competitive alternative delivery sources.
    
    Direct Broadcast Satellite.Direct broadcast satellite, or DBS, is a significant
competitor to cable systems. DBS delivers programming via signals sent directly to
receiving dishes from medium- and high-powered satellites, as opposed to cable delivery
transmissions. This form of distribution generally provides more channels than some of
our television systems and is fully digital. DBS service can be received virtually
anywhere in Canada through the installation of a small rooftop or side-mounted
 - 28 -




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antenna. Like digital cable distribution, DBS systems use video compression technology
to increase channel capacity and digital technology to improve the quality of the
signals transmitted to their customers.
    
    DSL.The deployment of digital subscriber line technology, known as DSL, provides
customers with Internet access at data transmission speeds greater than that which is
available over conventional telephone lines. DSL service is comparable to cable-modem
Internet access over cable systems. We also face competition from other providers of DSL
service.
    
    VDSL.The CRTC and Industry Canada have authorized video digital subscriber line, or
VDSL, services. VDSL technology increases the capacity of DSL lines available, which
permits the distribution of digital video. We expect that we will soon face competition
from incumbent local exchange carriers, which have been granted licenses to launch video
distribution services using this technology. ILECs are currently installing this new
technology, which operates over the copper lines in phone lines, in our markets. This
technology can achieve speeds as high as 52 Mbps upstream, but VDSL can only operate
over a short distance of about 4,000 feet (1,200 metres). As a result, telephone
companies are replacing many of their main feeds with fibre-optic cable. By placing a
VDSL transceiver, a VDSL gateway, in larger multiple dwelling units, the distance
limitation is overcome. Further, as a result of such improvements in broadband speeds
over DSL and the evolution of compression technology, incumbent telephone carriers in
our service areas may be in a position to enable delivery of digital television over
their cable Internet connections (IPTV) in the coming years. Advanced trials are
underway in Canada and in other countries. Tests in our service markets are expected to
be performed in the first half of 2006. If successful, IPTV may provide
telecommunications carriers with a way to offer services similar to those offered by
cable operators in the consumer market.
    
    Private Cable.Additional competition is posed by satellite master antenna
television systems known as SMATV systems serving multi-dwelling units, such as
condominiums, apartment complexes, and private residential communities.
    
    Other Cable Distribution.There is currently, a cable operator offering television
distribution and providing cable-modem Internet access service is serving the greater
Montréal area. This cable operator, which has approximately 15,000 customers, is owned
by the regional ILEC.
    
    Wireless Distribution.Cable television systems also compete with wireless program
distribution services such as multi-channel multipoint distribution systems, or MDS.
This technology uses microwave links to transmit signals from multiple transmission
sites to line-of-sight antennas located within the customers premises.
    
    Grey and Black Market DBS Providers.Cable and other distributors of television
signals continue to face competition from the use of access codes and equipment that
enable the unauthorized decoding of encrypted satellite signals, from unauthorized
access to our analog and digital cable signals (black market) and from the reception of
foreign signals through subscriptions to foreign satellite television providers that are
not lawful distributors in Canada (grey market).
    
    Telephony Service.Our new VoIP telephony service competes against other telephone
companies, including both the incumbent telephone service provider in Québec, which
controls a significant portion of the telephony market in Québec, as well as other Voice
over IP telephony service providers and cellular telephone service providers.
    
    Other Internet Service Providers.In the Internet access business, cable operators
compete against other Internet service providers offering residential and commercial
Internet access services. The CRTC requires the large Canadian incumbent cable operators
to offer access to their high speed Internet system to competitive Internet service
providers at mandated rates.
 - 29 -




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REGULATION
 Ownership and Control of Canadian Broadcast Undertakings
  Ineligibility of Non-Canadians
 Broadcasting Act
 Broadcasting Act
 - 30 -




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Jurisdiction Over Canadian Broadcast Undertakings
 Broadcasting Act Broadcasting Act Radiocommunication Act
 Broadcasting Act
 Canadian Broadcast Distribution (Cable Television)
 Licensing of Canadian Broadcasting Distribution Undertakings
    - 31 -




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Distribution of Canadian Content
 Broadcasting Distribution Regulations Broadcasting Act
   - 32 -




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1998 Broadcasting Distribution Regulations
  
    
    Competition, Carriage Rules and Signal Substitution.The 1998 Regulations
provide equitable opportunities for all distributors of broadcasting services.
Similar to the signal carriage and substitution requirements that are imposed on
existing cable television systems, under the 1998 Regulations, new broadcasting
distribution undertakings are also subject to carriage and substitution
requirements. The 1998 Regulations prohibit a distributor from giving an undue
preference to any person, including itself, or subjecting any person to an undue
disadvantage. This gives the CRTC the ability to address complaints of
anti-competitive behavior on the part of certain distributors.
    
    A significant aspect of television broadcasting in Canada is simultaneous
program substitution, or simulcasting, a regulatory requirement under which
Canadian distribution undertakings, such as cable television systems with over
6,000 customers, are required to substitute the foreign programming service, with
local Canadian signal, including Canadian commercials, for broadcasts of identical
programs by a U.S. station when both programs are exhibited at the same time. These
requirements are designed to protect the program rights that Canadian broadcasters
acquire for their respective local markets. The CRTC, however, has suspended the
application of these requirements to DTH satellite operators for a period of time,
so long as they undertake certain alternative measures, including monetary
compensation to a fund designed to help finance regional television productions.
    
    Canadian Programming and Community Expression Financing Rules. All distributors,
except systems with less than 2,000 customers, are required to contribute at least
5% of their gross annual broadcast revenues to the creation and presentation of
Canadian programming including community programming. However, the allocation of
these contributions between broadcast and community programming can vary depending
on the type and size of the distribution system involved.
    
    Inside Wiring Rules.The CRTC determined that the inside wiring portion of
cable networks creates a bottleneck facility that could affect competition if open
access is not provided to other distributors. Incumbent cable companies may retain
the ownership of the inside wiring but must allow usage by competitive undertakings
to which the cable company may charge a just and reasonable fee for the use of the
inside wire. On September 3, 2002, the CRTC established a fee of $0.52 per customer
per month for the use of cable inside wire in MDUs. On October 9, 2002, the CRTC,
had ordered Câblage QMI and Videotron to comply with the inside wiring access
rules. In Broadcasting Decision CRTC 2005-223 of May 31, 2005, the CRTC rescinded
the Mandatory Order issued against Videotron and its subsidiaries. In Broadcasting
Public Notice CRTC 2005-83 of August 15, 2005, the CRTC called for comments on
possible regulatory amendments that would expand competitive access to inside wire
owned by a cable licensee and installed in properties, such as hotels, hospitals,
nursing homes and other commercial or institutional premises that are used to house
transient residents as well as in office buildings, retail stores or other types of
non-residential properties. Videotron has opposed this expansion of the regulations
because such access would make what we have considered commercial accounts more
vulnerable to competition.
 - 33 -




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Rates
   (1)
    
    30% or more of the households in the licensed service area
have access to the services of another broadcasting distribution undertaking.
The CRTC has advised that as of August 31, 1997, the 30% availability
criterion was satisfied for all licensed cable areas; and(2)
    
    the number of customers for basic cable service has decreased
by at least 5% since the date on which a competitor started offering its basic
cable service in the particular area.
     Winback Restrictions
    - 34 -




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Copyright Board Proceedings
  Royalties for the Retransmission of Distant Signals
 Copyright
Act
 Copyright Act
  Royalties for the Transmission of Pay and Specialty Services
 Copyright Act
  - 35 -




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Royalties for Pay Audio Services
   Tariff in Respect of Internet Service Provider Activities
 Copyright Act
 Proposed Tariffs in Respect of Online Activities
  Canadian Telecommunications Services
 - 36 -




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Jurisdiction
 Telecommunications Act Telecommunications Act
 Telecommunications Act Telecommunications Act Telecommunications Act
  Overview of the Telecommunications Competition Framework
 Review of Regulatory Framework Local Competition
 Application of Canadian Telecommunications Regulation
 Telecommunications Act
 i.e.
   - 37 -




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Right to Access to Telecommunications and Hydro-Electric Support Structures
 Telecommunications Act Telecommunications Act
 - 38 -




---



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An Act respecting certain public utility installations (Québec)
  Access by Third Parties to Cable Networks
      Foreign Ownership Restrictions
  - 39 -




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- 40 -




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ORGANIZATIONAL STRUCTURE
 Caisse de dépôt et placement du Québec
 
 PROPERTY, PLANTS AND EQUIPMENT
    INTELLECTUAL PROPERTY
  ENVIRONMENT
  - 41 -




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ITEM
4A  UNRESOLVED STAFF COMMENTS
  - 42 -




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ITEM 5  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 The following discussion and analysis provides information concerning our operating results
and financial condition. This discussion should be read in conjunction with our consolidated
financial statements and accompanying notes included elsewhere in this annual report. It also
contains forward-looking statements, which are subject to a variety of factors that could cause
actual results to differ materially from those contemplated by these statements. See
Forward-Looking Statements.
 GENERAL
     OVERVIEW OF RESULTS
 - 43 -




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FINANCIAL DATA
 Year ended December 31,(in thousands of Canadian dollars)
    
    2003
    
    
    2004
    
    
    2005Revenues
    
    $
    805,001
    
    
    $
    871,618
    
    
    $
    1,001,994Operating income (1)
    
    
    275,250
    
    
    
    341,177
    
    
    
    382,352Depreciation and amortization
    
    
    122,958
    
    
    
    130,215
    
    
    
    131,841Net income
    
    
    63,311
    
    
    
    147,372
    
    
    
    113,875Cash flows from operating activities
    
    
    194,078
    
    
    
    310,675
    
    
    
    354,368Acquisition of fixed assets
    
    
    90,284
    
    
    
    123,030
    
    
    
    191,827
 CUSTOMER STATISTICS
 As of December 31,2003
    
    
    2004
    
    
    2005Homes passed(2)
    
    
    2,351,344
    
    
    
    2,383,443
    
    
    
    2,419,335CableBasic Cable Customers(3)
    
    
    1,424,144
    
    
    
    1,452,554
    
    
    
    1,506,113% Penetration(4)
    
    
    60.6
    %
    
    
    60.9
    %
    
    
    62.3
    %Basic Cable, net (losses) additions
    
    
    (6,916
    )
    
    
    28,410
    
    
    
    53,559Digital Cable Customers
    
    
    240,863
    
    
    
    333,664
    
    
    
    474,629% Penetration(5)
    
    
    16.9
    %
    
    
    23.0
    %
    
    
    31.5
    %Digital Cable, net additions
    
    
    69,238
    
    
    
    92,801
    
    
    
    140,965Internet AccessCable Modem
    
    
    406,277
    
    
    
    502,630
    
    
    
    637,971% Penetration(4)
    
    
    17.3
    %
    
    
    21.1
    %
    
    
    26.4
    %Cable Modem, net additions
    
    
    101,223
    
    
    
    96,353
    
    
    
    135,341Dial up
    
    
    28,821
    
    
    
    23,973
    
    
    
    18,034Dial up, net (losses)
    
    
    (14,803
    )
    
    
    (4,848
    )
    
    
    (5,939
    )TelephonyVoIP Customers
    
    
    
    
    
    
    2,135
    
    
    
    162,979% Penetration(4)
    
    
    
    
    
    
    0.1
    %
    
    
    6.7
    %VoIP Customers, net additions
    
    
    
    
    
    
    2,135
    
    
    
    160,844
 
 (1)
    
    We define operating income as net income before depreciation and amortization, financial expenses, dividend
income from parent company, other items, income taxes, non-controlling interest in a subsidiary and goodwill amortization.
We provide a reconciliation of operating income to net income in note 8 under Item 3. Key Information  Selected
Financial Data above.(2)
    
    Homes passed means the number of residential premises, such as single dwelling units or multiple dwelling units,
and commercial premises passed by cable television distribution network in a given cable system service area in
which the programming services are offered.(3)
    
    Basic customers are customers who received basic cable service, including analog and digital customers.(4)
    
    Represents customers as a percentage of homes passed.(5)
    
    Represents digital customers as a percentage of basic customers. - 44 -




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- 45 -




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YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
 Revenues
       Direct Costs and Operating, General and Administrative Expenses
  - 46 -




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##### Table of Contents



Operating Income
  Depreciation and Amortization
  Financial Expenses and Dividend Income
 3 8
 Income Taxes
  - 47 -




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##### Table of Contents



Net Income
  YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
 Revenues
      Direct Costs and Operating, General and Administrative Expenses
  - 48 -




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##### Table of Contents



Operating Income
  Depreciation and Amortization
  Financial Expenses, Dividend Income and Other Items
   Income Taxes
  Net Income
  - 49 -




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
 Uses of Liquidity and Capital Resources
  
    
    capital expenditures to maintain and upgrade our network in order to support the
growth of our customer base and the launch and expansion of new or additional
services;
    
    the service and repayment of our debt, and satisfaction of other contractual obligations; and
    
    distributions to our shareholder.
 Capital Expenditures.
  Service and Repayment of Our Debt.
  1 8
  - 50 -




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##### Table of Contents



7 8
 Distributions to our Shareholder
 Purchase of Shares of Quebecor Media and Service of Subsidiary Subordinated Loan
 3 4
 Retractable Preferred Shares.
  Contractual Obligations and Other Commercial Commitments
 - 51 -




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Payments Due by Period(as of December 31, 2005)Total
    
    
    < 1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    > 5 years(in millions of dollars)Contractual obligations:67/8% Senior Notes due January 15, 2014
    
    $
    769.2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    769.263/8% Senior Notes due December 15, 2015
    
    
    202.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202.5Cash Interest Expense(1)
    
    
    601.6
    
    
    
    68.3
    
    
    
    136.6
    
    
    
    136.6
    
    
    
    260.1QMI subordinated loan (2)
    
    
    150.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.0Operating leases and other debt
    
    
    37.5
    
    
    
    12.5
    
    
    
    12.8
    
    
    
    6.9
    
    
    
    5.3Total contractual cash obligations
    
    $
    1,760.8
    
    
    $
    80.8
    
    
    $
    149.4
    
    
    $
    143.5
    
    
    $
    1,387.1
 
 (1)
    
    Estimate of interest to be paid on long-term debt, excluding the QMI subordinated
loans, based on the interest rates and foreign exchange rate as at December 31, 2005.(2)
    
    On January 17, 2006, we reimbursed the principal amount of the subordinated loan and all
interests owed at that date to Quebecor Media for a total consideration of $168.0 million.    Sources of Liquidity and Capital Resources
  
    
    funds from operations;
    
    financing from related party transactions;
    
    capital markets debt financing; and
    
    our credit facilities.
 Funds from Operations.
 - 52 -




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Financing from Related Party Transactions
  Capital Markets Debt Financing 3 8 3 8 3 8 3 8 3 8
 Credit Facilities
 7 8
 7 8
 7 8 3 8
 - 53 -




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SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
  Long-Lived Assets
    Employee Future Benefits
 Pensions.
 Other Post-Retirement Benefits.
  Subsidies on Equipment Sold to Customers
  OFF-BALANCE SHEET ARRANGEMENTS
 Operating Leases
  - 54 -




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Guarantees under Lease Agreements
  Guarantees Related to our Various Notes
 7 8 3 8 7 8 3 8
 RISKS AND UNCERTAINTIES
    Market Risks
  7 8 3 8
 - 55 -




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3 8
 7 8 7 8
  REGULATION
 Broadcasting Act Telecommunications Act
 CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES
    - 56 -




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As of October 23, 2000(in thousands of dollars)Fixed assets
    
    $
    114,608Deferred charges
    
    
    (22,585
    )Goodwill
    
    
    4,360,512Change in assets
    
    
    4,452,535Accrued charges
    
    
    40,445Future income taxes
    
    
    24,930Change in liabilities
    
    
    65,375Change in contributed surplus
    
    $
    4,387,160
  RECENT CANADIAN GAAP ACCOUNTING PRONOUNCEMENTS
  Financial Instruments  Recognition and
Measurement Hedges Comprehensive Income Hedging Relationships Foreign Currency Translation
  - 57 -




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RECENT U.S. GAAP ACCOUNTING PRONOUNCEMENTS
   - 58 -




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ITEM 6  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 DIRECTORS AND SENIOR MANAGEMENT
  Name and Municipality of Residence
    
    Age
    
    PositionSerge Gouin
    
    
    62
    
    
    Director and Chairman of the BoardMontréal, QuébecJean La Couture, FCA(1)
    
    
    59
    
    
    Director and Chairman of the Audit CommitteeMontréal, QuébecAndré Delisle(1)
    
    
    59
    
    
    DirectorMontréal, QuébecA. Michel Lavigne, FCA(1)
    
    
    55
    
    
    DirectorBrossard, QuébecPierre Karl Péladeau
    
    
    43
    
    
    DirectorMontréal, QuébecRobert Dépatie
    
    
    47
    
    
    President and Chief Executive OfficerRosemère, QuébecYvan Gingras
    
    
    48
    
    
    Executive Vice President, Finance and Operations,Montréal, Québec
    
    
    
    
    
    and Chief Financial OfficerJean Novak
    
    
    42
    
    
    President, Videotron Business ServiceBeaconsfield, QuébecMark DSouza
    
    
    45
    
    
    Vice PresidentBeaconsfield, QuébecDaniel Proulx
    
    
    47
    
    
    Senior Vice President, EngineeringMontréal, QuébecManon Brouillette
    
    
    37
    
    
    Vice President, Marketing and New Product Development,Outremont, Québec
    
    
    
    
    
    Consumers DivisionAndré Gascon
    
    
    44
    
    
    Vice President, Information TechnologiesLongueuil, QuébecJ. Serge Sasseville
    
    
    47
    
    
    Vice President, Legal Affairs and SecretaryWestmount, QuébecÉdouard G. Trépanier
    
    
    54
    
    
    Vice President, Regulatory AffairsBoucherville, QuébecNormand Vachon
    
    
    56
    
    
    Vice President, Human ResourcesRepentigny, QuébecJean-François Pruneau
    
    
    35
    
    
    TreasurerRepentigny, QuébecStéphanie Lachance
    
    
    33
    
    
    Assistant SecretaryMount-Royal, QuébecClaudine Tremblay
    
    
    52
    
    
    Assistant SecretaryNuns Island, Québec
 
 (1)
    
    Member of our Audit Committee. - 59 -




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##### Table of Contents



Serge Gouin
 Jean La Couture Regroupement des assureurs de personnes à charte du Québec
 André Delisle, Caisse de dépôt et placement du Québec Barreau du Québec
 A. Michel Lavigne Caisse de dépôt et
placement du Québec Ordre des comptables agréés du Québec École des Hautes Études Commerciales
 Pierre Karl Péladeau
 - 60 -




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Robert Dépatie
 Yvan Gingras
 Jean Novak
 Mark DSouza
 Daniel Proulx
 Manon Brouillette
 André Gascon
 J. Serge Sasseville
 - 61 -




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##### Table of Contents



Barreau du Québec
 Edouard G. Trépanier
 Normand Vachon ,
 Jean-François Pruneau
 Stéphanie Lachance Autorité des
marchés financiers Barreau du Québec
 Claudine Tremblay Chambre des Notaires du Québec
 BOARD PRACTICES
    - 62 -




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Audit Committee
   COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
   Quebecor Medias Stock Option Plan
  - 63 -




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##### Table of Contents



Quebecor Inc.s Stock Option Plan
 1 3 2 3
  Pension Benefits
  Income Tax Act Income Tax Act
  - 64 -




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##### Table of Contents



Income Tax Act Income Tax
Act
  Years of MembershipCompensation
    
    10
    
    15
    
    20
    
    25
    
    30$105,550 or more
    
    $
    21,110
    
    
    $
    31,665
    
    
    $
    42,220
    
    
    $
    52,775
    
    
    $
    63,330
 Supplemental Retirement Benefit Plan for Designated Executives
  Income Tax Act
  Income Tax Act
 .
  Years of Credited ServiceCompensation
    
    10
    
    15
    
    20
    
    25
    
    30$200,000
    
    $
    18,890
    
    
    $
    28,335
    
    
    $
    37,780
    
    
    $
    47,225
    
    
    $
    56,670300,000
    
    
    38,890
    
    
    
    58,335
    
    
    
    77,780
    
    
    
    97,225
    
    
    
    116,670400,000
    
    
    58,890
    
    
    
    88,335
    
    
    
    117,780
    
    
    
    147,225
    
    
    
    176,670500,000
    
    
    78,890
    
    
    
    118,335
    
    
    
    157,780
    
    
    
    197,225
    
    
    
    236,670600,000
    
    
    98,890
    
    
    
    148,335
    
    
    
    197,780
    
    
    
    247,225
    
    
    
    296,670
 - 65 -




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##### Table of Contents



Years of Credited ServiceCompensation
    
    10
    
    15
    
    20
    
    25
    
    30800,000
    
    
    138,890
    
    
    
    208,335
    
    
    
    277,780
    
    
    
    347,225
    
    
    
    416,6701,000,000
    
    
    178,890
    
    
    
    268,335
    
    
    
    357,780
    
    
    
    447,225
    
    
    
    536,670
 Liability Insurance
  EMPLOYEES
  SHARE OWNERSHIP
  
 ITEM 7  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 MAJOR SHAREHOLDERS
  Caisse de dépôt et placement du Québec
 RELATED PARTY TRANSACTIONS
  Video-on-Demand Services
  - 66 -




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Services Agreements with Videotron Telecom
  Telecommunications Services Agreements
  Fiber Optic Maintenance Agreement
  Internet Services Agreements
  Call Center and Customer Support Agreement
   - 67 -




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##### Table of Contents



Management Services and Others
   Year EndedDecember 31,2004
    
    2005(dollars in millions)Revenues
    
    $
    1.9
    
    
    $
    2.4Purchases
    
    
    55.8
    
    
    
    88.7Accounts payable
    
    
    51.7
    
    
    
    53.4
  Income Tax Transactions
   Quebecor World Outsourcing of Information Technology
   
    
    the initial purchase by Videotron of the information technology infrastructure
equipment of Quebecor World;
 - 68 -




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##### Table of Contents




    
    the provision of consulting services by certain Quebecor World Inc. personnel to
Videotron for corporate information technology services; and
    
    the provision of information technology managed services by Videotron to Quebecor
World Inc. in North America.
  INTERESTS OF EXPERTS AND COUNSEL
  
 ITEM 8  FINANCIAL INFORMATION
 CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
  LEGAL PROCEEDINGS
     DIVIDEND POLICY
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##### Table of Contents



SIGNIFICANT CHANGES
    
 ITEM 9  THE OFFER AND LISTING
 OFFER AND LISTING DETAILS
  PLAN OF DISTRIBUTION
  MARKETS
 3 8 3 8 3 8
 7 8 7 8 7 8
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##### Table of Contents



SELLING SHAREHOLDERS
  DILUTION
  EXPENSES OF THE ISSUER
  
 ITEM 10  ADDITIONAL INFORMATION
 SHARE CAPITAL
  MEMORANDUM AND ARTICLES OF ASSOCIATION
  1.
    
    
    
    On January 1, 2006, Vidéotron Ltée and Videotron Telecom Ltd. amalgamated, under Part IA of
the Companies Act(Québec), into a single company using the name Videotron Ltd. (or
Vidéotron Ltée in French) with the Designating Number 1163429724. The Articles provide no
restrictions on the purposes or activities that may be undertaken by Videotron.2.
    
    (a)
    
    Our by-laws provide that we may transact business with one or more of our directors or
with any company of which one or more of our directors are members or employees or with any
corporation or association of which one or more of our directors are shareholders, directors,
officers or employees. The director who has an interest in the transaction must disclose his
or her interest to us and to the other directors before expressing a view of this transaction
and shall refrain from deliberating or voting on the transaction, except if his or her vote is
necessary to commit us in respect of the transaction.(b)
    
    Neither the Articles nor our by-laws contain provisions with respect to
directors power, in the absence of an independent quorum, to determine their
remuneration.(c)
    
    Subject to any restriction which may from time to time be included in the
Articles or our by-laws, or the terms, rights or restrictions of any of our shares or
securities outstanding, our directors may authorize us, by simple resolution, to borrow
money and obtain advances upon the credit of our company when they consider it
appropriate. Our directors also may, by simple resolution, when they consider it
appropriate, (i) issue bonds or other securities of our company and give them in
guarantee or sell them for prices and amounts deemed appropriate; (ii) mortgage, pledge
or give as surety our present or future movable and immovable property to ensure the
payment of these bonds or other securities or give a part only of these guarantees for
the same purposes; and (iii) mortgage or pledge our real estate or give as security or
otherwise encumber with any charge our movables or give these various kinds of
securities to assure the
 - 71 -




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payment of loans made other than by the issuance of bonds as well as the payment or
the execution of other debts, contracts and commitments of our company.Neither the Articles nor our by-laws contain any provision with respect to (d) the
retirement or non-retirement of our directors under an age limit requirement or (e)
the number of shares, if any, required for the qualification of our directors.
 3.
    
    The rights, preferences and restrictions attaching to our common shares and our preferred
shares (consisting of our Class A Common Shares and our authorized classes of preferred
shares, comprised or our Class B Preferred Shares, Class C Preferred Shares, Class D Preferred
Shares, Class E Preferred Shares, Class F Preferred Shares and Class G Preferred Shares) are
set forth below:
 Common Shares
 Class A Common Shares
 (a)
    
    Dividend rights: Subject to the rights of the holders of our preferred shares
(including their redemption rights) and subject to applicable law, each Class A common
share is entitled to receive such dividends as our Board of Directors shall determine.(b)
    
    Voting rights: The holders of Class A Common Shares are entitled to vote at each
shareholders meeting with the exception of meetings at which only the holders of
another class of shares are entitled to vote. Each Class A Common Share entitles the
holder to one vote. The holders of the Class A Common Shares shall elect the directors
of Videotron at an annual or special meting of shareholders called for that purpose,
except that any vacancy occurring in the Board of Directors may be filled, for the
remainder of the term, by our Directors. At any meeting of shareholders called for such
purpose, directors are elected by a majority of the votes cast in respect of such
election.(c)
    
    Rights to share in our profits: Other than as described in paragraph (a) above
(whereby the holders of our Class A Common Shares are entitled to receive dividends as
determined by our Board of Directors subject to certain restrictions) and paragraph (d)
below (whereby the holders of our Class A Common Shares are entitled to participation in
the remaining property and assets of our company available for distribution in the event
of liquidation or dissolution), None.(d)
    
    Rights upon liquidation: In the event of our liquidation or dissolution or any
other distribution of our assets among our shareholders for the purpose of winding-up
our affairs, whether voluntarily or involuntarily, the holders of our Class A Common
Shares shall be entitled, subject to the rights of the holders of our preferred shares,
to participate equally, share for share, in our residual property and assets available
for distribution to our shareholders, without preference or distinction.(e)
    
    Redemption provisions: None.(f)
    
    Sinking fund provisions: None.(g)
    
    Liability to further capital calls by us: None, provided that our directors may
make calls upon the shareholders in respect of any moneys unpaid upon their shares.(h)
    
    Provisions discriminating against existing or prospective holders of common
shares as a result of such holder owning a substantial number of common shares: None.
 - 72 -




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##### Table of Contents



Preferred Shares
 Class B Preferred Shares
 (a)
    
    Dividend rights: When our Board of Directors declares a dividend, the holders of
our Class B Preferred Shares have the right to receive, in priority over the holders of
our Class A Common Shares, Class C Preferred Shares, Class D Preferred Shares, Class E
Preferred Shares and Class F Preferred Shares, but subordinated to the holders of our
Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed rate
of 1% per month, calculated on the basis of the applicable redemption value of our Class
B Preferred Shares. A dividend may be declared and payable in cash, in kind or through
the issuance of fully paid shares of any class of our company.(b)
    
    Voting rights: Subject to applicable law and except as expressly otherwise
provided, the holders of our Class B Preferred Shares do not have the right to receive
notice of meetings of shareholders or to attend any such meeting or vote at any such
meeting.(c)
    
    Rights to share in our profits: Other than as described in paragraph (a) above
(whereby the holders of our Class B Preferred Shares are entitled to receive certain
dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby
the holders of our Class B Preferred Shares are entitled to participate in the
distribution of the residual property and assets of Videotron available for distribution
in the event of our liquidation or winding-up) and paragraph (e) below (whereby the
holders of our Class B Preferred Shares have certain redemption rights), None.(d)
    
    Rights upon liquidation: In the event of our liquidation, dissolution or other
distribution of our assets among our shareholders for the purpose of winding-up our
affairs, whether voluntarily or involuntarily, the holders of the Class B Preferred
Shares shall be entitled to repayment of the amount paid for the Class B Preferred
shares in the subdivision of the issued and paid-up share capital account relating to
the Class B Preferred shares.In addition, in the event of our liquidation, dissolution or other distribution of our
assets among our shareholders for the purpose of winding-up our affairs, whether
voluntarily or involuntarily, the rights of holders of Class B Preferred Shares as
regards to payment of dividends and the right to participate in the distribution of
residual assets, shall rank in priority to the rights of the holders of our Class A
Common Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred
Shares and Class F Preferred Shares, but subordinated to the rights of holders of our
Class G Preferred Shares.(e)
    
    Redemption provisions: Subject to the provisions of the Companies Act(Québec),
the holders of our Class B Preferred Shares have, at any time, the right to require
Videotron to redeem (referred to as a retraction right) any or all of their Class B
Preferred Shares at a redemption price equal to the amount paid for such shares in the
subdivision of the issued and paid-up share capital account relating to such shares,
plus a specified premium, if applicable, plus the amount of any declared and unpaid
dividends.In addition, Videotron may, at its option, redeem any or all of the Class B Preferred
Shares outstanding at any time at an aggregate redemption price equal to the
consideration received by Videotron for these Class B Preferred Shares. Videotron may
also, when it deems it appropriate and without giving notice or taking into account
the other classes of shares, buy, pursuant to a private agreement, all or some of the
Class B Preferred Shares outstanding at a purchase price for any such Class B
Preferred Shares not exceeding the retraction right purchase price described above or
the book value of Videotrons net assets.(f)
    
    Sinking fund provisions: None.
 - 73 -




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##### Table of Contents



(g)
    
    Liability to further capital calls by us: None, provided that our directors may
make calls upon the shareholders in respect of any moneys unpaid upon their shares.(h)
    
    Provisions discriminating against existing or prospective holders of our Class B
Preferred Shares as a result of such holder owning a substantial number of our Class B
Preferred Shares: None.
 Class C Preferred Shares
 (a)
    
    Dividend rights: When our Board of Directors declares a dividend, the holders of
our Class C Preferred Shares have the right to receive, in priority over the holders of
our Class A Common Shares, Class D Preferred Shares, Class E Preferred Shares and Class
F Preferred Shares, but subordinated to the holders of our Class B Preferred Shares and
Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed rate
of 1% per month, calculated on the basis of the applicable redemption value of our Class
C Preferred Shares. A dividend may be declared and payable in cash, in kind or through
the issuance of fully paid shares of any class of our company.(b)
    
    Voting rights: Subject to applicable law and except as expressly otherwise
provided, the holders of our Class C Preferred Shares do not have the right to receive
notice of meetings of shareholders or to attend any such meeting or vote at any such
meeting.(c)
    
    Rights to share in our profits: Other than as described in paragraph (a) above
(whereby the holders of our Class C Preferred Shares are entitled to receive certain
dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby
the holders of our Class C Preferred Shares are entitled to participate in the
distribution of the residual property and assets of Videotron available for distribution
in the event of our liquidation or winding-up) and paragraph (e) below (whereby the
holders of our Class C Preferred Shares have certain redemption rights), None.(d)
    
    Rights upon liquidation: In the event of our liquidation, dissolution or other
distribution of our assets among our shareholders for the purpose of winding-up our
affairs, whether voluntarily or involuntarily, the holders of the Class C Preferred
Shares shall be shall be entitled to repayment of the amount paid for the Class C
Preferred shares in the subdivision of the issued and paid-up share capital account
relating to the Class C Preferred shares.In addition, in the event of our liquidation, dissolution or other distribution of our
assets among our shareholders for the purpose of winding-up our affairs, whether
voluntarily or involuntarily, the rights of holders of Class C Preferred Shares as
regards to payment of dividends and the right to participate in the distribution of
residual assets, shall rank in priority to the rights of the holders of our Class A
Common Shares, Class D Preferred Shares, Class E Preferred Shares and Class F
Preferred Shares, but subordinated to the rights of holders of our Class B Preferred
Shares and Class G Preferred Shares.(e)
    
    Redemption provisions: Subject to the provisions of the Companies Act(Québec),
the holders of our Class C Preferred Shares have, at any time, the right to require
Videotron to redeem (referred to as a retraction right) any or all of their Class C
Preferred Shares at a redemption price equal to the amount paid for such shares in the
subdivision of the issued and paid-up share capital account relating to such shares,
plus a specified premium, if applicable, plus the amount of any declared and unpaid
dividends.In addition, Videotron may, at its option, redeem any or all of the Class C Preferred
Shares outstanding at any time at an aggregate redemption price equal to the
consideration received by Videotron for these Class C Preferred Shares. Videotron may
also, when it deems it appropriate and without giving notice or taking into account
the other classes of shares, buy, pursuant to a private agreement, all or some of the
Class C Preferred Shares outstanding at a purchase price for any such Class C
Preferred Shares not exceeding the retraction right purchase price described above or
the book value of Videotrons net assets.(f)
    
    Sinking fund provisions: None.
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(g)
    
    Liability to further capital calls by us: None, provided that our directors may
make calls upon the shareholders in respect of any moneys unpaid upon their shares.(h)
    
    Provisions discriminating against existing or prospective holders of our Class C
Preferred Shares as a result of such holder owning a substantial number of our Class C
Preferred Shares: None.
 Class D Preferred Shares
 (a)
    
    Dividend rights: When our Board of Directors declares a dividend, the holders of
our Class D Preferred Shares have the right to receive, in priority over the holders of
our Class A Common Shares, Class E Preferred Shares and Class F Preferred Shares, but
subordinated to the holders of our Class B Preferred Shares, Class C Preferred Shares
and Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed
rate of 1% per month, calculated on the basis of the applicable redemption value of our
Class D Preferred Shares. A dividend may be declared and payable in cash, in kind or
through the issuance of fully paid shares of any class of our company.(b)
    
    Voting rights: Subject to applicable law and except as expressly otherwise
provided, the holders of our Class D Preferred Shares do not have the right to receive
notice of meetings of shareholders or to attend any such meeting or vote at any such
meeting.(c)
    
    Rights to share in our profits: Other than as described in paragraph (a) above
(whereby the holders of our Class D Preferred Shares are entitled to receive certain
dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby
the holders of our Class D Preferred Shares are entitled to participate in the
distribution of the residual property and assets of Videotron available for distribution
in the event of our liquidation or winding-up) and paragraph (e) below (whereby the
holders of our Class D Preferred Shares have certain redemption rights), None.(d)
    
    Rights upon liquidation: In the event of our liquidation, dissolution or other
distribution of our assets among our shareholders for the purpose of winding-up our
affairs, whether voluntarily or involuntarily, the holders of the Class D Preferred
Shares shall be shall be entitled to repayment of the amount paid for the Class D
Preferred shares in the subdivision of the issued and paid-up share capital account
relating to the Class D Preferred shares.In addition, in the event of our liquidation, dissolution or other distribution of our
assets among our shareholders for the purpose of winding-up our affairs, whether
voluntarily or involuntarily, the rights of holders of Class D Preferred Shares as
regards to payment of dividends and the right to participate in the distribution of
residual assets, shall rank in priority to the rights of the holders of our Class A
Common Shares, Class E Preferred Shares and Class F Preferred Shares, but subordinated
to the rights of holders of our Class B Preferred Shares, Class C Preferred Shares and
Class G Preferred Shares.(e)
    
    Redemption provisions: Subject to the provisions of the Companies Act(Québec),
the holders of our Class D Preferred Shares have, at any time, the right to require
Videotron to redeem (referred to as a retraction right) any or all of their Class D
Preferred Shares at a redemption price equal to the amount paid for such shares in the
subdivision of the issued and paid-up share capital account relating to such shares,
plus a specified premium, if applicable, plus the amount of any declared and unpaid
dividends.In addition, Videotron may, at its option, redeem any or all of the Class D Preferred
Shares outstanding at any time at an aggregate redemption price equal to the
consideration received by Videotron for these Class D Preferred Shares. Videotron may
also, when it deems it appropriate and without giving notice or taking into account
the other classes of shares, buy, pursuant to a private agreement, all or some of the
Class D Preferred Shares outstanding at a purchase price for any such Class D
Preferred Shares not exceeding the retraction right purchase price described above or
the book value of Videotrons net assets.
 - 75 -




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(f)
    
    Sinking fund provisions: None.(g)
    
    Liability to further capital calls by us: None, provided that our directors may
make calls upon the shareholders in respect of any moneys unpaid upon their shares.(h)
    
    Provisions discriminating against existing or prospective holders of our Class D
Preferred Shares as a result of such holder owning a substantial number of our Class D
Preferred Shares: None.
 Class E Preferred Shares
 (a)
    
    Dividend rights: When our Board of Directors declares a dividend, the holders of
our Class E Preferred Shares have the right to receive, in priority over the holders of
our Class A Common Shares and Class F Preferred Shares, but subordinated to the holders
of our Class G Preferred Shares, Class C Preferred Share and Class E Preferred Shares, a
preferential and non-cumulative dividend at the fixed rate of 1% per month, calculated
on the basis of the applicable redemption value of our Class E Preferred Shares. A
dividend may be declared and payable in cash, in kind or through the issuance of fully
paid shares of any class of our company.(b)
    
    Voting rights: Subject to applicable law and except as expressly otherwise
provided, the holders of our Class E Preferred Shares do not have the right to receive
notice of meetings of shareholders or to attend any such meeting or vote at any such
meeting.(c)
    
    Rights to share in our profits: Other than as described in paragraph (a) above
(whereby the holders of our Class E Preferred Shares are entitled to receive certain
dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby
the holders of our Class E Preferred Shares are entitled to participate in the
distribution of the residual property and assets of Videotron available for distribution
in the event of our liquidation or winding-up) and paragraph (e) below (whereby the
holders of our Class E Preferred Shares have certain redemption rights), None.(d)
    
    Rights upon liquidation: In the event of our liquidation, dissolution or other
distribution of our assets among our shareholders for the purpose of winding-up our
affairs, whether voluntarily or involuntarily, the holders of the Class E Preferred
Shares shall be shall be entitled to repayment of the amount paid for the Class E
Preferred shares in the subdivision of the issued and paid-up share capital account
relating to the Class E Preferred shares.In addition, in the event of our liquidation, dissolution or other distribution of our
assets among our shareholders for the purpose of winding-up our affairs, whether
voluntarily or involuntarily, the rights of holders of Class E Preferred Shares as
regards to payment of dividends and the right to participate in the distribution of
residual assets, shall rank in priority to the rights of the holders of our Class A
Common Shares and Class F Preferred Shares, but subordinated to the rights of holders
of our Class B Preferred Shares, Class C Preferred Shares, Class D Preferred Shares
and Class G Preferred Shares.(e)
    
    Redemption provisions: Subject to the provisions of the Companies Act(Québec),
the holders of our Class E Preferred Shares have, at any time, the right to require
Videotron to redeem (referred to as a retraction right) any or all of their Class E
Preferred Shares at a redemption price equal to the amount paid for such shares in the
subdivision of the issued and paid-up share capital account relating to such shares,
plus a specified premium, if applicable, plus the amount of any declared and unpaid
dividends.In addition, Videotron may, at its option, redeem any or all of the Class E Preferred
Shares outstanding at any time at an aggregate redemption price equal to the
consideration received by Videotron for these Class E Preferred Shares. Videotron may
also, when it deems it appropriate and without giving notice or taking into account
the other classes of shares, buy, pursuant to a private agreement, all or some of the
Class E Preferred Shares outstanding at a purchase price for any such Class E
Preferred Shares not exceeding the retraction right purchase price described above or
the book value of Videotrons net assets.
 - 76 -




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(f)
    
    Sinking fund provisions: None.(g)
    
    Liability to further capital calls by us: None, provided that our directors may
make calls upon the shareholders in respect of any moneys unpaid upon their shares.(h)
    
    Provisions discriminating against existing or prospective holders of our Class E
Preferred Shares as a result of such holder owning a substantial number of our Class E
Preferred Shares: None.
 Class F Preferred Shares
 (a)
    
    Dividend rights: When our Board of Directors declares a dividend, the holders of
our Class F Preferred Shares have the right to receive, in priority over the holders of
our Class A Common Shares, but subordinated to the holders of our Class B Preferred
Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred Shares and
Class G Preferred Shares, a preferential and non-cumulative dividend at the fixed rate
of 1% per month, calculated on the basis of the applicable redemption value of our Class
F Preferred Shares. A dividend may be declared and payable in cash, in kind or through
the issuance of fully paid shares of any class of our company.(b)
    
    Voting rights: Subject to applicable law and except as expressly otherwise
provided, the holders of our Class F Preferred Shares do not have the right to receive
notice of meetings of shareholders or to attend any such meeting or vote at any such
meeting.(c)
    
    Rights to share in our profits: Other than as described in paragraph (a) above
(whereby the holders of our Class F Preferred Shares are entitled to receive certain
dividends, if and when declared by our Board of Directors), paragraph (d) below (whereby
the holders of our Class F Preferred Shares are entitled to participate in the
distribution of the residual property and assets of Videotron available for distribution
in the event of our liquidation or winding-up) and paragraph (e) below (whereby the
holders of our Class F Preferred Shares have certain redemption rights), None.(d)
    
    Rights upon liquidation: In the event of our liquidation, dissolution or other
distribution of our assets among our shareholders for the purpose of winding-up our
affairs, whether voluntarily or involuntarily, the holders of the Class F Preferred
Shares shall be shall be entitled to repayment of the amount paid for the Class F
Preferred shares in the subdivision of the issued and paid-up share capital account
relating to the Class F Preferred shares.In addition, in the event of our liquidation, dissolution or other distribution of our
assets among our shareholders for the purpose of winding-up our affairs, whether
voluntarily or involuntarily, the rights of holders of Class F Preferred Shares as
regards to payment of dividends and the right to participate in the distribution of
residual assets, shall rank in priority to the rights of the holders of our Class A
Common Shares, but subordinated to the rights of holders of our Class B Preferred
Shares, Class C Preferred Shares, Class D Preferred Shares, Class E Preferred Shares
and Class G Preferred Shares.(e)
    
    Redemption provisions: Subject to the provisions of the Companies Act(Québec),
the holders of our Class F Preferred Shares have, at any time, the right to require
Videotron to redeem (referred to as a retraction right) any or all of their Class F
Preferred Shares at a redemption price equal to the amount paid for such shares in the
subdivision of the issued and paid-up share capital account relating to such shares,
plus a specified premium, if applicable, plus the amount of any declared and unpaid
dividends.In addition, Videotron may, at its option, redeem any or all of the Class F Preferred
Shares outstanding at any time at an aggregate redemption price equal to the
consideration received by Videotron for these Class F Preferred Shares. Videotron may
also, when it deems it appropriate and without giving notice or taking into account
the other classes of shares, buy, pursuant to a private agreement, all or some of the
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Class F Preferred Shares outstanding at a purchase price for any such Class F
Preferred Shares not exceeding the retraction right purchase price described above or
the book value of Videotrons net assets.(f)
    
    Sinking fund provisions: None.(g)
    
    Liability to further capital calls by us: None, provided that our directors may
make calls upon the shareholders in respect of any moneys unpaid upon their shares.(h)
    
    Provisions discriminating against existing or prospective holders of our Class F
Preferred Shares as a result of such holder owning a substantial number of our Class F
Preferred Shares: None.
 Class G Preferred Shares
 (a)
    
    Dividend rights: When our Board of Directors declares a dividend, the holders of
our Class G Preferred Shares have the right to receive, in priority over the holders of
our common shares and Preferred Shares of other series, a preferential and cumulative
dividend, payable semi-annually, at the fixed rate of 11.25% per year, calculated daily
on the basis of the applicable redemption value of our Class G Preferred Shares. No
dividends may be paid on any common shares or Preferred Shares of other series unless
all dividends which shall have become payable on the Class G Preferred Shares have been
paid or set aside for payment.(b)
    
    Voting rights: Subject to applicable law and except as expressly otherwise
provided, the holders of our Class G Preferred Shares do not have the right to receive
notice of meetings of shareholders or to attend any such meeting or vote at any such
meeting.However, in the event that we shall have failed to pay eight (8) half-yearly
dividends, whether or not consecutive, on the Class G Preferred Shares, and only for
so long as the dividend remains in arrears, the holders of Class G Preferred Shares
shall have the right to receive notice of meetings of shareholders and to attend and
vote at any such meetings, except meetings at which only holders of another specified
series or class of shares are entitled to vote. At each such meeting, each Class G
Preferred Share shall entitle the holder thereof to one vote.(c)
    
    Rights to share in our profits: Except as described in paragraph (a) above
(whereby the holders of our Class G Preferred Shares are entitled to receive a 11.25%
cumulative preferred dividend in preference to the holders of our Common Shares and
other series of our Preferred Shares), paragraph (d) below (whereby the holders of our
Class G Preferred Shares are entitled to receive, in preference to the holders of our
Common Shares and other series of our Preferred Shares, an amount equal to $1,000 per
Class G Preferred Share and any accumulated and unpaid dividends with respect thereto in
the event of our liquidation, winding-up or reorganization) and paragraph (e) below
(whereby the holders of our Class G Preferred Shares may require us to redeem the Class
G Preferred Shares at a redemption price of $1,000 per share plus any accrued and unpaid
dividends with respect thereto), None.(d)
    
    Rights upon liquidation: In the event of our liquidation, dissolution or
reorganization or any other distribution of our assets among our shareholders for the
purpose of winding-up our affairs, whether voluntarily or involuntarily, the holders of
our Class G Preferred Shares shall be entitled to receive in preference to the holders
of our common shares and our Preferred Shares of other series an amount equal to $1,000
per Class G Preferred Share and any accrued and unpaid dividends with respect thereto.Our Class G Preferred Shares have priority over our common shares and our Preferred
Shares of other series as to the order of priority of the distribution of assets in
case of the liquidation or dissolution of our company, voluntary or involuntary, or of
any other distribution of our assets to our shareholders for the purpose of winding up
our affairs.
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(e)
    
    Redemption provisions: Subject to the provisions of the Companies Act(Québec),
the holders our Class G Preferred Shares have, at any time, the right to require
Videotron to redeem any and all of their shares at a redemption price equal to $1,000
per share plus any accrued and unpaid dividends with respect thereto. In addition, we
may, at our option, redeem any and all Class G Preferred Shares at any time at a
redemption price equal to $1,000 per share plus any accrued and unpaid dividends with
respect thereto.(f)
    
    Sinking fund provisions: None.(g)
    
    Liability to further capital calls by us: None, provided that our directors may
make calls upon the shareholders in respect of any moneys unpaid upon their shares.(h)
    
    Provisions discriminating against existing or prospective holders of our Class G
Preferred Shares as a result of such holder owning a substantial number of our Class G
Preferred Shares: None.
 4.
    
    Under the Companies Act(Québec), (i) the Articles may only be amended by the affirmative
vote of the holders of two-thirds (2/3) of the votes cast by the
shareholders at a special meeting called for that purpose and (ii) our by-laws may be amended
by our directors and ratified by a majority of the votes cast by the shareholders at a meeting
called for such purpose In addition, pursuant to the Companies Act(Quebec), we may not make
any amendments to the Articles that affect the rights, conditions, privileges or restrictions
attaching to issued shares of any series outstanding, other than an increase in the share
capital or the number of our authorized shares, without obtaining the consent of all the
shareholders concerned by the amendment, whether or not they are eligible to vote. The consent
of the shareholders of any classes outstanding with respect to the matters described in the
foregoing requires either (i) the formal authorization given by all the holders of the shares
of such class outstanding, or (ii) a resolution adopted by at least three-quarters
(3/4) of the votes cast holders of the shares of such class voting on
this resolution at a special general meeting held by order and under the supervision of a
judge of the Superior Court of Québec.
 5.
    
    Our by-laws provide that the annual meeting of our shareholders shall be held at such place,
on such date and at such time as our Board of Directors may determine from time to time.
Annual meetings of our shareholders may be called at any time by order of our Board of
Directors, our Chairman of the Board or, provided they are members of our Board of Directors,
the president or any vice-president of our company. Special general meetings of our
shareholders shall be held at such place, on such date and at such time as our Board of
Directors may determine from time to time or at any place where all our shareholders entitled
to vote are present in person or represented by proxy or at such other place as all our
shareholders shall approve in writing. Special general meetings of our shareholders may be
called at any time by order of our Board of Directors, our Chairman of the Board or, provided
they are members of our Board of Directors, the president or any vice-president of our
company.Our by-laws provide that notice specifying the place, date, time and purpose of any meeting
of our shareholders shall be given to all the shareholders entitled to this notice at least
21 days but not more than 50 days prior to the date fixed for the meeting. The notice may be
mailed, postage prepaid, to the shareholders at their respective addresses as they appear on
our books or delivered by hand or transmitted by any means of telecommunication.Our chairman of the board or, in his absence, our president, if he is a director or, in his
absence, one of our vice-presidents who is a director shall preside at all meetings of our
shareholders. If all of the aforesaid officers are absent or decline to act, the persons
present and entitled to vote may choose one of their number to act as chairman of the
meeting.Our by-laws provide that the holders of not less than 30% of the outstanding shares of our
share capital carrying the right to vote at a shareholders meeting, present in person or
represented by proxy, shall constitute a quorum for any meeting of our shareholders.
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6.
    
    There is no limitation imposed by Canadian law or by the Articles or our other constituent
documents on the right of nonresidents or foreign owners to hold or vote shares, other than as
provided in the Investment Canada Act(Canada). The Investment Canada Act(Canada) requires
non-Canadian (as defined in the Investment Canada Act(Canada)) individuals, governments,
corporations and other entities who wish to acquire control of a Canadian business (as
defined in the Investment Canada Act(Canada)) to file either an application for review (when
certain asset value thresholds are met) or a post closing notification with the Director of
Investments appointed under the Investment Canada Act(Canada), unless a specific exemption
applies. The Investment Canada Act(Canada) requires that, when an acquisition of control of a
Canadian business by a non-Canadian is subject to review, it must be approved by the
Minister responsible for the Investment Canada Act(Canada) on the basis that the Minister is
satisfied that the acquisition is likely to be of net benefit to Canada, having regard to
criteria set forth in the Investment Canada Act(Canada).
 7.
    
    The Articles provide that our directors shall refuse to issue (including on the occasion or
because of a conversion of shares or in shares), and to allow a transfer of, any share of our
capital stock if this issuance or transfer would, in the opinion of our directors, affect our
eligibility or of any other company or partnership in which we have or may have an interest,
to obtain, preserve or renew a license or authorization required for the operation or
continuation of its broadcasting company (as defined in the Broadcasting Act(Canada), as
amended) (or any part thereof) or of any other activity necessary for the continuation of our
company. See Item 4  Information on the Company  Business Overview  Regulation  Ownership
and Control of Canadian Broadcast Undertakings.8.
    
    Not applicable.9.
    
    Not applicable.10.
    
    Not applicable.
 MATERIAL CONTRACTS
  (a)
    
    Indenture relating to US$650,000,000 of our 67/8% Senior Notes due January 15,
2014, dated as of October 8, 2003, by and among Vidéotron Ltée, the guarantors party
thereto and Wells Fargo Bank Minnesota, N.A. (now Wells Fargo Bank, National
Association) as trustee, as supplemented.On October 8, 2003, we issued US$335.0 million aggregate principal amount of our 67/8%
Senior Notes due January 15, 2014 and, on November 19, 2004, we issued an additional
US$315.0 million aggregate principal amount of these notes, pursuant to an Indenture,
dated as of October 8, 2003, by and among Videotron, the guarantors party thereto and
Wells Fargo Bank Minnesota, N.A. (now Wells Fargo Bank, National Association), as
trustee. These notes are unsecured and are due January 15, 2014. Interest on these
notes is payable semi-annually in arrears on January 15 and July 15 of each year,
beginning on July 15, 2004. These notes are guaranteed on a senior unsecured basis by
most, but not all, of our subsidiaries. The notes are redeemable, at our option, under
certain circumstances and at the redemption prices set forth in the indenture. The
indenture contains customary restrictive covenants with respect to us and certain of our
subsidiaries and customary events of default. If an event of default occurs and is
continuing (other than our bankruptcy or insolvency) the trustee or the holders of at
least 25% in principal amount at maturity of the then-outstanding notes may declare all
the notes to be due and payable immediately.(b)
    
    Indenture relating to US$175,000,000 of our 63/8% Senior Notes due December 15,
2015, dated as of September 16, 2005, by and among Videotron Ltée, the guarantors party
thereto, and Wells Fargo, National Association, as trustee.On September 16, 2005, we issued US$175,000,000 aggregate principal amount of our 63/8
Senior Notes due December 15, 2015, pursuant to an Indenture, dated as of September 16,
2005, by and among Videotron, the guarantors party thereto, and Wells Fargo, National Association, as trustee. These
notes are unsecured and
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are due on December 15, 2015. Interest on these notes is
payable semi-annually in arrears on June 15 and December 15 of each year, beginning on
December 15, 2005. These notes are guaranteed on a senior unsecured basis by most, but
not all, of our subsidiaries. These notes are redeemable, at our option, under certain
circumstances and at the redemption prices set forth in the indenture. The indenture
contains customary restrictive covenants with respect to us and certain of our
subsidiaries, and customary events of default. If an event of default occurs and is
continuing, other than our bankruptcy or insolvency, the trustee or the holders of at
least 25% in principal amount at maturity of the then-outstanding notes may declare all
the notes to be due and payable immediately.
 (c)
    
    Amended and Restated Credit Agreement, dated as of November 19, 2004, by and
among Vidéotron Ltée, as borrower, the financial institutions party thereto from time to
time, as lenders, and Royal Bank of Canada, as administrative agent.On November 19, 2004, concurrently with the closing of the private placement of a new
series of our 67/8% Senior Notes due January 15, 2014, we amended and restated our
credit agreement, dated as of November 28, 2000, by executing and delivering the
seventh amending agreement to our credit agreement. Pursuant to this amendment, our
amended and restated credit agreement provides for a $450.0 million revolving credit
facility maturing in 2009. The proceeds of our revolving credit facility are to be
used for general corporate purposes, including for distributions to our shareholder in
certain circumstances.Borrowings under our amended and restated credit facility bear interest at the
Canadian prime rate, the bankers acceptance rate or LIBOR, plus, in each case an
applicable margin. Borrowings under this revolving credit facility are repayable in
full in November 2009.Borrowings under this amended and restated credit facility and under eligible
derivative instruments are secured by a first-ranking hypothec or security interest
(subject to certain permitted encumbrances) on all of our current and future assets,
as well as those of the guarantors party thereto, including most but not all of our
subsidiaries (the Videotron Group), guarantees of all the members of the Videotron
Group, pledges of the shares of Videotron and the members of the Videotron Group, and
other security.This amended and restated credit facility contains customary covenants that restrict
and limit the ability of Videotron and the members of the Videotron Group to, among
other things, enter into merger or amalgamation transactions, grant encumbrances, sell
assets, pay dividends or make other distributions, issue shares of capital stock,
incur indebtedness and enter into related party transactions. In addition, this
amended and restated credit facility contains customary financial covenants. It also
contains customary events of default including the non-payment of principal or
interest, the breach of any financial covenant, the failure to perform or observe any
other covenant, certain bankruptcy events relating to us and the members of the
Videotron Group, and the occurrence of a change of control.(d)
    
    Management Services Agreement, effective as of January 1, 2002, by and between
Quebecor Media Inc. and Videotron Ltée.In 2002, we began paying an annual management fee to Quebecor Media for services
rendered to us pursuant to a five-year management services agreement. These services
include internal audit, legal and corporate, financial planning and treasury, tax,
real estate, human resources, risk management, public relations and other services.
The agreement provides for an annual management fee of $11.4 million payable to
Quebecor Media in respect of 2005 (2003  $5.3 million; 2004  $7.3 million).
Management fees payable to Quebecor Media in the 2006 fiscal year are expected to be
$15.9 million. In addition, Quebecor Media is entitled to the reimbursement of
out-of-pocket expenses incurred in connection with the services provided under the
agreement. The agreement also provides that in no event may the fees and
reimbursements paid to Quebecor Media for any given year exceed 1.5% of our
consolidated revenues for such year.
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EXCHANGE CONTROLS
  Investment Canada Act North American Free Trade
Agreement Implementation Act World Trade Organization (WTO) Agreement
Implementation Act
 - 82 -




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TAXATION
 Certain U.S. Federal Income Tax Considerations
 3 8 3 8 7 8 7 8 3 8 7 8 7 8 7 8
  
    
    dealers in stocks, securities or currencies;
    
    securities traders that use a mark-to-market accounting method;
    
    banks and financial institutions;
    
    insurance companies;
    
    tax-exempt organizations;
    
    persons holding notes as part of a hedging or conversion transaction or a straddle;
    
    persons deemed to sell notes under the constructive sale provisions of the Code;
    
    persons who or that are, or may become, subject to the expatriation provisions of the Code;
    
    persons whose functional currency is not the U.S. dollar; and
    
    direct, indirect or constructive owners of 10% or more of our outstanding voting shares.
 7 8 7 8 3 8
  
    
    an individual citizen or resident alien of the United States;
    
    a corporation or other entity treated as such formed in or under the laws of the
United States, any state thereof or the District of Columbia;
    
    an estate, the income of which is subject to U.S. federal income taxation regardless
of its source; or
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
    
    a trust, if a court within the United States is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons (within the meaning
of the Code) have the authority to control all substantial decisions of the trust, or if
a valid election is in effect to be treated as a U.S. person.
   To ensure compliance with requirements imposed by the IRS, you are hereby informed that the
United States tax advice contained herein: (i) is written in connection with the promotion or
marketing by Vidéotron Ltée of the transactions or matters addressed herein, and (ii) is not
intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding
United States tax penalties. Each taxpayer should seek advice based on the taxpayers particular
circumstances from an independent tax advisor.
  
 Interest on the Notes
   3 8 7 8 de minimis
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de minimis de minimis
 Pre-issuance Accrued Interest in Respect of the Second 67/8% Senior Notes Issuance
 7 8
 Market Discount and Bond Premium
 de minimis
 7 8
 Sale, Exchange or Retirement of a Note
  
    
    the amount of cash and the fair market value of any property received (less any
portion allocable to the payment of accrued interest not previously included in income,
which amount will be taxable as ordinary interest income); and
    
    the U.S. Holders tax basis in the notes.
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Information Reporting and Backup Withholding
  
    
    fails to furnish a social security number or other taxpayer identification number
(TIN) certified under penalty of perjury within a reasonable time after the request
for the TIN;
    
    furnishes an incorrect TIN;
    
    is notified by the IRS that is has failed to report properly interest or dividends; or
    
    under certain circumstances, fails to provide a certified statement, signed under
penalties of perjury, that the TIN furnished is the correct number and that such holder
is not subject to backup withholding.
 provided provided
  Canadian Material Federal Income Tax Considerations for Non-Residents of Canada
 Income Tax Act
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Interest Payments
  Dispositions
  Exchange of Old Notes for New Notes
   The preceding discussions of federal income tax consequences is for general information only
and is not legal or tax advice. Accordingly, you should consult your own tax advisor as to
particular tax consequences of purchasing, holding, and disposing of the notes, including the
applicability and effect of any state, provincial, local or foreign tax laws, and of any proposed
changes in applicable laws.
 DIVIDENDS AND PAYING AGENTS
  STATEMENT BY EXPERTS
  DOCUMENTS ON DISPLAY
  SUBSIDIARY INFORMATION
  
 ITEM 11  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Foreign Currency Risk
  Interest Rate Risk
 7 8 3 8
 Interest-Rate Swaps
 Maturity
    
    Notional amount
    
    Pay/receive
    
    Fixed rate
    
    Floating rateMay 2006
    
    $
    90.0
    
    
    Pay fixed/receive floating
    
    
    5.41
    %
    
    Bankers acceptance 3 monthsSeptember 2007
    
    $
    5.0
    
    
    Pay fixed/receive floating
    
    
    3.75
    %
    
    Bankers acceptance 3 months
 Cross-Currency Interest Rate Swaps
 Exchange rate ofinterest andcapital paymentsNotional
    
    Annual effective
    
    Annual nominal
    
    per CDN dollarPeriod covered
    
    amount
    
    interest rate
    
    interest rate
    
    for one US dollarSenior Notes
    
    2004 to 2014
    
    US$190.0
    
    Bankers acceptance
3 months plus 2.80%
    
    
    6.875
    %
    
    
    1.2000Senior Notes
    
    2004 to 2014
    
    US$125.0
    
    
    7.45
    %
    
    
    6.875
    %
    
    
    1.1950Senior Notes
    
    2003 to 2014
    
    US$200.0
    
    Bankers acceptance
3 months plus 2.73%
    
    
    6.875
    %
    
    
    1.3425Senior 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
 Credit Risk
   Fair Value of Financial Instruments
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December 31, 2004
    
    
    December 31, 2005Carrying
    
    
    
    
    
    
    Carryingvalue
    
    
    Fair value
    
    
    value
    
    
    Fair value(in millions)Long-term debt
    
    $
    (1,038.9
    )
    
    $
    (1,051.0
    )
    
    $
    (1,121.7
    )
    
    $
    (1,117.4
    )Interest rate swaps
    
    
    (4.6
    )
    
    
    (4.6
    )
    
    
    (0.9
    )
    
    
    (0.9
    )Cross-currency interest rate swaps
    
    
    (45.4
    )
    
    
    (72.3
    )
    
    
    (73.8
    )
    
    
    (135.0
    )Foreign exchange forward contracts
    
    
    (8.5
    )
    
    
    (8.4
    )
    
    
    
    
    
    
    (0.2
    )
 Material Limitations
  Principal Repayments
  (in thousands ofYear ending December 31,
    
    dollars)2006
    
    $
    2007
    
    $
    2008
    
    $
    2009
    
    $
    2010
    
    $
    2011 and thereafter
    
    $
    1,121,697
 
 ITEM 12  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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PART II
 
 ITEM 13   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 Material Modifications To The Rights Of Security Holders
  Use Of Proceeds
  
 ITEM 15  CONTROLS AND PROCEDURES
   
 ITEM 16   [RESERVED]
 
 ITEM 16A   AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B  CODE OF ETHICS
  
 ITEM 16C  PRINCIPAL ACCOUNTANT FEES AND SERVICES
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Year Ended December 31,2004
    
    
    2005(in thousands)Audit Fees
    
    $
    453.6
    
    
    $
    444.3Audit-Related Fees(1)
    
    
    391.5
    
    
    
    219.0Tax Fees(2)
    
    
    1.2
    
    
    
    All Other Fees(3)
    
    
    8.0
    
    
    
    5.0Total
    
    $
    854.3
    
    
    $
    668.3
 
 (1)
    
    Audit-Related Fees include fees for the reviews of our employee pension plans and
assistance with the preparation of the two private placements of our 67/8% Senior
Notes due January 15, 2014, which were completed on October 8, 2003 and on November 19, 2004,
respectively, and the exchange offers for such notes, one of which was completed on February
9, 2004 and the other of which was completed on March 4, 2005, and with the preparation of the
private placement of our
63/8% Senior Notes due December 15, 2015, which was completed on
September 16, 2005, and the exchange offer for such notes, which was completed on February 6,
2006.(2)
    
    Tax Fees include fees billed for tax compliance services, tax consultations and tax planning
services.(3)
    
    All Other Fees include fees billed for regulatory services. 
 ITEM 16D  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 PART III
 
 ITEM 17  FINANCIAL STATEMENTS
  
 ITEM 18   FINANCIAL STATEMENTS
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ITEM 19   EXHIBITS
 EXHIBITS
  1.1
    
    Articles of Amalgamation of Videotron Ltd. (translation).1.2
    
    By-laws of Videotron Ltd.1.3
    
    Articles of Incorporation of Le SuperClub Vidéotron ltée
(translation) (incorporated by reference to Exhibit 3.7 of Videotron
Ltd.s Amendment No. 1 to the Registration Statement on Form F-4
dated January 8, 2004, Registration Statement No. 333-110697).1.4
    
    By-laws of Le SuperClub Vidéotron ltée. (incorporated by reference to
Exhibit 3.8 to Videotron Ltd.s Amendment No. 1 to the Registration
Statement on Form F-4 dated January 8, 2004, Registration Statement
No. 333-110697).1.5
    
    Articles of Incorporation of Groupe de Divertissement SuperClub inc.
(translation) (incorporated by reference to Exhibit 3.9 to Videotron
Ltd.s Amendment No. 1 to the Registration Statement on Form F-4
dated January 8, 2004, Registration Statement No. 333-110697).1.6
    
    Articles of Amendment dated January 16, 2004 to Articles of
Incorporation of Groupe de Divertissement SuperClub inc.
(translation) (incorporated by reference to Exhibit 3.14 to Videotron
Ltd.s Amendment No. 1 to the Registration Statement on Form F-4
dated January 14, 2005, Registration Statement No. 333-121032).1.7
    
    By-laws of Groupe de Divertissement SuperClub inc. (incorporated by
reference to Exhibit 3.10 to Videotron Ltd.s Amendment No. 1 to the
Registration Statement on Form F-4 dated January 8, 2004,
Registration Statement No. 333-110697).1.8
    
    By-law No. 2004-1 of Groupe de Divertissement SuperClub inc. adopted
January 16, 2004 (translation) (incorporated by reference to Exhibit
3.16 to Videotron Ltd.s Amendment No. 1 to the Registration
Statement on Form F-4 dated January 14, 2005, Registration Statement
No. 333-121032).1.9
    
    Articles of Incorporation of SuperClub Vidéotron Canada inc.
(translation) (incorporated by reference to Exhibit 3.17 to Videotron
Ltd.s Amendment No. 1 to the Registration Statement on Form F-4
dated January 14, 2005, Registration Statement No. 333-121032).1.10
    
    By-laws of SuperClub Vidéotron Canada inc. (translation)
(incorporated by reference to Exhibit 3.18 to Videotron Ltd.s
Amendment No. 1 to the Registration Statement on Form F-4 dated
January 14, 2005, Registration Statement No. 333-121032).1.11
    
    Articles of Incorporation of Les Propriétés SuperClub inc.
(translation) (incorporated by reference to Exhibit 3.19 to Videotron
Ltd.s Amendment No. 1 to the Registration Statement on Form F-4
dated January 14, 2005, Registration Statement No. 333-121032).1.12
    
    By-laws of Les Propriétés SuperClub inc. (translation) (incorporated
by reference to Exhibit 3.20 to Videotron Ltd.s Amendment No. 1 to
the Registration Statement on Form F-4 dated January 14, 2005,
Registration Statement No. 333-121032).1.13
    
    Articles of Amalgamation of CF Cable TV Inc. (translation).1.14
    
    By-Laws of CF Cable TV Inc.2.1
    
    Form of 67/8% Senior Notes due January 15, 2014 of
Videotron Ltd. registered pursuant to the Securities Act of 1933
(included as Exhibit A to Exhibit 2.3 below).2.2
    
    Form of Notation of Guarantee by the subsidiary guarantors of the 67/8% Senior Notes due January 15, 2014 of Videotron Ltd. (included as
Exhibit E to Exhibit 2.3 below).2.3
    
    Indenture dated as of October 8, 2003 by and among Videotron Ltd.,
the subsidiary guarantors signatory thereto and Wells Fargo Bank
Minnesota, N.A. (now named Wells Fargo Bank, National Association),
as trustee (incorporated by reference to Exhibit 4.3 to Videotron
Ltd.s Registration Statement on Form F-4 dated November 24, 2003,
Registration Statement No. 333-110697).2.4
    
    First Supplemental Indenture dated as of July 12, 2004 by and among
Videotron Ltd., SuperClub Vidéotron Canada inc., Les Propriétés
SuperClub inc. and Wells Fargo Bank, National Association, as trustee
(incorporated by reference to Exhibit 4.4 to Videotron Ltd.s
Registration Statement on Form F-4 dated December 6, 2004,
Registration Statement No. 333-121032).2.5
    
    Form of 63/8% Senior Notes due December 15, 2015 of Vidéotron Ltée
being registered pursuant to the Securities Act of 1933 (included as
Exhibit A to Exhibit 2.7 below).
 - 92 -




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##### Table of Contents



2.6
    
    Form of Notation of Guarantee by
the subsidiary guarantors of the 63/8% Senior Notes due December 15, 2015 of Vidéotron Ltée (included as
Exhibit E to Exhibit 2.7 below).2.7
    
    Indenture dated as of September 16, 2005 by and among Vidéotron Ltée,
the subsidiary guarantors signatory thereto and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to
Exhibit 4.3 to Videotron Ltd.s Registration Statement on Form F-4
dated October 14, 2005, Registration Statement No. 333-128998).4.1
    
    Sixth Amending Agreement, dated as of October 8, 2003, to the Credit
Agreement dated as of November 28, 2000, as amended by the First
Amending Agreement dated as of January 5, 2001, a Second Amending
Agreement dated as of June 29, 2001, a Third Amending Agreement dated
December 12, 2001 and accepted by the Lenders as of December 21,
2001, a Fourth Amending Agreement dated as of December 23, 2002 and a
Fifth Amending Agreement dated as of March 24, 2003, among Videotron
Ltd., Royal Bank of Canada, as administrative agent, and the
financial institutions signatory thereto and acknowledged by Le
SuperClub Vidéotron ltée, Groupe de Divertissement SuperClub inc.,
Vidéotron (1998) ltée, CF Cable TV Inc., Videotron (Regional) Ltd,
Télé-Câble Charlevoix (1997) inc., Vidéotron TVN inc. and Câblage QMI
inc., as guarantors, and by Quebecor Media Inc. (incorporated by
reference to Exhibit 10.1 to Videotron Ltd.s Registration Statement
on Form F-4 dated November 24, 2003, Registration Statement No.
333-110697).4.2
    
    Seventh Amending Agreement dated as of November 19, 2004 to the
Credit Agreement dated as of November 28, 2000, as amended by the
First Amending Agreement dated as of January 5, 2001, a Second
Amending Agreement dated as of June 29, 2001, a Third Amending
Agreement dated as of December 12, 2001, a Fourth Amending Agreement
dated as of December 23, 2002, a Fifth Amending Agreement dated as of
March 24, 2003 and a Sixth Amending Agreement dated as of October 8,
2003 among Videotron Ltd., Royal Bank of Canada, as administrative
agent, and the financial institutions signatory thereto and
acknowledged by Le SuperClub-Vidéotron ltée, Groupe de Divertissement
SuperClub inc., Vidéotron (1998) ltée, CF Cable TV Inc. Videotron
Regional Ltd., 9139-3256 Québec inc., Vidéotron TUN inc., Les
Propriétés SuperClub inc. and SuperClub Vidéotron Canada inc., as
guarantors (the Guarantors), and by Quebecor Media Inc.
(incorporated by reference to Exhibit 10.2 to Videotron Ltd.s
Registration Statement on Form F-4 dated December 6, 2004,
Registration Statement No. 333-121032).4.3
    
    Form of Amended and Restated Credit Agreement (the Credit
Agreement) entered into as of November 28, 2000, as amended by a
First Amending Agreement dated as of January 5, 2001, as Second
Amending Agreement dated as of June 29, 2001, a Third Amending
Agreement dated December 12, 2001 and accepted by the Lenders as of
December 21, 2001, a Fourth Amending Agreement dated as of December
23, 2002, a Fifth Amending Agreement dated as of March 24, 2003, a
Sixth Amending Agreement dated as of October 8, 2003, among Videotron
Ltd., Royal Bank of Canada, as administrative agent, and the
financial institutions signatory thereto (included as Schedule 2 to
Exhibit 4.2 above).4.4
    
    Form of Guarantee by the Guarantors of the Credit Agreement
(incorporated by reference to Schedule D of Exhibit 10.5 to Quebecor
Media Inc.s Registration Statement on Form F-4 dated September 5,
2001, Registration Statement No. 333-13792).4.5
    
    Form of Share Pledge of the shares of Videotron Ltd. and the
Guarantors of the Credit Agreement (incorporated by reference to
Schedule E of Exhibit 10.5 to Quebecor Media Inc.s Registration
Statement on Form F-4 dated September 5, 2001, Registration Statement
No. 333-13792).4.6
    
    Management Services Agreement effective as of January 1, 2002 between
Quebecor Media Inc. and Videotron Ltd. (incorporated by reference to
Exhibit 10.5 to Videotron Ltd.s Registration Statement on Form F-4
dated November 24, 2003, Registration Statement No. 333-110697).4.7
    
    Lease Agreement dated November 24, 1993 between Le Groupe Vidéotron
Ltée and National Bank of Canada for the property located at 300
Viger Street East, Montréal, Province of Québec, Canada, together
with a summary thereof in the English language (incorporated by
reference to Exhibit 10.3 to Quebecor Media Inc.s Registration
Statement on Form F-4 dated September 5, 2001, Registration Statement
No. 333-13792).4.8
    
    Form of Guarantee by the Guarantors of the Credit Agreement
(incorporated by reference to Schedule D of Exhibit 10.5 to Quebecor
Media Inc.s Registration Statement on Form F-4 dated September 5,
2001, Registration Statement No. 333-13792).4.9
    
    Form of Share Pledge of the shares of Vidéotron Ltée and the
Guarantors of the Credit Agreement (incorporated by reference to
Schedule E of Exhibit 10.5 to Quebecor Media Inc.s Registration
Statement on Form F-4 dated September 5, 2001, Registration Statement
No. 333-13792).
 - 93 -




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##### Table of Contents



4.10
    
    Lease Agreement dated November 24, 1993 between Le Groupe Vidéotron
Ltée and National City Bank of Canada for the property located at 300
Viger Street East, Montréal, Province of Québec, Canada, together
with a summary thereof in the English language (incorporated by
reference to Exhibit 10.3 to Quebecor Media Inc.s Registration
Statement on Form F-4 dated September 5, 2001, Registration Statement
No. 333-13792).7.1
    
    Statement regarding calculation of ratio of earnings to fixed charges.8.1
    
    Subsidiaries of Videotron Ltd.11.1
    
    Code of Ethics (incorporated by reference to Exhibit 11.1 to
Videotron Ltd.s Annual Report on Form 20-F for the fiscal year ended
December 31, 2003, dated April 29, 2004).12.1
    
    Certification of Robert Dépatie, President and Chief Executive
Officer of Videotron Ltd., pursuant to 15 U.S.C. Section 78(m)(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    Certification of Yvan Gingras, Executive Vice President, Finance and
Operations and Chief Financial Officer of Videotron Ltd., pursuant to
15 U.S.C. Section 78(m)(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.13.1
    
    Certification of Robert Dépatie, President and Chief Executive
Officer of Videotron Ltd., pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.13.2
    
    Certification of Yvan Gingras, Executive Vice President, Finance and
Operations and Chief Financial Officer of Videotron Ltd. pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 -94-




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##### Table of Contents



SIGNATURE
  VIDEOTRON LTD.By:

/s/
Yvan GingrasName:
    Yvan GingrasTitle:
    Executive Vice President, Finance and Operations, and
Chief Financial Officer  -95-




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Vidéotron LtéeAnnual Consolidated Financial Information as at December 31, 2004 and 2005 and for the Years
Ended December 31, 2003, 2004 and 2005Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005
    
    F-3Consolidated Statements of Shareholders Equity (Deficiency in Assets) for the years ended
December 31, 2003, 2004 and 2005
    
    F-4Consolidated Balance Sheets as at December 31, 2004 and 2005
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005
    
    F-6Notes to Consolidated Financial Statements for the years ended December 31, 2003, 2004 and 2005
    
    F-8Vidéotron Telecom Ltée.Annual
Financial Information as at and for the Years Ended December 31, 2004 and 2005Report of Independent Registered Public Accounting Firm
    
    F-58Statements of Operations and Deficit for the years ended December 31, 2004 and 2005
    
    F-59Balance Sheets as at December 31, 2004 and 2005
    
    F-60Statements of Cash Flows for the years ended December 31, 2004 and 2005
    
    F-61Notes to Financial Statements for the years ended December 31, 2004 and 2005
    
    F-62
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE
BOARD OF DIRECTORS AND TO THE SHAREHOLDER OF VIDÉOTRON LTÉE
     
   F-2




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##### Table of Contents



VIDÉOTRON LTÉE
 
  
 2003
    
    
    2004
    
    
    2005Operating revenuesCable television
    
    $
    558,887
    
    
    $
    576,825
    
    
    $
    618,346Internet
    
    
    183,268
    
    
    
    222,458
    
    
    
    270,791Telephony
    
    
    
    
    
    
    
    
    
    
    21,088Video stores
    
    
    38,450
    
    
    
    48,058
    
    
    
    55,146Other
    
    
    24,396
    
    
    
    24,277
    
    
    
    36,623805,001
    
    
    
    871,618
    
    
    
    1,001,994Direct cost
    
    
    245,967
    
    
    
    250,442
    
    
    
    287,455Operating, general and administrative
expenses
    
    
    283,784
    
    
    
    279,999
    
    
    
    332,187Depreciation and amortization (note 4)
    
    
    122,958
    
    
    
    130,215
    
    
    
    131,841Financial expenses (note 5)
    
    
    64,602
    
    
    
    177,985
    
    
    
    65,206Dividend income from parent company
    
    
    
    
    
    
    (111,055
    )
    
    
    Other items (note 6)
    
    
    (2,500
    )
    
    
    
    
    
    
    Income before income taxes and
non-controlling interest
    
    
    90,190
    
    
    
    144,032
    
    
    
    185,305Income taxes (note 7):Current
    
    
    14,063
    
    
    
    2,086
    
    
    
    2,581Future
    
    
    12,767
    
    
    
    (5,526
    )
    
    
    68,74726,830
    
    
    
    (3,440
    )
    
    
    71,32863,360
    
    
    
    147,472
    
    
    
    113,977Non-controlling interest in a subsidiary
    
    
    49
    
    
    
    100
    
    
    
    102Net income
    
    $
    63,311
    
    
    $
    147,372
    
    
    $
    113,875
  F-3




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##### Table of Contents



VIDÉOTRON LTÉE
 
  
 TotalShare
    
    
    Contributed
    
    
    
    
    
    
    shareholderscapital
    
    
    surplus
    
    
    Deficit
    
    
    equityBalance as at December 31, 2002
    
    $
    1
    
    
    $
    84,357
    
    
    $
    (429,547
    )
    
    $
    (345,189
    )Conversion of 2 Series E preferred shares
into 820,000 common shares (note 14)
    
    
    31,310
    
    
    
    
    
    
    
    
    
    
    
    31,310Excess of the Series E preferred share retractable
value over the stated capital converted into
Class A shares (note 14)
    
    
    
    
    
    
    301,170
    
    
    
    
    
    
    
    301,170Excess of purchase price over the carrying
value of assets transferred by the parent
company (note 14)
    
    
    
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (2,000
    )Issuance of common shares (note 14)
    
    
    141,925
    
    
    
    
    
    
    
    
    
    
    
    141,925Excess of consideration issued to the parent
company over the net book value of business
acquired (note 14)
    
    
    
    
    
    
    (26,699
    )
    
    
    (76,437
    )
    
    
    (103,136
    )Transfer of tax deductions from a company
controlled by the ultimate parent company
(note 7)
    
    
    
    
    
    
    3,382
    
    
    
    
    
    
    
    3,382Net income for the year
    
    
    
    
    
    
    
    
    
    
    63,311
    
    
    
    63,311Dividend
    
    
    
    
    
    
    
    
    
    
    (19,956
    )
    
    
    (19,956
    )Balance as at December 31, 2003
    
    
    173,236
    
    
    
    362,210
    
    
    
    (464,629
    )
    
    
    70,817Transfer of tax deductions from a company
controlled by the ultimate parent company (note 7)
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )Excess of the Series F preferred share retractable
value over the stated capital (note 14)
    
    
    
    
    
    
    
    
    
    
    (1,660
    )
    
    
    (1,660
    )Transfer of tax deductions from the parent
company (note 2)
    
    
    
    
    
    
    26,800
    
    
    
    
    
    
    
    26,800Net income for the year
    
    
    
    
    
    
    
    
    
    
    147,372
    
    
    
    147,372Dividend
    
    
    
    
    
    
    
    
    
    
    (205,233
    )
    
    
    (205,233
    )Balance as at December 31, 2004
    
    
    173,236
    
    
    
    388,944
    
    
    
    (524,150
    )
    
    
    38,030Transfer of tax deductions from a company
controlled by the ultimate parent company (note 7)
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    23Net income for the year
    
    
    
    
    
    
    
    
    
    
    113,875
    
    
    
    113,875Dividend
    
    
    
    
    
    
    
    
    
    
    (210,000
    )
    
    
    (210,000
    )Balance as at December 31, 2005
    
    $
    173,236
    
    
    $
    388,967
    
    
    $
    (620,275
    )
    
    $
    (58,072
    )
  F-4




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##### Table of Contents



VIDÉOTRON LTÉE
 
  
 2004
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    36,230
    
    
    $
    32,223Marketable securities
    
    
    21,250
    
    
    
    40,496Accounts receivable (note 8)
    
    
    90,488
    
    
    
    111,329Amounts receivable from affiliated companies (note 19)
    
    
    5
    
    
    
    6Income taxes receivable
    
    
    8,624
    
    
    
    799Inventories (note 9)
    
    
    30,151
    
    
    
    27,128Prepaid expenses
    
    
    5,399
    
    
    
    5,408Future income taxes (note 7)
    
    
    58,228
    
    
    
    63,971250,375
    
    
    
    281,360Fixed assets (note 10)
    
    
    884,003
    
    
    
    954,090Goodwill
    
    
    438,426
    
    
    
    438,682Other assets (note 11)
    
    
    34,498
    
    
    
    42,757Future income taxes (note 7)
    
    
    23,559
    
    
    
    2,376$
    1,630,861
    
    
    $
    1,719,265Liabilities and Shareholders Equity (Deficiency in Assets)Current liabilities:Issued and outstanding cheques
    
    $
    3,903
    
    
    $
    5,590Accounts payable and accrued liabilities (note 12)
    
    
    189,057
    
    
    
    201,719Amounts payable to affiliated companies (note 19)
    
    
    51,718
    
    
    
    53,393Deferred revenue
    
    
    105,410
    
    
    
    114,666Income taxes payable
    
    
    1,643
    
    
    
    882351,731
    
    
    
    376,250Deferred revenue
    
    
    15,558
    
    
    
    22,033Pension plan accrued liability
    
    
    5,833
    
    
    
    7,090Forward exchange contract and interest rate swaps
    
    
    57,249
    
    
    
    73,835Future tax liabilities (note 7)
    
    
    122,846
    
    
    
    175,748Long-term debt (note 13)
    
    
    1,038,908
    
    
    
    1,121,697Non-controlling interest in subsidiaries
    
    
    706
    
    
    
    6841,592,831
    
    
    
    1,777,337Shareholders equity (deficiency in assets):Common shares (note 14)
    
    
    173,236
    
    
    
    173,236Contributed surplus (note 14)
    
    
    388,944
    
    
    
    388,967Deficit
    
    
    (524,150
    )
    
    
    (620,275
    )38,030
    
    
    
    (58,072
    )$
    1,630,861
    
    
    $
    1,719,265
     F-5




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##### Table of Contents



VIDÉOTRON LTÉE
 
  
 2003
    
    
    2004
    
    
    2005Cash flows from operating activities:Net income
    
    $
    63,311
    
    
    $
    147,372
    
    
    $
    113,875Adjustments for the following items:Depreciation and amortization
(notes 4 and 5)
    
    
    132,866
    
    
    
    136,842
    
    
    
    143,774Future income taxes
    
    
    12,767
    
    
    
    (5,526
    )
    
    
    68,747(Gain) loss on disposal of fixed assets
    
    
    18,447
    
    
    
    13,174
    
    
    
    (1,367
    )Non-controlling interest in a subsidiary
    
    
    49
    
    
    
    100
    
    
    
    102Amortization of debt premium and discount
    
    
    (1,066
    )
    
    
    (1,106
    )
    
    
    (2,188
    )Change in fair value of interest rate swaps
(note 5)
    
    
    
    
    
    
    4,579
    
    
    
    (1,165
    )(Gain) loss on repayment of long-term debt
    
    
    17,094
    
    
    
    187
    
    
    
    (312
    )(Gain) loss on foreign currency
denominated long-term debt (note 5)
    
    
    (23,623
    )
    
    
    1,298
    
    
    
    1,413Other
    
    
    549
    
    
    
    (8
    )
    
    
    (1,065
    )Cash flows from operations
    
    
    220,394
    
    
    
    296,912
    
    
    
    321,814Net change in non-cash operating items:Accounts receivable
    
    
    2,629
    
    
    
    (21,400
    )
    
    
    (20,815
    )Current income taxes
    
    
    10,928
    
    
    
    (2,213
    )
    
    
    7,425Amounts receivable from and payable to
affiliated companies
    
    
    (1,953
    )
    
    
    (1,405
    )
    
    
    35,995Inventories
    
    
    (4,068
    )
    
    
    (5,900
    )
    
    
    3,032Prepaid expenses
    
    
    (2,720
    )
    
    
    1,539
    
    
    
    (8
    )Accounts payable and accrued liabilities
    
    
    (40,911
    )
    
    
    23,343
    
    
    
    6,695Pension plan accrued liability
    
    
    395
    
    
    
    2,321
    
    
    
    1,257Deferred revenue
    
    
    9,384
    
    
    
    31,653
    
    
    
    15,731Other assets
    
    
    
    
    
    
    (14,175
    )
    
    
    (16,758
    )(26,316
    )
    
    
    13,763
    
    
    
    32,554Cash flows from operating activities
    
    
    194,078
    
    
    
    310,675
    
    
    
    354,368Cash flows from investing activities:Acquisition of fixed assets
    
    
    (90,284
    )
    
    
    (123,030
    )
    
    
    (191,827
    )Acquisition of development and pre-operating
costs and other assets
    
    
    (313
    )
    
    
    (1,991
    )
    
    
    (1,913
    )Proceeds on disposal of fixed assets and
investments
    
    
    3,825
    
    
    
    1,446
    
    
    
    1,251Acquisition of shares of parent company
    
    
    
    
    
    
    (1,100,000
    )
    
    
    Proceeds from disposal of shares of parent
company
    
    
    
    
    
    
    1,100,000
    
    
    
    Acquisition of marketable securities
    
    
    (23,130
    )
    
    
    1,880
    
    
    
    (19,246
    )Acquisition of Internet subscribers (note 2 (a))
    
    
    (900
    )
    
    
    
    
    
    
    Net disposal (acquisition) of video stores
assets (note 2 (d))
    
    
    
    
    
    
    (7,162
    )
    
    
    53Acquisition of non-controlling interest
    
    
    
    
    
    
    (10
    )
    
    
    Payment of tax deductions to parent company
    
    
    
    
    
    
    
    
    
    
    (35,200
    )Cash flows used in investing activities
    
    
    (110,802
    )
    
    
    (128,867
    )
    
    
    (246,882
    )
 F-6




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##### Table of Contents



VIDÉOTRON LTÉE
 
 2003
    
    
    2004
    
    
    2005Cash flows from financing activities:Repayment of long-term debt
    
    $
    (1,033,345
    )
    
    $
    (355,630
    )
    
    $
    (92,284
    )Settlement of interest rate swaps and forward
exchange contracts
    
    
    
    
    
    
    
    
    
    
    (10,955
    )Issuance of long-term debt
    
    
    1,038,732
    
    
    
    396,244
    
    
    
    205,130Increase in intercompany loan from
parent company
    
    
    
    
    
    
    1,100,000
    
    
    
    Repayment of intercompany loan
from parent company
    
    
    
    
    
    
    (1,100,000
    )
    
    
    Redemption of shares
    
    
    
    
    
    
    (3,660
    )
    
    
    Financing cost on long-term debt
    
    
    (9,086
    )
    
    
    (6,401
    )
    
    
    (4,945
    )Recouponing fees and termination of swaps
    
    
    (48,375
    )
    
    
    
    
    
    
    Dividend to parent company
    
    
    (19,956
    )
    
    
    (205,233
    )
    
    
    (210,000
    )Other
    
    
    (64
    )
    
    
    (79
    )
    
    
    (126
    )Cash flows used in financing activities
    
    
    (72,094
    )
    
    
    (174,759
    )
    
    
    (113,180
    )Net change in cash and cash equivalents
    
    
    11,182
    
    
    
    7,049
    
    
    
    (5,694
    )Cash and cash equivalents at beginning of year
    
    
    14,096
    
    
    
    25,278
    
    
    
    32,327Cash and cash equivalents at end of year
    
    $
    25,278
    
    
    $
    32,327
    
    
    $
    26,633Cash and cash equivalents are comprised of:Cash and cash equivalents
    
    $
    28,329
    
    
    $
    36,230
    
    
    $
    32,223Issued and outstanding cheques
    
    
    (3,051
    )
    
    
    (3,903
    )
    
    
    (5,590
    )$
    25,278
    
    
    $
    32,327
    
    
    $
    26,633
  F-7




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##### Table of Contents



VIDÉOTRON LTÉE
 
   1.
    
    Significant accounting policies:
 (a)
    
    Consolidated financial statements:The Company is a cable services provider in the Province of Québec for pay-television
services, Internet access and telephony services. It also operates the largest chain of
video stores in Québec and a chain of video stores in Ontario and in the Atlantic
provinces.These consolidated financial statements, expressed in Canadian dollars, have been prepared
in accordance with Canadian generally accepted accounting principles and include the
consolidated financial statements of Vidéotron Ltée and its subsidiaries, CF Cable TV Inc.,
Le SuperClub Vidéotron Ltée and Société dédition et de transcodage T.E. ltée.(b)
    
    Changes in accounting principles:
 (i)
    
    Long-lived assets:Effective January 1, 2004, the Company adopted the CICA Handbook Section 3063,
Impairment of Long-Lived Assets. Long-lived assets, including fixed assets and
intangible assets with finite useful lives, are amortized over their useful lives. The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of a group of assets may not be
recoverable. If the sum of undiscounted net cash flows expected to result from the use
and eventual disposition of a group of assets is less than its carrying amount, it is
considered to be impaired. An impairment loss is measured as the amount by which the
carrying amount of the group of assets exceeds its fair value. At December 31, 2004
and 2005, no such impairment had occurred.(ii)
    
    Asset retirement obligation:Effective January 1, 2004, the Company retroactively adopted CICA Handbook Section 3110
Asset Retirement Obligation. The standard provides guidance for the recognition,
measurement and disclosure of liabilities for asset retirement obligations and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of a tangible long-lived asset that result from
acquisition, construction, development or normal operations.
 F-8




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##### Table of Contents



VIDÉOTRON LTÉE
  1.
    
    Significant accounting policies (continued):
 (b)
    
    Changes in accounting principles (continued):
 (ii)
    
    Asset retirement obligation (continued):Certain of our franchise agreements and leases contain provisions requiring us to
restore or remove equipment in the event that the franchise or lease agreement is not
renewed. We expect to continually renew our franchise agreements and have concluded
that the related franchise right is an indefinite-lived intangible asset. Accordingly,
the possibility is remote that we would be required to incur significant restoration or
removal costs in the foreseeable future. Section 3110 Asset Retirement Obligation
requires that a liability be recognized for an asset retirement obligation in the
period in which it is incurred if a reasonable estimate of fair value can be made. We
would record an estimated liability in the unlikely event a franchise agreement
containing such a provision is no longer expected to be renewed. We also expect to
renew many of our lease agreements related to the continued operations of our cable
business in the franchise areas. For our lease agreements, the liabilities related to
the removal provisions, if any, are either not estimable or are not material.The adoption of this standard had no impact on the Companys financial position,
results of operations or cash flows.(iii)
    
    Equipment subsidies and reconnection costs:During the year ended December 31, 2003, the Company revised its accounting for the
sale of equipment to subscribers and the accounting of the reconnecting costs. Before
this change, the costs of subsidies granted to the subscribers on the equipment sold
were capitalized and amortized over a three-year period on a straight-line basis, and
the costs of reconnecting subscribers, which included material, direct labor, and
certain overhead charges were capitalized to fixed assets and depreciated over a
three-year or a four-year period on a straight-line basis.(iv)
    
    Revenue recognition and revenue arrangements with multiple deliverables:In 2004, the Company revised and adopted an accounting policy for the timing of revenue
and expense recognition regarding connection fees based on CICA Emerging Issues
Committee Abstracts 141 and 142. The Company chose to adopt the new policy
prospectively without restatement of prior periods.
 F-9




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##### Table of Contents



VIDÉOTRON LTÉE
  1.
    
    Significant accounting policies (continued):
 (b)
    
    Changes in accounting principles (continued):
 (iv)
    
    Revenue recognition and revenue arrangements with multiple deliverables
(continued):Effective January 1, 2004, the connection fee revenues are now deferred and recognized
as revenues over 30 months, the estimated average period that subscribers are expected
to remain connected to the network. The incremental and direct costs related to
connection and reconnection fees, in an amount not exceeding the revenue, are now
deferred and recognized as an operating expense over the same 30-month period.
Previously, the connection fees and the incremental and direct costs were recognized
immediately in operating revenues and expenses, and the reconnecting costs were
capitalized and amortized over a three-year or a four-year period.(v)
    
    Generally accepted accounting principles:In June 2003, the CICA released Handbook Section 1100, Generally Accepted Accounting
Principles. This section establishes standards for financial reporting in accordance
with Canadian GAAP, and describes what constitutes Canadian GAAP and its sources. This
section also provides guidance on sources to consult when selecting accounting policies
and determining appropriate disclosures, when a matter is not dealt with explicitly in
the primary source of GAAP. The adoption of this standard had no impact on the
Companys financial position, results of operations or cash flows.
 (c)
    
    Marketable securities:Marketable securities consist primarily of commercial paper maturing in the short-term, and
are recorded at the lower of cost and market value.(d)
    
    Fixed assets:Fixed assets are recorded at cost, net of related grants and income tax credits. Cost
includes material, direct labour, certain overhead charges and interest expenses relating
to the projects to construct and connect receiving and distribution networks. Expenditures
for additions, improvements and replacements are capitalized, whereas expenses for
maintenance and repairs are charged to operating and administrative expenses as incurred.
 F-10




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##### Table of Contents



VIDÉOTRON LTÉE
  1.
    
    Significant accounting policies (continued):
 (d)
    
    Fixed assets (continued):Depreciation is calculated using the following depreciation basis and periods or rates:
 Asset
    
    
    Basis
    
    
    Period/rateReceiving and distribution networks
    
    Straight-line
    
    3 years to 20 yearsFurniture and equipment
    
    Declining balance
    
    20% to 33.3%and straight-line
    
    3 years to 7 yearsTerminals and operating system
    
    Straight-line
    
    5 years and 10 yearsBuildings
    
    Declining balance
    
    
    
    5%Coding and transmission material
    
    Declining balance
    
    
    
    20%
 Leasehold improvements are amortized over the term of the lease.The Company does not record an asset retirement obligation in connection with its cable
distribution networks. The Company expects to renew all of its agreements with utility
companies to access their support structures in the future, making the retirement date,
relating to these assets, undeterminable.(e)
    
    Revenue recognition:The Cable segment provides services under arrangement with multiple deliverables comprised
of a separate unit of accounting for subscriber services (connecting fees and operating
services) and a separate unit of accounting for sales of equipment to subscribers.Operating revenues from cable television and other services, such as Internet access and
telephony, are recognized when services are provided. Revenues from sales of equipment to
subscribers and costs of equipment are recognized in income when the equipment is
delivered. When subscribers are invoiced, the portion of unearned revenues is recorded
under Deferred revenue. Revenues from video rentals are recorded as revenue when
services are provided.Promotional offers are accounted for as a reduction of the related service revenue when
customers are taking advantage of the offer.
 F-11




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##### Table of Contents



VIDÉOTRON LTÉE
  1.
    
    Significant accounting policies (continued):
 (f)
    
    Goodwill:Goodwill is not amortized. Goodwill is tested for impairment annually, or more frequently
if events or changes in circumstances indicate that the asset might be impaired. The
impairment test is carried out in two steps. In the first step, the carrying amount of the
reporting unit is compared with its fair value. When the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not to be
impaired and the second step of the impairment test is not required. The second step is
carried out when the carrying amount of a reporting unit exceeds its fair value, in which
case the implied fair value of the reporting units goodwill is compared with its carrying
amount to measure the amount of the impairment loss, if any. When the carrying amount of
the reporting units goodwill exceeds the implied fair value of the goodwill, an impairment
loss is recognized in an amount equal to the excess and is presented as a separate line
item in the statement of operations before extraordinary items and discontinued operations.The Company carried out the test in 2003, 2004 and 2005 and concluded it was not required
to record an impairment in the carrying value of goodwill.(g)
    
    Other assets:Deferred charges are recorded at cost and include long-term financing costs that are
amortized over the term of the debt using the straight-line method. Development costs
related to new specialty services and pre-operating expenditures are amortized when
commercial operations begin, using the straight-line method over a three-year period.
Video rental inventory, less residual value, is depreciated on a straight-line basis over a
period of six to twelve months. Depreciation of video rental inventory is charged to
direct costs.(h)
    
    Inventories:Inventories are recorded at the lower of cost, using the average cost method, or
replacement value.(i)
    
    Foreign currency translation:Transactions originating in foreign currencies are translated into Canadian dollars at the
exchange rate at the date of the transaction. Monetary assets and liabilities are
translated at the year-end rate of exchange and non-monetary items are translated at
historical exchange rates. Translation gains and losses are recognized in the statement of
operations.
 F-12




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##### Table of Contents



VIDÉOTRON LTÉE
  1.
    
    Significant accounting policies (continued):
 (j)
    
    Derivative financial instruments:The Company uses various derivative financial instruments to manage its exposure to
fluctuations in foreign currency exchange rates and interest rates. The Company does not
hold or issue derivative instruments for speculative purposes.The Company entered into cross-currency interest rate swap agreements to hedge the foreign
currency denominated debt and manage exchange rate exposures relating to certain debt
instruments denominated in foreign currency. These swaps are designated as hedges of firm
commitments to pay interest, and change the basis from Libor to Bankers Acceptance rates,
on the foreign currency denominated debt and the principal at maturity, which would
otherwise expose the Company to foreign currency risk. Translation gains and losses on the
related foreign currency denominated debt are offset by corresponding translation losses or
gains on the swap agreements.The Company also enters into forward exchange contracts to hedge the foreign exchange
fluctuations of their customers equipment purchases. Translation gains and losses
associated with the derivative instruments are deferred under other current assets or
liabilities on the balance sheet and recorded in earnings in the period in which the
underlying hedged transaction is recognized.The derivative financial instruments that have not been designated as hedge of foreign
currency risk and interest rate risk are marked to market with changes in fair value
recognized in the statement of operations.(k)
    
    Cash and cash equivalents:Cash and cash equivalents are comprised of cash and short-term liquid investments maturing
within three months from the date of acquisition, net of issued and outstanding cheques.(l)
    
    Income taxes:The Company follows the asset and liability method of accounting for income taxes. Under
the asset and liability method, future income tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their respective tax
bases. Future income tax assets and liabilities are measured using enacted or
substantively enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on future income tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes
the enacted or substantively enacted date. Future income tax assets are recognized and, if
realization is not considered more likely than not, a valuation allowance is provided.
 F-13




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##### Table of Contents



VIDÉOTRON LTÉE
  1.
    
    Significant accounting policies (continued):
 (m)
    
    Employee future benefits:The Company and an affiliated company offer defined benefit career salary pension plan and
a last five years average salary pension plan for certain employees. The Company also
maintains defined contribution pension plans for other employees. Defined benefit pension
plan costs are determined using actuarial methods and are funded through contributions
determined in accordance with the projected benefit method pro-rated on service, which
incorporates managements best estimate of future salary levels, other cost escalations,
retirement ages of employees and other actuarial assumptions.Pension plan expense is charged to operations and includes:
 
    
    The cost of pension plan benefits provided in exchange for employees
services rendered during the year;
    
    The amortization of the initial net transition asset, prior service costs and
amendments on a straight-line basis over the expected average remaining service period
of the active employee group covered by the plans;
    
    The interest cost of pension plan obligations, the expected return on pension
fund assets, and the amortization of cumulative unrecognized net actuarial gains and
losses in excess of 10% of the greater of the benefit obligation or fair value of plan
assets over the expected average remaining service life of the employee group covered
by the plans. For the purpose of calculating the expected return on plan assets,
those assets are valued at fair value.
 The Company provides post-retirement benefits to eligible employees. The costs of these
benefits, which are principally life insurance and health care, are accounted for during
the employees working active period.(n)
    
    Advertizing:Advertizing cost is expensed as incurred. The advertizing expenses for 2003, 2004 and 2005
amounted to $17.8 million, $21.9 million and $24.1 million, respectively.(o)
    
    Stock-based compensation:The Company accounts for all stock-based awards granted by the parent company to certain of
its employees that are direct awards of stock or call for settlement in cash or other
assets, including stock appreciation rights, by the fair value method. Under the
fair-value based method, compensation cost attributable to awards to employees that call
for settlement in cash or other assets is recognized over the vesting period in operating
expenses. Changes in fair value between the grant date and the measurement date result in
a change in the measure of the compensation cost.
 F-14




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##### Table of Contents



VIDÉOTRON LTÉE
  1.
    
    Significant accounting policies (continued):
 (p)
    
    Use of estimates:The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of revenues and expenses.
Significant areas requiring the use of management estimates relate to the determination of
pension and other employee benefits, the useful life of assets for depreciation,
amortization and evaluation of net recoverable amount of fixed assets, goodwill, and
development and pre-operating costs and provisions for income taxes. Accordingly, actual
results could differ from those estimates.
 2.
    
    Business combinations and reorganization:
 (a)
    
    On June 30, 2003, a subsidiary of the Company acquired for a cash consideration of
$0.9 million, at the carrying value of the investment held by the parent company, a small
group of Internet (dial-up) customers from its parent company. Assets acquired, amounting
to $0.9 million, have been recorded as goodwill.(b)
    
    On October 7, 2003, the Company acquired from its parent company all the issued and
outstanding shares of Vidéotron TVN Inc. and of Le SuperClub Vidéotron Ltée in
consideration of the issuance of 354,813 common shares for a total stated capital of
$141.9 million. The excess of the consideration issued over the net book value of the
business acquired, amounting to $103.1 million, has been charged to deficit and
contributed surplus. This business combination was accounted for using the continuity of
interest method, and the results of operations of the acquired companies have been
included in these consolidated financial statements as if this group of companies had
always been subsidiaries of the Company.(c)
    
    On February 8, 2002, the Company sold its internal wire business to an affiliated
company, Câblage QMI Inc., and received as consideration
$19.5 million in preferred shares. On December 23, 2003, Câblage QMI Inc. sold back its business to the Company and
received in exchange notes amounting to $16.1 million. On the same date, the parent
company of Câblage QMI Inc. sold its investment in Câblage QMI Inc. to the Company and
received in exchange 1 Series F preferred share of the Companys capital stock retractable
at an amount of $2.0 million. On December 27, 2003, Câblage QMI Inc. was wound up into
the Company. Since all these transactions are between companies under common control,
they have been accounted for at book value.
 F-15




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##### Table of Contents



VIDÉOTRON LTÉE
  2.
    
    Business combinations and reorganization (continued):
 (d)
    
    On May 20, 2004, a subsidiary of the Company acquired the assets of Jumbo
Entertainment Inc. for a total cash consideration of $7.2 million.This acquisition is summarized as follows:
 (in millions)Assets acquired:Inventories
    
    $
    1.1Fixed assets
    
    
    0.9Goodwill
    
    
    5.2Assets acquired at fair value
    
    $
    7.2
 (e)
    
    On January 16, 2004, Videotron (1998) Ltée, a subsidiary of the Company, contracted a
subordinated loan of $1.1 billion bearing interest at 10.75% from Quebecor Media Inc. On
the same day, Videotron (1998) Ltée invested the whole proceeds of $1.1 billion into
1,100,000 preferred shares, Series D of Quebecor Media Inc. Those shares, carry the
rights to receive an annual dividend of 11%. In December 2004, Videotron (1998) Ltée
reimbursed the loan and Quebecor Media Inc. redeemed the preferred shares for $1.1
billion.(f)
    
    On December 31, 2004, the subsidiary Videotron (1998) ltée has been wound up into
Videotron Ltée. This transaction had no impact on the consolidated financial statements.(g)
    
    On January 1, 2005, the subsidiary Vidéotron TVN Inc. has been wound up into
Vidéotron Ltée. This transaction had no impact on the consolidated financial statements.(h)
    
    On January 1, 2006, the subsidiary Vidéotron (Régional) Ltée has been wound up into
CF Câble Inc. This transaction had no impact on the consolidated financial statements.
 3.
    
    Employee future benefits:The Company and affiliated companies maintain various defined benefit plans and defined
contribution plans. The Companys policy is to maintain its contribution at a level sufficient
to cover benefits. Actuarial valuations of the Companys pension plans were performed on
December 31, 2003. The next actuarial valuations will be performed as at December 31, 2006 at
the latest.
 F-16




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##### Table of Contents



VIDÉOTRON LTÉE
  3.
    
    Employee future benefits (continued):The Company provides postretirement benefits to eligible employees. The costs of these
benefits, which are principally life insurance and health care, are accounted for during the
employees active service period.The following tables provide a reconciliation of the changes in the plans benefit obligations
and fair value of plan assets for the years ended December 31, 2004 and 2005, and a statement
of funded status as at these dates:
 2004
    
    
    2005Post-
    
    
    
    
    
    
    
    
    
    
    Post-Pension
    
    
    retirement
    
    
    
    
    
    
    Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total
    
    
    benefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Change in benefit obligations:Benefit obligations,
beginning of year
    
    $
    44,012
    
    
    $
    3,046
    
    
    $
    47,058
    
    
    $
    52,556
    
    
    $
    5,488
    
    
    $
    58,044Service costs
    
    
    2,717
    
    
    
    2,119
    
    
    
    4,836
    
    
    
    3,695
    
    
    
    247
    
    
    
    3,942Plan participants
contributions
    
    
    2,046
    
    
    
    
    
    
    
    2,046
    
    
    
    3,436
    
    
    
    
    
    
    
    3,436Interest costs
    
    
    2,984
    
    
    
    321
    
    
    
    3,305
    
    
    
    3,458
    
    
    
    342
    
    
    
    3,800Actuarial loss
    
    
    3,438
    
    
    
    59
    
    
    
    3,497
    
    
    
    18,072
    
    
    
    1,737
    
    
    
    19,809Transfer from another
pension plan
    
    
    853
    
    
    
    
    
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    Benefits and settlement
paid
    
    
    (3,494
    )
    
    
    (57
    )
    
    
    (3,551
    )
    
    
    (2,783
    )
    
    
    (59
    )
    
    
    (2,842
    )Benefit obligations,
end of year
    
    $
    52,556
    
    
    $
    5,488
    
    
    $
    58,044
    
    
    $
    78,434
    
    
    $
    7,755
    
    
    $
    86,189
 F-17




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##### Table of Contents



VIDÉOTRON LTÉE
  3.
    
    Employee future benefits (continued):
 2004
    
    
    2005Post-
    
    
    
    
    
    
    
    
    
    
    Post-Pension
    
    
    retirement
    
    
    
    
    
    
    Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total
    
    
    benefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Change in plan assets:Fair value of plan
assets at beginning
of year
    
    $
    51,174
    
    
    $
    
    
    
    $
    51,174
    
    
    $
    59,328
    
    
    $
    
    
    
    $
    59,328Plan participants
contributions
    
    
    2,046
    
    
    
    
    
    
    
    2,046
    
    
    
    3,436
    
    
    
    
    
    
    
    3,436Actual return on
plan assets
    
    
    7,776
    
    
    
    
    
    
    
    7,776
    
    
    
    9,271
    
    
    
    
    
    
    
    9,271Employer contributions
    
    
    1,200
    
    
    
    57
    
    
    
    1,257
    
    
    
    1,529
    
    
    
    59
    
    
    
    1,588Transfer from another
pension plan
    
    
    626
    
    
    
    
    
    
    
    626
    
    
    
    
    
    
    
    
    
    
    
    Benefits and settlement
paid
    
    
    (3,494
    )
    
    
    (57
    )
    
    
    (3,551
    )
    
    
    (2,783
    )
    
    
    (59
    )
    
    
    (2,842
    )Fair value of plan assets,
end of year
    
    $
    59,328
    
    
    $
    
    
    
    $
    59,328
    
    
    $
    70,781
    
    
    $
    
    
    
    $
    70,781
  2004
    
    
    2005Equity securities
    
    
    68.9
    %
    
    
    72.2
    %Debt securities
    
    
    27.1
    %
    
    
    25.0
    %Real estate
    
    
    4.0
    %
    
    
    2.8
    %
 F-18




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##### Table of Contents



VIDÉOTRON LTÉE
  3.
    
    Employee future benefits (continued):As at December 31, 2005, plan assets included shares of the parent company and of a company
under common control at a market value of $0.8 million ($0.9 million in 2004).
 2004
    
    
    2005Post-
    
    
    
    
    
    
    
    
    
    
    Post-Pension
    
    
    retirement
    
    
    
    
    
    
    Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total
    
    
    benefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Reconciliation of funded status:Excess (deficit) of fair value
of plan assets over
benefit obligations,
end of year
    
    $
    6,772
    
    
    $
    (5,488
    )
    
    $
    1,284
    
    
    $
    (7,653
    )
    
    $
    (7,755
    )
    
    $
    (15,408
    )Unrecognized
actuarial (gain) loss
    
    
    (2,448
    )
    
    
    (345
    )
    
    
    (2,793
    )
    
    
    10,823
    
    
    
    1,441
    
    
    
    12,264Net amount recognized in
balance sheet
    
    $
    4,324
    
    
    $
    (5,833
    )
    
    $
    (1,509
    )
    
    $
    3,170
    
    
    $
    (6,314
    )
    
    $
    (3,144
    )
  2004
    
    
    2005Post-
    
    
    
    
    
    
    
    
    
    
    Post-Pension
    
    
    retirement
    
    
    
    
    
    
    Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total
    
    
    benefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Deferred pension charges
    
    $
    4,324
    
    
    $
    
    
    
    $
    4,324
    
    
    $
    3,946
    
    
    $
    
    
    
    $
    3,946Accrued benefit liability
    
    
    
    
    
    
    (5,833
    )
    
    
    (5,833
    )
    
    
    (776
    )
    
    
    (6,314
    )
    
    
    (7,090
    )Net amount recognized
    
    $
    4,324
    
    
    $
    (5,833
    )
    
    $
    (1,509
    )
    
    $
    3,170
    
    
    $
    (6,314
    )
    
    $
    (3,144
    )
 F-19




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##### Table of Contents



VIDÉOTRON LTÉE
  3.
    
    Employee future benefits (continued):Components of the net benefit costs are as follows:
 2003Post-Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Service costs
    
    $
    1,999
    
    
    $
    175
    
    
    $
    2,174Interest costs
    
    
    2,554
    
    
    
    256
    
    
    
    2,810Actual return on plan assets
    
    
    (8,123
    )
    
    
    
    
    
    
    (8,123
    )Actuarial loss on accrued benefit obligation
    
    
    1,914
    
    
    
    
    
    
    
    1,914Elements of net benefit cost adjustments to recognize the
long-term nature and valuation allowance
    
    
    (1,656
    )
    
    
    431
    
    
    
    (1,225
    )Difference between actual and expected return on plan assets
    
    
    4,798
    
    
    
    
    
    
    
    4,798Deferral of actuarial loss on accrued benefit obligation
    
    
    (1,914
    )
    
    
    
    
    
    
    (1,914
    )Amortization of previously deferred actuarial loss
    
    
    (109
    )
    
    
    11
    
    
    
    (98
    )Total adjustments to recognize the long-term nature of benefit costs
    
    
    2,775
    
    
    
    11
    
    
    
    2,786Defined contribution pension plan:Employers contribution during the period
    
    
    2,954
    
    
    
    
    
    
    
    2,9544,073
    
    
    
    442
    
    
    
    4,515Portion related to affiliated companies
    
    
    (1,048
    )
    
    
    
    
    
    
    (1,048
    )Net benefit costs
    
    $
    3,025
    
    
    $
    442
    
    
    $
    3,467
 F-20




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##### Table of Contents



VIDÉOTRON LTÉE
  3.
    
    Employee future benefits (continued):
 2004Post-Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Service costs
    
    $
    2,717
    
    
    $
    2,119
    
    
    $
    4,836Interest costs
    
    
    2,984
    
    
    
    321
    
    
    
    3,305Actual return on plan assets
    
    
    (7,776
    )
    
    
    
    
    
    
    (7,776
    )Actuarial loss on accrued benefit obligation
    
    
    3,438
    
    
    
    59
    
    
    
    3,497Elements of net benefit cost adjustments to recognize the
long-term nature and valuation allowance
    
    
    1,363
    
    
    
    2,499
    
    
    
    3,862Difference between actual and expected return on plan assets
    
    
    3,771
    
    
    
    
    
    
    
    3,771Deferral of actuarial loss on accrued benefit obligation
    
    
    (3,383
    )
    
    
    (59
    )
    
    
    (3,442
    )Amortization of previously deferred actuarial loss
    
    
    
    
    
    
    21
    
    
    
    21Other
    
    
    
    
    
    
    (83
    )
    
    
    (83
    )Total adjustments to recognize the long-term nature of benefit costs
    
    
    388
    
    
    
    (121
    )
    
    
    267Defined contribution pension plan:Employers contribution during the period
    
    
    4,337
    
    
    
    
    
    
    
    4,3376,088
    
    
    
    2,378
    
    
    
    8,466Portion related to affiliated companies
    
    
    (1,118
    )
    
    
    
    
    
    
    (1,118
    )Net benefit costs
    
    $
    4,970
    
    
    $
    2,378
    
    
    $
    7,348
 F-21




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##### Table of Contents



VIDÉOTRON LTÉE
  3.
    
    Employee future benefits (continued):
 2005Post-Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Service costs
    
    $
    3,695
    
    
    $
    247
    
    
    $
    3,942Interest costs
    
    
    3,457
    
    
    
    342
    
    
    
    3,799Actual return on plan assets
    
    
    (9,271
    )
    
    
    
    
    
    
    (9,271
    )Actuarial loss on accrued benefit obligation
    
    
    18,072
    
    
    
    1,737
    
    
    
    19,809Elements of net benefit cost adjustments to recognize the
long-term nature and valuation allowance
    
    
    15,953
    
    
    
    2,326
    
    
    
    18,279Difference between actual and expected return on plan assets
    
    
    4,740
    
    
    
    
    
    
    
    4,740Deferral of actuarial loss on accrued benefit obligation
    
    
    (18,011
    )
    
    
    (1,737
    )
    
    
    (19,748
    )Amortization of previously deferred actuarial loss
    
    
    
    
    
    
    20
    
    
    
    20Other
    
    
    
    
    
    
    (68
    )
    
    
    (68
    )Total adjustments to recognize the long-term nature of benefit costs
    
    
    (13,271
    )
    
    
    (1,785
    )
    
    
    (15,056
    )Defined contribution pension plan:Employers contribution during the period
    
    
    4,406
    
    
    
    
    
    
    
    4,4067,088
    
    
    
    541
    
    
    
    7,629Portion related to affiliated companies
    
    
    (1,378
    )
    
    
    
    
    
    
    (1,378
    )Net benefit costs
    
    $
    5,710
    
    
    $
    541
    
    
    $
    6,251
   F-22




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##### Table of Contents



VIDÉOTRON LTÉE
  3.
    
    Employee future benefits (continued):The weighted average rates used in the measurement of the Companys benefit obligations as at
December 31, 2005, 2004 and 2003 and current periodic costs are as follows:
 2003
    
    
    2004
    
    
    2005Benefit obligations:Rates at end of year:Discount rate
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    5.00
    %Expected return on plan assets
    
    
    7.75
    %
    
    
    7.50
    %
    
    
    7.50
    %Rate of compensation increase
    
    
    3.25
    %
    
    
    3.50
    %
    
    
    3.50
    %Current periodic costs:Rates at beginning of year:Discount rate
    
    
    6.75
    %
    
    
    6.25
    %
    
    
    6.00
    %Expected return on plan assets
    
    
    7.75
    %
    
    
    7.75
    %
    
    
    7.50
    %Rate of compensation increase
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    3.50
    %
  PostretirementbenefitsIncrease
    
    
    DecreaseSensitivity analysis
    
    1%
    
    
    1%Effect on service and interest costs
    
    $
    80
    
    
    $
    (59
    )Effect on benefit obligations
    
    
    971
    
    
    
    (720
    )
 F-23




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##### Table of Contents



VIDÉOTRON LTÉE
  4.
    
    Depreciation and amortization:
 2003
    
    
    2004
    
    
    2005(in thousands of Canadian dollars)Fixed assets
    
    $
    121,928
    
    
    $
    129,642
    
    
    $
    130,860Other assets
    
    
    1,030
    
    
    
    573
    
    
    
    981$
    122,958
    
    
    $
    130,215
    
    
    $
    131,841
  5.
    
    Financial expenses:
 2003
    
    
    2004
    
    
    2005(in thousands of Canadian dollars)Third parties:Interest on long-term debt
    
    $
    63,588
    
    
    $
    57,180
    
    
    $
    61,207Write-off and amortization of deferred
financing costs
    
    
    4,128
    
    
    
    1,397
    
    
    
    1,836Amortization of debt premium and discount
    
    
    (1,066
    )
    
    
    (1,106
    )
    
    
    (2,188
    )Loss (gain) on repayment of long-term debt
    
    
    17,094
    
    
    
    187
    
    
    
    (312
    )Change in fair value of interest rate swaps
    
    
    
    
    
    
    4,579
    
    
    
    (1,165
    )(Gain) loss on foreign currency denominated
long-term debt
    
    
    (23,623
    )
    
    
    1,298
    
    
    
    1,413Gain on foreign currency denominated
short-term monetary items
    
    
    (1,848
    )
    
    
    (857
    )
    
    
    (1,401
    )Other interests, bank fees and penalty charges
    
    
    1,510
    
    
    
    2,178
    
    
    
    20459,783
    
    
    
    64,856
    
    
    
    59,594Interest income
    
    
    (676
    )
    
    
    (1,396
    )
    
    
    (1,270
    )59,107
    
    
    
    63,460
    
    
    
    58,324Parent company:Interest expense (note 2 (e))
    
    
    5,495
    
    
    
    114,525
    
    
    
    6,882$
    64,602
    
    
    $
    177,985
    
    
    $
    65,206
 F-24




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##### Table of Contents



VIDÉOTRON LTÉE
  5.
    
    Financial expenses (continued):Interest paid to and interest received from third parties in 2003 amounted to $61.0 million and
$0.7 million, respectively, $51.1 million and $1.2 million in 2004 and $66.0 million and $2.2
million in 2005.Interest paid to and interest received from affiliated companies in 2003 amounted to $0.1
million and nil, respectively, $108.5 million and nil in 2004, and nil and nil in 2005.6.
    
    Other items:
 2003
    
    
    2004
    
    
    2005(in thousands of Canadian dollars)Restructuring costs (1)
    
    $
    (2,500
    )
    
    $
    
    
    
    $
    
 
 (1)
    
    The final costs of the 2002 restructuring program were lower than estimated and the
excess amount was reversed in 2003. F-25




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##### Table of Contents



VIDÉOTRON LTÉE
  7.
    
    Income taxes:The following schedule reconciles income taxes computed on income before income taxes and
non-controlling interest in a subsidiary based on the consolidated basic income tax rate and
the effective income tax rate:
 2003
    
    
    2004
    
    
    2005(in thousands of Canadian dollars)Income taxes based on the combinedFederal and Provincial (Quebec) basic
income tax rate of 33.12% in 2003,
31.02% in 2004 and 31.02% in 2005
    
    $
    29,871
    
    
    $
    44,679
    
    
    $
    57,482Change due to the following items:Federal large corporations tax
    
    
    2,405
    
    
    
    1,822
    
    
    
    1,806Non-taxable dividend from the parent
company
    
    
    
    
    
    
    (34,449
    )
    
    
    Settlement of notices of assessment
    
    
    
    
    
    
    (17,483
    )
    
    
    1,080Non-deductible charges and/or
loss deductible at a lower rate
or for which the tax benefit was
not recorded
    
    
    (4,432
    )
    
    
    1,776
    
    
    
    (4
    )(Reduction) increase in enacted tax rate
    
    
    (1,097
    )
    
    
    
    
    
    
    12,852Other
    
    
    83
    
    
    
    215
    
    
    
    (1,888
    )Income taxes based on the effective
income tax rate
    
    $
    26,830
    
    
    $
    (3,440
    )
    
    $
    71,328
  F-26




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##### Table of Contents



VIDÉOTRON LTÉE
  7.
    
    Income taxes (continued):The tax effects of significant items comprising the Companys net future tax liability are as
follows:
 2004
    
    
    2005(in thousands of Canadian dollars)Future income tax assets:Operating loss carryforwards
    
    $
    108,883
    
    
    $
    62,894Other provisions
    
    
    8,706
    
    
    
    6,657Differences between book and tax basis of fixed assets
and other assets
    
    
    9,049
    
    
    
    5,653126,638
    
    
    
    75,204Future income tax liabilities:Differences between book and tax basis of fixed assets
    
    
    (164,112
    )
    
    
    (173,265
    )Differences between book and tax basis of
other assets
    
    
    (3,585
    )
    
    
    (11,340
    )(167,697
    )
    
    
    (184,605
    )Net future income tax liability
    
    $
    (41,059
    )
    
    $
    (109,401
    )Presented as follows:Future income tax assets:Short-term
    
    $
    58,228
    
    
    $
    63,971Long-term
    
    
    23,559
    
    
    
    2,37681,787
    
    
    
    66,347Future income tax long-term liability
    
    
    (122,846
    )
    
    
    (175,748
    )Net future income tax liability
    
    $
    (41,059
    )
    
    $
    (109,401
    )
   F-27




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##### Table of Contents



VIDÉOTRON LTÉE
  7.
    
    Income taxes (continued):During the year ended December 31, 2005, the Company acquired from a company under common
control of the ultimate parent company income tax deductions of $0.7 million, of which $0.3
million is recorded as income taxes receivable and $0.4 million as future tax assets. The
consideration payable to this company under common control amounts to $0.7 million. This
transaction allows the Company to realize a gain of $0.023 million which has been credited to
contributed surplus.As at December 31, 2005, the Company had net operating loss carryforwards for income tax
purposes available to reduce future federal and provincial taxable income of approximately
$189.6 million and $210.5 million which expire as follows:
 Federal
    
    
    Provincial(in thousands of Canadian dollars)2007
    
    $
    34,614
    
    
    $
    24,6812008
    
    
    14,891
    
    
    
    16,2132009
    
    
    
    
    
    
    2010
    
    
    82,613
    
    
    
    86,6842014
    
    
    54,042
    
    
    
    79,6802015
    
    
    3,418
    
    
    
    3,270$
    189,578
    
    
    $
    210,528
 8.
    
    Accounts receivable:
 2004
    
    
    2005(in thousands of Canadian dollars)Trade
    
    $
    91,933
    
    
    $
    112,148Interest receivable on swaps
    
    
    4,689
    
    
    
    6,375Allowance for doubtful accounts
    
    
    (6,134
    )
    
    
    (7,194
    )$
    90,488
    
    
    $
    111,329
  F-28




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##### Table of Contents



VIDÉOTRON LTÉE
  9. Inventories:
 2004
    
    
    2005(in thousands of Canadian dollars)Subscribers equipment
    
    $
    17,700
    
    
    $
    15,541Video store materials
    
    
    5,416
    
    
    
    5,469Other supplies and spare parts
    
    
    7,035
    
    
    
    6,118$
    30,151
    
    
    $
    27,128
 10.
    
    Fixed assets:
 2004Accumulated
    
    
    Net bookCost
    
    
    depreciation
    
    
    value(in thousands of Canadian dollars)Receiving and distribution networks
    
    $
    1,564,393
    
    
    $
    778,741
    
    
    $
    785,652Furniture and equipment
    
    
    218,065
    
    
    
    164,794
    
    
    
    53,271Terminals and operating system
    
    
    103,382
    
    
    
    75,063
    
    
    
    28,319Buildings
    
    
    21,364
    
    
    
    8,777
    
    
    
    12,587Coding and transmission material
    
    
    7,648
    
    
    
    5,154
    
    
    
    2,494Land
    
    
    1,680
    
    
    
    
    
    
    
    1,680$
    1,916,532
    
    
    $
    1,032,529
    
    
    $
    884,003
 2005Accumulated
    
    
    Net bookCost
    
    
    depreciation
    
    
    value(in thousands of Canadian dollars)Receiving and distribution networks
    
    $
    1,698,738
    
    
    $
    877,194
    
    
    $
    821,544Furniture and equipment
    
    
    242,895
    
    
    
    179,489
    
    
    
    63,406Terminals and operating system
    
    
    128,161
    
    
    
    76,718
    
    
    
    51,443Buildings
    
    
    22,396
    
    
    
    9,433
    
    
    
    12,963Coding and transmission material
    
    
    7,647
    
    
    
    4,562
    
    
    
    3,085Land
    
    
    1,649
    
    
    
    
    
    
    
    1,649$
    2,101,486
    
    
    $
    1,147,396
    
    
    $
    954,090
 F-29




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##### Table of Contents



VIDÉOTRON LTÉE
 11.
    
    Other assets:
 2004
    
    
    2005(in thousands of Canadian dollars)Long-term financing fees (i)
    
    $
    15,765
    
    
    $
    16,630Employee future benefit costs (note 3)
    
    
    4,324
    
    
    
    3,946Development and pre-operating costs (ii)
    
    
    1,648
    
    
    
    2,686Deferred connection fees (iii)
    
    
    9,354
    
    
    
    15,530Video rental inventory (iv)
    
    
    2,734
    
    
    
    3,371Investment
    
    
    66
    
    
    
    66Other
    
    
    607
    
    
    
    528$
    34,498
    
    
    $
    42,757
 (i)
    
    Net of accumulated amortization of $3.9 million in 2004 and $3.1 million in 2005.(ii)
    
    Net of accumulated amortization of $2.9 million in 2004 and $0.9 million in 2005.(iii)
    
    Net of accumulated amortization of $1.9 million in 2004 and $8.5 million in 2005.(iv)
    
    Net of accumulated amortization of $7.0 million in 2004 and $6.8 million in 2005. 12.
    
    Accounts payable and accrued liabilities:
 2004
    
    
    2005(in thousands of Canadian dollars)Trade accounts payable and accruals
    
    $
    55,015
    
    
    $
    66,227Subscribers equipment suppliers
    
    
    18,215
    
    
    
    20,166Royalties and service providers dues
    
    
    46,100
    
    
    
    48,219Employees salaries and dues
    
    
    25,428
    
    
    
    28,773Provincial and federal sales tax
    
    
    12,786
    
    
    
    12,056Interest
    
    
    31,513
    
    
    
    26,278$
    189,057
    
    
    $
    201,719
 F-30




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##### Table of Contents



VIDÉOTRON LTÉE
 13. Long-term debt:
 2004
    
    
    2005(in thousands of Canadian dollars)Bank facility (a):Revolving credit
    
    $
    
    
    
    $
    Senior Secured First Priority Notes (b)
    
    
    92,271
    
    
    
    Senior Notes (c)
    
    
    796,637
    
    
    
    971,697Subordinated loan  Quebecor Media Inc. (d)
    
    
    150,000
    
    
    
    150,000Long-term portion of the long-term debt
    
    $
    1,038,908
    
    
    $
    1,121,697
 (a)
    
    Bank facility:Bank credit facility, bearing interest at Bankers Acceptances and Canadian LIBOR rates,
plus, in each case, a margin depending upon Vidéotron Ltée leverage ratio, is secured by a
first ranking hypothec on the universality of all tangible and intangible assets, current
and future, of Vidéotron Ltée and its subsidiaries.The credit facilities contain usual covenants such as maintaining certain financial ratios
and certain restrictions as to the payment of dividends and acquisitions and dispositions
of assets. The unused amount under the Revolving Facility at year-end is $450.0 million as
at December 31, 2005 and 2004 (see note 21).On October 8, 2003, concurrently with the issuance of the Senior Notes, the Company repaid
entirely and terminated its former bank facility term-loans A and B, borrowed an amount of
$368.1 million under a term-loan C and reduced the authorized amount under the revolving
credit facility from $150.0 million to $100.0 million. Term-loan C was payable in
quarterly installments of $12.5 million beginning on December 1, 2003. On November 19,
2004, concurrently with the issuance of additional Senior Notes, the term-loan C, having a
balance of $318.1 million, was repaid in full and the revolving credit facility was
increased from $100.0 million to $450.0 million with an extended maturity date to November
2009.
 F-31




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##### Table of Contents



VIDÉOTRON LTÉE
 13.
    
    Long-term debt (continued):
 (b)
    
    Senior Secured First Priority Notes:On July 15, 2005, the Company used its cash on hand and its Revolving Credit Facility to
reimburse the aggregate principal amount of US$75.6 million of its subsidiary, CF Cable TV
Inc., Senior Secured First Priority Notes, which bore interest at 9.125% and were due in
2007. The gain on settlement of long-term debt includes the write-off of the unamortized
premium of $0.8 million, net of deferred financing costs amounting to $0.5 million. Also,
an amount of $7.4 million was paid as settlement of the foreign exchange forward contracts
related to these Notes.(c)
    
    Senior Notes:
 (i)
    
    On October 8, 2003, the Company issued US$335.0 million of aggregate
principal amount of Senior Notes at a discount rate of 99.0806% for net proceeds of
US$331.9 million, before issuance fees of US$5.7 million. These Notes bear interest
at a rate of 6.875% payable every six months on January 15 and July 15, and mature on
January 15, 2014. The Notes contain certain restrictions for Vidéotron Ltée,
including limitations on its ability to incur additional indebtedness, and are
unsecured. Vidéotron Ltée entered into cross-currency interest swaps to hedge foreign
exchange fluctuations related to the interest and capital repayment of these Notes
denominated in foreign currency.On November 19, 2004, the Company issued an additional US$315.0 million of aggregate
principal amount of 6.875% Senior Notes maturing on January 15, 2014, at a premium of
5.0% for total proceeds of US$330.8 million, before issuance fees of US$4.1 million.
The Company has contracted cross-currency interest swaps to hedge foreign exchange
fluctuations related to the interest and capital repayment of these Notes denominated
in foreign currency. The Notes will be redeemable, in whole or in part, at any time on
or after January 15, 2009, with a premium decreasing from 3.438% on January 15, 2009 to
nil on January 15, 2012.(ii)
    
    On September 16, 2005, the Company issued US$175.0 million of aggregate
principal amount of Senior Notes at a discount rate of 99.5% for net proceeds of
US$174.1 million, before issuance fees of $3.7 million. These Notes bear interest at
a rate of 6.375% payable every six months on December 15 and June 15, and mature on
December 15, 2015. The Notes contain certain restrictions for Vidéotron Ltée,
including limitations on its ability to incur additional indebtedness, and are
unsecured. Vidéotron Ltée entered into a cross-currency interest swaps to hedge
foreign exchange fluctuations related to the interest and capital repayment of these
Notes denominated in foreign currency. In accordance with the registered Exchange
Offer, Vidéotron Ltée will complete, during the first quarter of 2006, the exchange of
the Senior Notes for new Notes having substantially identical terms to the Senior
Notes. The notes will be redeemable, in whole or in part, at any time on or after
December 15, 2010, with a premium decreasing from 3.188% on December 15, 2010 to nil
on December 15, 2013.
 F-32




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##### Table of Contents



VIDÉOTRON LTÉE
 13.
    
    Long-term debt (continued):
 (d)
    
    Subordinated loan  Quebecor Media Inc.:On March 24, 2003, the Company contracted a subordinated loan of $150.0 million from its
parent company. The $150.0 million subordinated loan, maturing in March 2015, bears
interest at the rate of 90-day Bankers Acceptance rates plus 1.5%, payable in arrears on
the last day of each quarter starting June 30, 2003. The obligations of the Company are
subordinated in right of payment to the prior payment in full of all existing and future
indebtedness of the Company under or in connection with the Credit Agreement. The holders
of all other senior indebtedness of the Company will be entitled to receive payments in
full of all amounts due on or in respect of all other existing and future senior
indebtedness of the Company before the Lender is entitled to receive or retain payment of
principal (see note 21).In June 2003, the Company notified the Lender according to the subordinated loan agreement
that it would stop the payment of all interests on the loan indefinitely. The amount of
interest owed to Quebecor Media Inc. as at December 31, 2005 totaled $17.9 million ($10.7
million at December 31, 2004).Minimum principal payments on long-term debt in each of the next five years and thereafter
are as follows:
 (in thousands of Canadian dollars)2006
    
    $
    2007
    
    
    2008
    
    
    2009
    
    
    2010 and thereafter
    
    
    1,121,697
 14.
    
    Share capital:Authorized:
   F-33




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##### Table of Contents



VIDÉOTRON LTÉE
 14.
    
    Share capital (continued):Authorized (continued):
         2004
    
    
    
    
    
    
    2005Retractable
    
    
    
    
    
    
    RetractableCommon
    
    
    preferred
    
    
    Common
    
    
    preferredshares
    
    
    shares
    
    
    shares
    
    
    shares(in thousands of Canadian dollars)Issued and paid:11,174,813
common shares
    
    $
    173,236
    
    
    $
    
    
    
    $
    173,236
    
    
    $
    170,000 preferred
shares, Series G
(2004 - 133,000)
    
    
    -
    
    
    
    
    
    
    
    
    
    
    
    $
    173,236
    
    
    $
    
    
    
    $
    173,236
    
    
    $
    
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##### Table of Contents



VIDÉOTRON LTÉE
 14.
    
    Share capital (continued):Vidéotron Ltée modified its articles of amalgamation as follows:On March 28, 2003, the parent company converted one of its Series E preferred shares into
750,000 common shares at a stated capital of $26.8 million. Furthermore, on May 14, 2003, the
parent company converted its last Series E preferred shares into 70,000 common shares at a
stated capital of $4.5 million. The excess of the preferred share retractable value over the
stated capital converted into common shares, amounting to $301.2 million, has been credited to
the contributed surplus.On October 7, 2003, the Company acquired from its parent company all the issued and outstanding
            shares of Vidéotron TVN Inc. and of Le SuperClub Vidéotron Ltée in consideration of the
issuance of 354,813 common shares for a total stated capital of $141.9 million. The excess of
the consideration issued over the net book value of the business acquired, amounted to $103.1
million, of which $26.7 million has been charged to the contributed surplus and $76.4 million
to the deficit. This business combination was accounted for using the continuity of interest
method, and the results of operations of the acquired companies have been included in these
consolidated financial statements as if this group of companies had always been subsidiaries of
the Company.On December 23, 2003, the Company acquired from its parent company all the issued and
outstanding shares of Câblage QMI Inc. in consideration of the issuance of 1 Series F preferred
share, retractable at an amount of $2.0 million.On January 16, 2004 and September 30, 2004, Videotron Ltée issued 88,000 and 45,000 preferred
            shares Series G, respectively, to Groupe Divertissement SuperClub Inc., the wholly-owned
subsidiary of Le Superclub Videotron Ltée, for a total cash consideration of $88.0 million and
$45.0 million, respectively. Series G shares are eliminated upon consolidation.On March 26, 2004, the Company redeemed the Series F preferred share, for an amount of $3.7
million. The excess of the consideration paid over the preferred shares retractable value, in
the amount of $1.7 million, has been charged to deficit.On April 18, 2005, Vidéotron Ltée issued 57,000 preferred shares, Series G, to Groupe de
Divertissement Superclub Inc., a wholly-owned subsidiary of Le Superclub Vidéotron Ltée, for a
total cash consideration of $57.0 million. On the same date, Vidéotron Ltée redeemed 20,000
preferred shares, Series G, from Groupe de Divertissement Superclub Inc. for a total cash
consideration of $20.0 million. Series G shares are eliminated upon consolidation.
 F-35




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##### Table of Contents



VIDÉOTRON LTÉE
 15.
    
    Stock option plan:Under a stock option plan established by the parent company, 6,185,714 Common Shares of the
parent company were set aside for officers, senior employees and other key employees of the
parent company and its subsidiaries. Each option may be exercised within a maximum period of
ten years following the date of grant at an exercise price not lower than, as the case may be,
the fair market value of the Common Shares of the parent company as at the date of grant, as
determined by the parent companys Board of Directors (if the Common Shares of the parent
company are not listed on a stock exchange at the time of the grant) or the trading price of
the Common Shares of the parent company on the stock exchanges where such shares are listed at
time of the grant. Unless authorized by the parent companys Compensation Committee in the
context of a change of control, no options may be exercised by an optionee if the shares of the
parent company have not been listed on a recognized stock exchange. At December 31, 2007, if
the shares of the parent company have not been so listed, optionees may exercise, between
January 1 and January 31, each year, starting January 1, 2008, their right to receive an amount
in cash equal to the difference between the fair market value as determined by the parent
companys Board of Directors, and the exercise price of their vested options. Except under
specific circumstances and unless the parent companys Compensation Committee decides
otherwise, options vest over a five-year period in accordance with one of the following vesting
schedules as determined by the parent companys Compensation Committee at the date of grant:
(i) equally over five years with the first 20% vesting on the first anniversary of the date of
the grant, (ii) equally over four years with the first 25% vesting on the second anniversary of
the date of the grant, and (iii) equally over three years with the first 33% vesting on the
third anniversary of the date of the grant.
 F-36




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##### Table of Contents



VIDÉOTRON LTÉE
 15.
    
    Stock option plan (continued):The following table gives summary information on outstanding options granted by the parent
company to the employees of the Company as at December 31, 2004 and 2005:
 2004
    
    
    
    
    
    
    2005Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exerciseOptions
    
    
    price
    
    
    Options
    
    
    priceBalance at beginning of year
    
    
    545,639
    
    
    $
    18.25
    
    
    
    562,067
    
    
    $
    18.69Granted
    
    
    48,756
    
    
    
    22.25
    
    
    
    36,913
    
    
    
    28.11Transferred and cancelled
    
    
    (32,328
    )
    
    
    16.70
    
    
    
    (16,645
    )
    
    
    18.38Balance at end of year
    
    
    562,067
    
    
    $
    18.69
    
    
    
    582,335
    
    
    $
    19.25Vested options at end of year
    
    
    73,569
    
    
    $
    17.45
    
    
    
    222,111
    
    
    $
    18.36
  Outstanding options
    
    
    
    
    
    
    Vested optionsWeighted average
    
    
    
    
    
    
    Weighted averageExercise price
    
    Number
    
    
    years to maturity
    
    
    Number
    
    
    exercise price$15.19
    
    
    28,637
    
    
    7.41 years
    
    
    11,455
    
    
    $
    15.1916.17
    
    
    172,229
    
    
    6.27 years
    
    
    88,804
    
    
    
    16.1719.46
    
    
    240,749
    
    
    7.59 years
    
    
    80,712
    
    
    
    19.4621.42
    
    
    8,869
    
    
    7.92 years
    
    
    3,548
    
    
    
    21.4221.75
    
    
    19,999
    
    
    8.20 years
    
    
    4,000
    
    
    
    21.7521.77
    
    
    62,011
    
    
    6.23 years
    
    
    31,006
    
    
    
    21.7722.98
    
    
    12,928
    
    
    8.69 years
    
    
    2,586
    
    
    
    22.9827.86
    
    
    30,057
    
    
    9.12 years
    
    
    
    
    
    
    29.17
    
    
    6,856
    
    
    9.81 years
    
    
    
    
    
    
    $15.19 to $29.17
    
    
    582,335
    
    
    7.2 years
    
    
    222,111
    
    
    $
    18.36
  F-37




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##### Table of Contents



VIDÉOTRON LTÉE
 16.
    
    Financial instruments:
 (a)
    
    Fair value:The carrying amount of cash and cash equivalents, marketable securities, accounts
receivable, issued and outstanding cheques, accounts receivable from/payable to affiliated
companies, and accounts payable and accrued liabilities approximates their fair value as
these items will be realized or paid within one year.As at December 31, the estimated fair values of long-term debt and derivative financial
instruments are as follows:
 2004
    
    
    
    
    
    
    2005Book
    
    
    Fair
    
    
    Book
    
    
    Fairvalue
    
    
    value
    
    
    value
    
    
    value(in thousands of Canadian dollars)Liabilities:Financial liabilities:Long-term debt
    
    $
    1,038,908
    
    
    $
    1,051,039
    
    
    $
    1,121,697
    
    
    $
    1,117,398Derivative financial
instruments:Interest rate swaps
    
    
    (4,579
    ) (i)
    
    
    (4,579
    )
    
    
    (935
    )(i)
    
    
    (935
    )Assets (liabilities):Cross currency interest
rate swaps
    
    
    (45,371
    )
    
    
    (72,298
    )
    
    
    (73,835
    )
    
    
    (135,048
    )Forward exchange
    
    
    (8,476
    )
    
    
    (8,414
    )
    
    
    
    
    
    
    (158
    )
 
 (i)
    
    Including an amount of $1.2 million in 2004 and $0.9 million in 2005
classified with interest payable in the balance sheet.  F-38




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##### Table of Contents



VIDÉOTRON LTÉE
  16.
    
    Financial instruments (continued):
 (b)
    
    Management of interest rate risk and foreign exchange risk:In 2003, the Company entered into interest rate swaps to manage its interest rate exposure
on its bank facility. The Company was committed to exchange, at specific intervals, the
difference between the fixed and floating interest rate calculated by reference to the
notional amounts. As at December 31, 2004 and 2005, this bank facility was paid off, but
the Company is still committed to pay fixed interest rates ranging from 3.75% to 5.41% on a
notional amount of $95.0 million, and will receive a floating interest rate based on
Bankers Acceptance having a three-month maturity. These swaps expire in 2006 and 2007.During the year ended December 31, 2003, the Company has concluded cross currency interest
swaps to hedge the foreign exchange fluctuations related to its US Senior Notes by fixing
the US/Canadian dollar exchange rate at 1.3425 on a notional amount of US$335.0 million,
and by fixing the interest rate at 7.66% on a notional amount of $181.2 million, and by
opting for a floating interest rate based on bankers acceptance rate plus 2.73% on a
notional amount of $268.5 million.During the year ended December 31, 2004, the Company has concluded cross-currency interest
swaps to hedge the foreign exchange fluctuations relating to its US Senior Notes issued in
November 2004 by fixing the US dollar/Canadian dollar exchange rate at 1.1950, and by
fixing an interest rate at 7.45% on a notional amount of $149.4 million, and fixing the
exchange rate at 1.2000 and by opting for a floating interest rate based on the bankers
acceptance rate plus 2.80% on a notional amount of $228.0 million. The Company also
concluded a forward exchange contract to hedge the foreign exchange fluctuations relating
to its CF Cable notes by fixing the US dollar/Canadian dollar exchange rate at 1.3573 on a
notional amount of $53.5 million. The contract was settled on July 15, 2005, with the
reimbursement of the Senior Secured First Priority Notes.During the year ended December 31, 2005, the Company concluded cross-currency interest
swaps to hedge the foreign exchange fluctuations relating to its US Senior Notes issued in
September 2005 by fixing the US dollar/Canadian dollar exchange rate at 1.1781, and by
fixing an interest rate at 5.98% on a notional amount of $206.2 million.During the year ended December 31, 2005, the Company concluded forward exchange contracts
to hedge the foreign exchange fluctuations relating to its 2006 customers equipment and
other purchases by fixing the US dollar/Canadian dollar exchange rate at 1.1790 on an
amount of $10.4 million.
 F-39




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##### Table of Contents



VIDÉOTRON LTÉE
  
 16.
    
    Financial instruments (continued):
 (c)
    
    Other disclosures:
 (i)
    
    The credit risk of the financial instruments arises from the possibility that
the counterparties to the agreements or contracts may default on their obligations
under the agreements. In order to minimize this risk, the Companys general policy is
to deal only with counterparties with a Standard & Poors rating (or the equivalent)
of at least A -.(ii)
    
    The Company is exposed to a credit risk towards its customers. However,
credit risk concentration is minimized because of the large number of customers.
 17.
    
    Commitments and guarantees:
 (a)
    
    Under the terms of operating leases, the Company is committed to make the following
minimum annual lease payments over the next years:
 (in thousands of Canadian dollars)Minimum
    
    
    Leases
    
    
    Minimum netannual lease
    
    
    assumed by
    
    
    annual leasepayments
    
    
    franchisees (b)
    
    
    payments2006
    
    $
    14,671
    
    
    $
    2,159
    
    
    $
    12,5122007
    
    
    8,735
    
    
    
    1,609
    
    
    
    7,1262008
    
    
    6,885
    
    
    
    1,187
    
    
    
    5,6982009
    
    
    5,149
    
    
    
    968
    
    
    
    4,1812010
    
    
    3,344
    
    
    
    660
    
    
    
    2,6842011 and thereafter
    
    
    6,829
    
    
    
    1,556
    
    
    
    5,273
 The operating lease expense for the year amounted to $15.1 million (2004  $12.9 million;
2003  $12.2 million).(b)
    
    Management fee:In 2002, the Company began paying an annual management fee to Quebecor Media for services
rendered to the Company pursuant to a five-year management services agreement. These
services include internal audit, legal and corporate, financial planning and treasury, tax,
real estate, human resources, risk management, public relations and other services. The
agreement provides for an annual management fee of $11.4 million in respect of 2005 (2003 -
$5.3 million; 2004  $7.3 million) and amounts to be agreed upon for the year 2006. In
addition, Quebecor Media is entitled to the reimbursement of out-of-pocket expenses
incurred in connection with the services provided under the agreement. The agreement also
provides that in no event may the fees and reimbursements paid to Quebecor Media for any
given year exceed 1.5% of the Companys consolidated revenues for such year.
 F-40




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##### Table of Contents



VIDÉOTRON LTÉE
  17.
    
    Commitments and guarantees (continued):
 (c)
    
    Disclosure of guarantees:Operating leases:The Company has guaranteed a portion of the residual values of certain assets under
operating leases for the benefit of the lessor. Should the Company terminate these
operating leases prior to maturity and should the fair value of the leased assets be less
than the guaranteed residual value, the Company must, under certain conditions, compensate
the lessor for a portion of the shortfall. As at December 31, 2005, the maximum exposure
in respect of these guarantees is $6.5 million and no amount has been recorded in the
consolidated financial statements.Guarantees under lease agreements:A subsidiary of the Company has provided guarantees to the lessor under premise leases for
certain franchisees, with expiry dates through 2016. The Company must, under certain
conditions, compensate the lessor should the franchisee default. As at December 31, 2005,
the maximum exposure in respect of these guarantees is $8.1 million. No liability has been
recorded in the consolidated financial statements since the subsidiary does not expect to
make any payments pertaining to these guarantees. Recourse against the franchisee is also
available, up to the total amount due.Guarantees related to the Senior Notes:Under the terms of the indentures governing the 2014 and 2015 Senior Notes, the Company is
committed to pay any amount of withholding taxes that could eventually be levied by any
Canadian Taxing Authority on payments made to the lenders, so that the amounts the lenders
would receive are not less than amounts receivable if no taxes are levied. The amount of
such guarantee is not limited and it is not possible for the Company to establish a maximum
amount of the guarantee as it is dependent exclusively on future actions, if any, by the
Taxation Authorities. Although no recourse exists for such liability, the Company has the
right to redeem such long-term debt at their face value, if such taxes were levied by the
Canadian Taxing Authorities, thereby terminating the guarantee.
 F-41




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##### Table of Contents



VIDÉOTRON LTÉE
  18.
    
    Supplemental cash flow information:
 2003
    
    
    2004
    
    
    2005(in thousands of Canadian dollars)Non-cash financing and investing activities:(i) Purchase of fixed assets financed
by accounts payable and accrued
liabilities
    
    $
    958
    
    
    $
    5,669
    
    
    $
    14,802(ii) Issuance of share capital in consideration
of the acquisition of a subsidiary
    
    
    2,000
    
    
    
    
    
    
    
    (iii) Deferred charge expenditures financed
by accounts payable and accrued
liabilities and by affiliated companies
    
    
    1,195
    
    
    
    1,209
    
    
    
    
 19.
    
    Related party transactions:In addition to the transactions disclosed elsewhere in these financial statements, the Company
entered into the following transactions with affiliated companies. These transactions have
been recorded at the exchange value in the normal course of business, which is the amount
established and agreed to by the related parties:
 2003
    
    
    2004
    
    
    2005(in thousands of Canadian dollars)Parent company:Operating and administrative expenses
    
    $
    8,492
    
    
    $
    10,329
    
    
    $
    15,637Operating and administrative expenses
recovered
    
    
    (216
    )
    
    
    (159
    )
    
    
    (155
    )Acquisition of fixed and intangible assets
    
    
    1,613
    
    
    
    
    
    
    
    Companies under common control:Operating revenue
    
    
    2,450
    
    
    
    1,915
    
    
    
    2,375Direct costs
    
    
    18,271
    
    
    
    15,846
    
    
    
    25,542Operating and administrative expenses
    
    
    34,087
    
    
    
    29,769
    
    
    
    47,725Directors of the parent company:Operating and administrative expenses
    
    
    581
    
    
    
    247
    
    
    
    622Acquisition of deferred financing costs
    
    
    189
    
    
    
    91
    
    
    
    85
 F-42




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##### Table of Contents



VIDÉOTRON LTÉE
  19.
    
    Related party transactions (continued):The Company and a company under common control entered into a signal transmission services
agreement until 2014, renewable for an additional 15-year period. The service charges incurred
from this agreement amounted to $7.0 million in 2003, $6.5 million in 2004 and $7.7 million in
2005.The Company and a company under common control entered into internet band with services
agreements until 2005, renewable for a 12-month period. Service charges incurred from these
agreements amounted to $12.2 million in 2003, $6.1 million in 2004 and $6.9 million in 2005.The Company and a company under common control entered into a telephone services agreement in
2005. Service charges incurred from this agreement amounted to $9.2 million in 2005.For the year ended December 31, 2005, the Company paid Quebecor Media management fees of $11.4
million (2003  $5.3 million; 2004  $7.3 million), which is reflected in other operating
expenses.20.
    
    Contingencies:On March 13, 2002, a legal action was initiated by the shareholders of a cable company against
Vidéotron Ltée. They contend that Vidéotron Ltée did not honor its commitment related to a
stock purchase agreement signed in August 2000. The plaintiffs are requesting compensations
totalling $26.0 million. Management of the Company claims that the suit is not justified and
intends to defend vigorously its case in Court.In the normal course of business, the Company is a party to various claims and lawsuits. Even
though the outcome of these various pending cases as at December 31, 2005 cannot be determined
with certainty, the management of the Company believes that their outcome will not have a
material adverse impact on its operating results or financial position.
 F-43




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##### Table of Contents



VIDÉOTRON LTÉE
  21.
    
    Subsequent events:
 (i)
    
    On January 1, 2006, a company under common control, Vidéotron Telecom Ltd., has
merged with the Company. This transaction will be accounted for using the continuity of
interest method. The net assets of Vidéotron Telecom Ltd. transferred as a result of the
merger with the Company are summarized as follows:
 Current assets
    
    $
    44,227Fixed assets
    
    
    197,727Future tax assets
    
    
    34,337Other assets
    
    
    1,092277,383Current liabilities
    
    
    31,289Retractable preferred shares
    
    
    2,22933,518Net assets transferred to the Company
    
    $
    243,865
 (ii)
    
    On January 17, 2006, the Company reimbursed the principal amount of the subordinated
loan and all interests owed at that date to Quebecor Media Inc. for a total consideration
of $168.0 million. At that date, the Company also reduced the paid-up capital of its
common shares and paid a total cash consideration of $83.7 million to the parent company.
The repayment of the loan and the reduction of the paid-up capital have been financed
through the use of the revolving facility in the amount of $237 million.
 22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States:The consolidated financial statements have been prepared in accordance with generally accepted
accounting principles (GAAP) in Canada which are different in some respects from those in the
United States (US), as described below. The following tables set forth the impact of
significant differences between Canadian GAAP and US GAAP on the Companys consolidated
financial statements, including disclosures, that are required under US GAAP.
 F-44




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Consolidated Statements of Operations
 2003
    
    
    2004
    
    
    2005(restated
 note 1 (b))(in thousands of Canadian dollars)Net income for the year based
on Canadian GAAP
    
    $
    63,311
    
    
    $
    147,372
    
    
    $
    113,875Adjustments:Push-down basis of accounting (i)
    
    
    (7,954
    )
    
    
    (18,108
    )
    
    
    (7,096
    )Development and pre-operating costs (iii)
    
    
    2,485
    
    
    
    (1,210
    )
    
    
    (1,036
    )Accounting for derivative instruments and
hedging activities (iv)
    
    
    1,607
    
    
    
    12,266
    
    
    
    7,542Income taxes (v)
    
    
    (774
    )
    
    
    375
    
    
    
    2,234Net income for the year based
on US GAAP
    
    
    58,675
    
    
    
    140,695
    
    
    
    115,519Other comprehensive (loss) gain (vi):Pension and postretirement benefits (vii)
    
    
    (613
    )
    
    
    835
    
    
    
    (61
    )Accounting for derivative instruments
and hedging activities (iv)
    
    
    (843
    )
    
    
    (14,473
    )
    
    
    (18,271
    )Income taxes (v)
    
    
    
    
    
    
    
    
    
    
    10,882Comprehensive income for the year
based on US GAAP
    
    $
    57,219
    
    
    $
    127,057
    
    
    $
    108,069Accumulated other comprehensive loss
at beginning of year
    
    $
    (314
    )
    
    $
    (1,770
    )
    
    $
    (15,408
    )Changes in the year
    
    
    (1,456
    )
    
    
    (13,638
    )
    
    
    (7,450
    )Accumulated other comprehensive loss at
end of year
    
    $
    (1,770
    )
    
    $
    (15,408
    )
    
    $
    (22,858
    )
 F-45




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Consolidated Shareholders Equity
 2004
    
    
    2005(in thousands of Canadian dollars)Shareholders equity (deficit) based on Canadian GAAP
    
    $
    38,030
    
    
    $
    (58,072
    )Cumulative adjustments:Push-down basis of accounting (i)
    
    
    4,235,626
    
    
    
    4,228,530Goodwill impairment (ii)
    
    
    (2,004,000
    )
    
    
    (2,004,000
    )Development and pre-operating costs (iii)
    
    
    (1,656
    )
    
    
    (2,692
    )Accounting for derivative instruments and
hedging activities (iv)
    
    
    (15,559
    )
    
    
    (26,288
    )Income taxes (v)
    
    
    514
    
    
    
    13,630Pension and postretirement benefits (vii)
    
    
    (92
    )
    
    
    (153
    )Shareholders equity based on US GAAP
    
    $
    2,252,863
    
    
    $
    2,150,955
 (i)
    
    Push-down basis of accounting:The basis of accounting used in the preparation of these financial statements under US GAAP
reflects the push-down resulting from the acquisition on October 23, 2000 by Quebecor Media
Inc. of the Company and its subsidiaries. Under Canadian GAAP, each entity has retained
the historical carrying value basis of its assets and liabilities. The excess of the
purchase price over the value assigned to the net assets of the Company at the date of
acquisition has been allocated to goodwill and has been amortized, up to December 31, 2001,
on the straight-line basis over 40 years.The principal adjustments, taking into account the final allocation of the purchase price
finalized in the fourth quarter of 2001, to the historical consolidated financial
statements of the Company to reflect Parents cost basis were:
 (a)
    
    The carrying values of fixed assets were increased by $114.6 million;(b)
    
    The deferred charges related to financing fees and exchange losses on
long-term debt have been written off to reflect the fair value of the assumed
long-term debt, and further reduction in deferred charges was recorded for a total
amount of $22.6 million;(c)
    
    Accrued charges increased by $40.3 million;
 F-46




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Consolidated Shareholders Equity (continued)
 (i)
    
    Push-down basis of accounting (continued):
 (d)
    
    Future income tax liability increased by $24.9 million; and(e)
    
    The $4,360.5 million excess of parents cost over the value assigned to the
net assets of the Company at the date of acquisition has been recorded as goodwill and
$4,387.3 million was credited to contributed surplus. In 2004, the Company and its
parent materialized income tax benefits in the amount of $84.3 million which had not
been recognized at the date of acquisition. Therefore, the goodwill has been reduced
by $84.3 million, contributed surplus has been reduced by $67.4 million and income tax
expense for US GAAP purposes has been increased by $16.9 million.
 (ii)
    
    Goodwill impairment:The accounting requirements for goodwill under Canadian GAAP and US GAAP are similar in all
material respects. However, in accordance with the transitional provisions contained in
Section 3062 of the CICA Handbook, an impairment loss recognized during the financial year,
in which the new recommendations are initially applied, is recognized as the effect of a
change in accounting policy and charged to opening retained earnings, without restatement
of prior periods. Under US GAAP, an impairment loss recognized as a result of transitional
goodwill impairment test is recognized as the effect of a change in accounting principles
in the statement of operations above the caption net income.(iii)
    
    Development and pre-operating costs:Under Canadian GAAP, certain development and pre-operating costs, which satisfy specified
criteria for recoverability, are deferred and amortized. Under US GAAP, these costs are
expensed as incurred.
 F-47




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Consolidated Shareholders Equity (continued)
 (iv)
    
    Accounting for derivative instruments and hedging activities:The Company adopted, at the beginning of 2001, Statement of Financial Accounting Standards
No. 133 Accounting for Derivative Instruments and Hedging Activities as amended (SFAS
133), which establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that all derivatives be recorded as either assets or
liabilities in the balance sheet at fair value with changes in fair value recorded in the
statement of operations unless the instrument is effective and qualifies for hedge
accounting. Under Canadian GAAP, derivative financial instruments are accounted for on an
accrual basis. Realized and unrealized gains and losses are deferred and recognized in
income in the same period and in the same financial statement category as the income or
expense arising from the corresponding hedged position. Furthermore, under Canadian GAAP,
the change in foreign exchange rate on long-term foreign currency denominated instrument is
recorded either as an asset or liability when hedge accounting is used. Under US GAAP,
these changes are recorded in the statement of operations or other comprehensive income
based on whether a hedging relationship has been established which qualifies as a hedging
relationship under US GAAP.(v)
    
    Income taxes:This adjustment represents the tax impact of the US GAAP adjustments. Furthermore, under
Canadian GAAP, income taxes are measured using substantially enacted tax rates, while under
US GAAP measurement is based on enacted tax rates.(vi)
    
    Comprehensive income (loss):Comprehensive income is presented in accordance with FAS No. 130, Reporting Comprehensive
Income. This standard defines comprehensive income as all changes in equity other than
those resulting from investments by owners and distributions to owners. Other
comprehensive income consists of adjustments to shareholders equity related to the accrued
pension benefit liability, representing the excess of the accumulated pension benefit
obligation as compared to the fair value of plan assets and to changes in the derivative
fair values of contracts that are designated effective and qualify as cash flow hedges.
 F-48




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Consolidated Shareholders Equity (continued)
 (vii)
    
    Pension and postretirement benefits:The accounting requirements for pension and postretirement benefits under Canadian GAAP and
US GAAP are similar in all material respects. However, under US GAAP, if the accumulated
benefit obligation exceeds the fair value of a pension plans assets, the Company is
required to recognize a minimum accrued liability equal to the unfunded accumulated benefit
obligation, which is recorded as a separate component of shareholders equity under the
caption other comprehensive income.(viii)
    
    Operating income before the undernoted:US GAAP requires that depreciation and amortization and other items be included in the
determination of operating income and does not permit the disclosure of subtotals of the
amounts of operating income before these items. Canadian GAAP permits the subtotals of the
amounts of operating income before these items.(ix)
    
    Consolidated statements of cash flows:The disclosure of a subtotal of the amount of funds provided by operations before changes
in non-cash operating working capital items in the consolidated statement of cash flows is
allowed by Canadian GAAP while it is not allowed by US GAAP.(x)
    
    Guaranteed debt:The consolidated information below has been presented in accordance with the requirements
of the Securities and Exchange Commission for guarantor financial statements.The Companys Senior Notes due 2014 and 2015 described in note 13 (c) are guaranteed by
specific subsidiaries of the Company (the Subsidiary Guarantors). The accompanying
condensed consolidated financial information as at December 31, 2004 and 2005 and for the
years 2003, 2004 and 2005 has been prepared in accordance with US GAAP. The information
under the column headed Consolidated Guarantors is for all the Subsidiary Guarantors.
Investments in the Subsidiary Guarantors are accounted for by the equity method in the
separate column headed Vidéotron Ltée. Each Subsidiary Guarantor is wholly-owned by the
Company. All guarantees are full and unconditional, and joint and several (to the extent
permitted by applicable law).The main subsidiaries included under the column Subsidiary Guarantors are CF Cable TV
Inc., Vidéotron (Regional) Ltée and Le SuperClub Vidéotron Ltée, and its subsidiary,
Groupe de Divertissement SuperClub Inc.The Non-Subsidiary Guarantors is Société dÉdition et de Transcodage T.E. Ltée.
 F-49




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):
 (x)
    
    Guaranteed debt (continued):On July 15, 2005, CF Cable TV Inc. paid its senior secured first priority note and became a
guarantor of the senior notes issued by its parent company, Vidéotron (Régional) Ltée, a
wholly-owned subsidiary of CF Cable TV Inc., became also a guarantor of the senior notes of
Vidéotron Ltée.
    Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)Revenues
    
    $
    424,904
    
    
    $
    245,920
    
    
    $
    159,945
    
    
    $
    (25,768
    )
    
    $
    805,001Direct cost
    
    
    162,244
    
    
    
    37,449
    
    
    
    47,906
    
    
    
    (1,632
    )
    
    
    245,967Operating and administrative expenses
    
    
    139,858
    
    
    
    103,718
    
    
    
    61,103
    
    
    
    (23,875
    )
    
    
    280,804Depreciation and amortization
    
    
    82,468
    
    
    
    33,048
    
    
    
    17,794
    
    
    
    (307
    )
    
    
    133,003Financial expenses
    
    
    79,425
    
    
    
    (1,557
    )
    
    
    (13,555
    )
    
    
    (1,889
    )
    
    
    62,424Other items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income before the undernoted
    
    
    (39,091
    )
    
    
    73,262
    
    
    
    46,697
    
    
    
    1,935
    
    
    
    82,803Income taxes
    
    
    (14,811
    )
    
    
    25,656
    
    
    
    11,908
    
    
    
    1,326
    
    
    
    24,079(24,280
    )
    
    
    47,606
    
    
    
    34,789
    
    
    
    609
    
    
    
    58,724Share in the results of a company
subject to significant influence
    
    
    6,470
    
    
    
    
    
    
    
    77
    
    
    
    (6,547
    )
    
    
    Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Net (loss) income
    
    $
    (17,810
    )
    
    $
    47,606
    
    
    $
    34,866
    
    
    $
    (5,987
    )
    
    $
    58,675
 F-50




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Statement of Cash FlowsIn accordance with United States GAAPFor the year ended December 31, 2003
 Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)Cash flows from operating activities:Net income (loss)
    
    $
    (17,810
    )
    
    $
    47,606
    
    
    $
    34,866
    
    
    $
    (5,987
    )
    
    $
    58,675Items not involving cash:Depreciation and amortization
    
    
    86,340
    
    
    
    37,250
    
    
    
    17,484
    
    
    
    (307
    )
    
    
    140,767Net premium and write-off of
financing cost upon early
redemption of long-term debt
    
    
    17,094
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,094Future income taxes
    
    
    (16,361
    )
    
    
    14,592
    
    
    
    10,459
    
    
    
    1,326
    
    
    
    10,016Adjustment of goodwill
    
    
    2,012
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    2,500Loss on disposal of fixed assets
    
    
    (110
    )
    
    
    18,507
    
    
    
    50
    
    
    
    
    
    
    
    18,447Gain on foreign currency denominated
debt
    
    
    (1,649
    )
    
    
    
    
    
    
    (21,251
    )
    
    
    (723
    )
    
    
    (23,623
    )Share in the results of a company
    
    
    (6,470
    )
    
    
    
    
    
    
    (77
    )
    
    
    6,547
    
    
    
    Other
    
    
    102
    
    
    
    (148
    )
    
    
    1,729
    
    
    
    (811
    )
    
    
    872Changes in non-cash operating
working capital
    
    
    63,759
    
    
    
    (71,359
    )
    
    
    (23,225
    )
    
    
    (45
    )
    
    
    (30,870
    )126,907
    
    
    
    46,448
    
    
    
    20,523
    
    
    
    
    
    
    
    193,878Cash flows from investing activities:Acquisition of fixed assets
    
    
    (54,598
    )
    
    
    (21,154
    )
    
    
    (19,879
    )
    
    
    5,347
    
    
    
    (90,284
    )Disbursements for deferred charges
    
    
    
    
    
    
    (113
    )
    
    
    
    
    
    
    
    
    
    
    (113
    )Acquisition of short-term investments
    
    
    (22,100
    )
    
    
    
    
    
    
    (1,030
    )
    
    
    
    
    
    
    (23,130
    )Proceeds from disposal of fixed assets
    
    
    5,651
    
    
    
    3,494
    
    
    
    27
    
    
    
    (5,347
    )
    
    
    3,825Proceeds from investment
    
    
    7,231
    
    
    
    (7,231
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (900
    )
    
    
    
    
    
    
    
    
    
    
    (900
    )(63,816
    )
    
    
    (25,904
    )
    
    
    (20,882
    )
    
    
    
    
    
    
    (110,602
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (1,033,321
    )
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    (1,033,345
    )Issuance of long-term debt
    
    
    1,038,732
    
    
    
    
    
    
    
    -
    
    
    
    
    
    
    
    1,038,732Financing cost on long-term debt
    
    
    (9,086
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,086
    )Recouping fees and termination
swaps
    
    
    (48,375
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,375
    )Dividends to parent company
    
    
    (19,956
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,956
    )Other
    
    
    20,248
    
    
    
    (20,000
    )
    
    
    (312
    )
    
    
    
    
    
    
    (64
    )(51,758
    )
    
    
    (20,000
    )
    
    
    (336
    )
    
    
    
    
    
    
    (72,094
    )Net increase (decrease) in cash and
cash equivalents
    
    
    11,333
    
    
    
    544
    
    
    
    (695
    )
    
    
    
    
    
    
    11,182Cash and cash equivalents,
beginning of year
    
    
    13,855
    
    
    
    (871
    )
    
    
    1,112
    
    
    
    
    
    
    
    14,096Cash and cash equivalents, end of year
    
    $
    25,188
    
    
    $
    (327
    )
    
    $
    417
    
    
    $
    
    
    
    $
    25,278
 F-51




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Statement of OperationsIn accordance with United States GAAPFor the year ended December 31, 2004
 Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)Revenues
    
    $
    439,463
    
    
    $
    282,872
    
    
    $
    168,315
    
    
    $
    (9,678
    )
    
    $
    880,972Direct cost
    
    
    162,467
    
    
    
    31,481
    
    
    
    56,755
    
    
    
    (261
    )
    
    
    250,442Operating and administrative
expenses
    
    
    123,412
    
    
    
    131,734
    
    
    
    45,203
    
    
    
    (9,417
    )
    
    
    290,932Depreciation and amortization
    
    
    85,157
    
    
    
    37,111
    
    
    
    20,317
    
    
    
    
    
    
    
    142,585Financial expenses
    
    
    (13,857
    )
    
    
    153,145
    
    
    
    27,364
    
    
    
    (1,200
    )
    
    
    165,452Dividend income from related
companies
    
    
    
    
    
    
    (121,824
    )
    
    
    (16,658
    )
    
    
    27,427
    
    
    
    (111,055
    )Income (loss) before the undernoted
    
    
    82,284
    
    
    
    51,225
    
    
    
    35,334
    
    
    
    (26,227
    )
    
    
    142,616Income taxes
    
    
    20,620
    
    
    
    (21,436
    )
    
    
    2,407
    
    
    
    230
    
    
    
    1,82161,664
    
    
    
    72,661
    
    
    
    32,927
    
    
    
    (26,457
    )
    
    
    140,795Share in the results of a company
subject to significant influence
    
    
    10,628
    
    
    
    
    
    
    
    138
    
    
    
    (10,766
    )
    
    
    Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (99
    )
    
    
    (100
    )Net income (loss)
    
    $
    72,292
    
    
    $
    72,661
    
    
    $
    33,064
    
    
    $
    (37,322
    )
    
    $
    140,695
 F-52




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Statement of Cash FlowsIn accordance with United States GAAPFor the year ended December 31, 2004
 Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)Cash flows from operating activities:Net loss
    
    $
    72,292
    
    
    $
    72,661
    
    
    $
    33,064
    
    
    $
    (37,322
    )
    
    $
    140,695Items not involving cash:Depreciation and amortization
    
    
    86,290
    
    
    
    40,451
    
    
    
    20,314
    
    
    
    
    
    
    
    147,055Future income taxes
    
    
    19,607
    
    
    
    (21,667
    )
    
    
    1,565
    
    
    
    230
    
    
    
    (265
    )Loss on disposal of fixed assets
    
    
    9,274
    
    
    
    439
    
    
    
    3,461
    
    
    
    
    
    
    
    13,174Loss on foreign currency
denominated debt
    
    
    
    
    
    
    
    
    
    
    1,332
    
    
    
    (34
    )
    
    
    1,298Shares in the results of a company
subject to significant influence
    
    
    (10,628
    )
    
    
    
    
    
    
    (138
    )
    
    
    10,766
    
    
    
    Other
    
    
    (17,190
    )
    
    
    (83
    )
    
    
    1,553
    
    
    
    (1,067
    )
    
    
    (16,787
    )Changes in non-cash operating
working capital
    
    
    (13,859
    )
    
    
    4,045
    
    
    
    33,740
    
    
    
    
    
    
    
    23,926145,786
    
    
    
    95,846
    
    
    
    94,891
    
    
    
    (27,427
    )
    
    
    309,096Cash flows from investing activities:Acquisition of fixed assets
    
    
    (70,842
    )
    
    
    (41,753
    )
    
    
    (24,098
    )
    
    
    13,663
    
    
    
    (123,030
    )Acquisition of other assets
    
    
    
    
    
    
    (412
    )
    
    
    
    
    
    
    
    
    
    
    (412
    )Proceeds on disposals of fixed assets
    
    
    722
    
    
    
    13,829
    
    
    
    558
    
    
    
    (13,663
    )
    
    
    1,446Acquisition of video stores assets
    
    
    
    
    
    
    (7,162
    )
    
    
    
    
    
    
    
    
    
    
    (7,162
    )Proceeds on disposal (acquisition)
of market securities
    
    
    2,100
    
    
    
    
    
    
    
    (220
    )
    
    
    
    
    
    
    1,880Acquisition of shares of affiliated
company
    
    
    
    
    
    
    (1,100,000
    )
    
    
    (165,000
    )
    
    
    165,000
    
    
    
    (1,100,000
    )Proceeds from disposal of shares
of affiliated company
    
    
    
    
    
    
    1,100,000
    
    
    
    165,000
    
    
    
    (165,000
    )
    
    
    1,100,000Other
    
    
    70,000
    
    
    
    
    
    
    
    (70,010
    )
    
    
    
    
    
    
    (10
    )1,980
    
    
    
    (35,498
    )
    
    
    (93,770
    )
    
    
    
    
    
    
    (127,288
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (355,630
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (355,630
    )Issuance of long-term debt
    
    
    396,244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    396,244Financing cost on long-term debt
    
    
    (6,401
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,401
    )Increase in long-term intercompany
loan from affiliated company
    
    
    
    
    
    
    935,000
    
    
    
    165,000
    
    
    
    
    
    
    
    1,100,000Repayment of long-term intercompany
loan from affiliated company
    
    
    
    
    
    
    (935,000
    )
    
    
    (165,000
    )
    
    
    
    
    
    
    (1,100,000
    )Redemption of retractable preferred
shares
    
    
    (3,660
    )
    
    
    (165,000
    )
    
    
    
    
    
    
    165,000
    
    
    
    (3,660
    )Dividends to parent company
    
    
    (171,002
    )
    
    
    (61,658
    )
    
    
    
    
    
    
    27,427
    
    
    
    (205,233
    )Issuance of preferred shares
    
    
    
    
    
    
    165,000
    
    
    
    
    
    
    
    (165,000
    )
    
    
    Other
    
    
    311
    
    
    
    
    
    
    
    (390
    )
    
    
    
    
    
    
    (79
    )(140,138
    )
    
    
    (61,658
    )
    
    
    (390
    )
    
    
    27,427
    
    
    
    (174,759
    )Net increase (decrease) in cash
    
    
    7,628
    
    
    
    (1,310
    )
    
    
    731
    
    
    
    
    
    
    
    7,049Cash and cash equivalents, beginning
of year
    
    
    25,188
    
    
    
    (327
    )
    
    
    417
    
    
    
    
    
    
    
    25,278Cash and cash equivalents, end of year
    
    $
    32,816
    
    
    $
    (1,637
    )
    
    $
    1,148
    
    
    $
    
    
    
    $
    32,327
 F-53




---



##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Balance SheetIn accordance with United States GAAPAs at December 31, 2004
 Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)AssetsCurrent assets:Cash and cash equivalents
    
    $
    34,810
    
    
    $
    108
    
    
    $
    1,312
    
    
    $
    
    
    
    $
    36,230Marketable securities
    
    
    20,000
    
    
    
    
    
    
    
    1,250
    
    
    
    
    
    
    
    21,250Accounts receivable
    
    
    81,589
    
    
    
    8,213
    
    
    
    686
    
    
    
    
    
    
    
    90,488Amounts receivable from affiliatedcompanies
    
    
    133,598
    
    
    
    27,834
    
    
    
    277,053
    
    
    
    (438,480
    )
    
    
    5Income taxes receivable
    
    
    8,526
    
    
    
    79
    
    
    
    19
    
    
    
    
    
    
    
    8,624Inventories and prepaid expenses
    
    
    11,488
    
    
    
    23,461
    
    
    
    601
    
    
    
    
    
    
    
    35,550Future income taxes
    
    
    49,589
    
    
    
    184
    
    
    
    8,455
    
    
    
    
    
    
    
    58,228339,600
    
    
    
    59,879
    
    
    
    289,376
    
    
    
    (438,480
    )
    
    
    250,375Fixed assets
    
    
    761,758
    
    
    
    32,455
    
    
    
    225,081
    
    
    
    (489
    )
    
    
    1,018,805Goodwill
    
    
    1,903,756
    
    
    
    67,940
    
    
    
    376,844
    
    
    
    233,711
    
    
    
    2,582,251Other assets
    
    
    441,324
    
    
    
    136,351
    
    
    
    3,616
    
    
    
    (558,433
    )
    
    
    22,858Future income taxes
    
    
    22,179
    
    
    
    1,111
    
    
    
    
    
    
    
    269
    
    
    
    23,559Total assets
    
    $
    3,468,617
    
    
    $
    297,736
    
    
    $
    894,917
    
    
    $
    (763,422
    )
    
    $
    3,897,848Liabilities and Shareholders EquityCurrent liabilities:Issued and outstanding cheques
    
    $
    1,994
    
    
    $
    1,745
    
    
    $
    164
    
    
    $
    
    
    
    $
    3,903Accounts payable and accrued
liabilities
    
    
    214,309
    
    
    
    32,402
    
    
    
    25,881
    
    
    
    (5
    )
    
    
    272,587Amounts payable to affiliated
companies
    
    
    102,426
    
    
    
    138,350
    
    
    
    249,417
    
    
    
    (438,475
    )
    
    
    51,718Deferred revenue and prepaid services
    
    
    83,105
    
    
    
    
    
    
    
    22,305
    
    
    
    
    
    
    
    105,410Income taxes payable
    
    
    33
    
    
    
    1,343
    
    
    
    267
    
    
    
    
    
    
    
    1,643401,867
    
    
    
    173,840
    
    
    
    298,034
    
    
    
    (438,480
    )
    
    
    435,261Deferred revenue
    
    
    4,480
    
    
    
    
    
    
    
    1,724
    
    
    
    
    
    
    
    6,204Future income taxes
    
    
    129,310
    
    
    
    3,054
    
    
    
    36,268
    
    
    
    
    
    
    
    168,632Long-term debt
    
    
    941,910
    
    
    
    
    
    
    
    116,840
    
    
    
    (24,568
    )
    
    
    1,034,182Non-controlling interest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    706
    
    
    
    7061,477,567
    
    
    
    176,894
    
    
    
    452,866
    
    
    
    (462,342
    )
    
    
    1,644,985Shareholders Equity:Capital shares
    
    
    306,235
    
    
    
    31,559
    
    
    
    165,025
    
    
    
    (329,583
    )
    
    
    173,236Contributed surplus
    
    
    3,983,147
    
    
    
    81,725
    
    
    
    652,298
    
    
    
    (3,389
    )
    
    
    4,713,781(Deficit) retained earnings
    
    
    (2,283,016
    )
    
    
    7,558
    
    
    
    (375,180
    )
    
    
    31,892
    
    
    
    (2,618,746
    )Other comprehensive loss
    
    
    (15,316
    )
    
    
    
    
    
    
    (92
    )
    
    
    
    
    
    
    (15,408
    )1,991,050
    
    
    
    120,842
    
    
    
    442,051
    
    
    
    (301,080
    )
    
    
    2,252,863$
    3,468,617
    
    
    $
    297,736
    
    
    $
    894,917
    
    
    $
    (763,422
    )
    
    $
    3,897,848
 F-54




---



##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Statement of OperationsIn accordance with United States GAAPFor the year ended December 31, 2005
 Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)Revenues
    
    $
    777,297
    
    
    $
    227,393
    
    
    $
    4,886
    
    
    $
    (1,405
    )
    
    $
    1,008,171Direct cost
    
    
    210,829
    
    
    
    76,855
    
    
    
    
    
    
    
    (229
    )
    
    
    287,455Operating and administrative expenses
    
    
    263,576
    
    
    
    74,358
    
    
    
    3,432
    
    
    
    (1,174
    )
    
    
    340,192Depreciation and amortization
    
    
    120,123
    
    
    
    22,593
    
    
    
    587
    
    
    
    (98
    )
    
    
    143,205Financial expenses
    
    
    32,937
    
    
    
    25,490
    
    
    
    
    
    
    
    (1,401
    )
    
    
    57,026Dividend income from related companies
    
    
    
    
    
    
    (17,920
    )
    
    
    
    
    
    
    17,920
    
    
    
    Income (loss) before the undernoted
    
    
    149,832
    
    
    
    46,017
    
    
    
    867
    
    
    
    (16,423
    )
    
    
    180,293Income taxes
    
    
    54,418
    
    
    
    9,764
    
    
    
    221
    
    
    
    269
    
    
    
    64,67295,414
    
    
    
    36,253
    
    
    
    646
    
    
    
    (16,692
    )
    
    
    115,621Share in the results of a company
subject to significant influence
    
    
    15,146
    
    
    
    142
    
    
    
    
    
    
    
    (15,288
    )
    
    
    Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (102
    )
    
    
    (102
    )Net income (loss)
    
    $
    110,560
    
    
    $
    36,395
    
    
    $
    646
    
    
    $
    (32,082
    )
    
    $
    115,519
 F-55




---



##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Statement of Cash FlowsIn accordance with United States GAAPFor the year ended December 31, 2005
 Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)Cash flows from operating activities:Net loss
    
    $
    110,560
    
    
    $
    36,395
    
    
    $
    646
    
    
    $
    (32,082
    )
    
    $
    115,519Items not involving cash:Depreciation and amortization
    
    
    127,005
    
    
    
    27,006
    
    
    
    587
    
    
    
    (98
    )
    
    
    154,500Future income taxes
    
    
    52,213
    
    
    
    9,454
    
    
    
    155
    
    
    
    269
    
    
    
    62,091Loss on foreign denominated debt
    
    
    80
    
    
    
    1,333
    
    
    
    
    
    
    
    
    
    
    
    1,413Other
    
    
    (62,078
    )
    
    
    581
    
    
    
    105
    
    
    
    13,990
    
    
    
    (47,402
    )Changes in non-cash operating
working capital
    
    
    101,873
    
    
    
    (34,640
    )
    
    
    (814
    )
    
    
    
    
    
    
    66,419329,653
    
    
    
    40,129
    
    
    
    679
    
    
    
    (17,921
    )
    
    
    352,540Cash flows from investing activities:Acquisition of fixed assets
    
    
    (161,609
    )
    
    
    (29,019
    )
    
    
    (1,199
    )
    
    
    
    
    
    
    (191,827
    )Acquisition of other assets
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    (85
    )Proceeds on disposals of fixed assets
    
    
    947
    
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    1,251Payment of tax deductions to the
parent company
    
    
    (25,800
    )
    
    
    (9,400
    )
    
    
    
    
    
    
    
    
    
    
    (35,200
    )(Acquisition) disposal of
marketable securities
    
    
    (20,000
    )
    
    
    
    
    
    
    754
    
    
    
    
    
    
    
    (19,246
    )Dividend from subsidiary
    
    
    11,000
    
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    Cash transfer pursuant to the
liquidation of a subsidiary
    
    
    (533
    )
    
    
    533
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of videostrore
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    53(195,995
    )
    
    
    (48,614
    )
    
    
    (445
    )
    
    
    
    
    
    
    (245,054
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    
    
    
    
    (92,284
    )
    
    
    
    
    
    
    
    
    
    
    (92,284
    )Issuance of long-term debt
    
    
    205,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,130Financing cost on long-term debt
    
    
    (4,945
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,945
    )Settlement of interest swaps
    
    
    (3,588
    )
    
    
    (7,367
    )
    
    
    
    
    
    
    
    
    
    
    (10,955
    )Advance (from) to an affiliated
company
    
    
    (110,168
    )
    
    
    110,168
    
    
    
    
    
    
    
    
    
    
    
    Dividends to parent company
    
    
    (210,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (210,000
    )Dividend (from) to an affiliated
company
    
    
    (17,921
    )
    
    
    
    
    
    
    
    
    
    
    17,921
    
    
    
    Other
    
    
    497
    
    
    
    177
    
    
    
    (800
    )
    
    
    
    
    
    
    (126
    )(140,995
    )
    
    
    10,694
    
    
    
    (800
    )
    
    
    17,921
    
    
    
    (113,180
    )Net (decrease) increase in cash
    
    
    (7,337
    )
    
    
    2,209
    
    
    
    (566
    )
    
    
    
    
    
    
    (5,694
    )Cash and cash equivalents,
beginning of period
    
    
    32,816
    
    
    
    (1,731
    )
    
    
    1,242
    
    
    
    
    
    
    
    32,327Cash and cash equivalents, end of period
    
    $
    25,479
    
    
    $
    478
    
    
    $
    676
    
    
    $
    
    
    
    $
    26,633
 F-56




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##### Table of Contents



VIDÉOTRON LTÉE
  22.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Balance SheetIn accordance with United States GAAPAs at December 31, 2005
 Subsidiary
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    non-
    
    
    andLtée
    
    
    guarantors
    
    
    guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)AssetsCurrent assets:Cash and cash equivalents
    
    $
    30,398
    
    
    $
    1,109
    
    
    $
    716
    
    
    $
    
    
    
    $
    32,223Marketable securities
    
    
    40,000
    
    
    
    
    
    
    
    496
    
    
    
    
    
    
    
    40,496Accounts receivable
    
    
    102,620
    
    
    
    8,018
    
    
    
    691
    
    
    
    
    
    
    
    111,329Amounts receivable from affiliated
companies
    
    
    215,145
    
    
    
    249,256
    
    
    
    49
    
    
    
    (464,444
    )
    
    
    6Income taxes receivable
    
    
    385
    
    
    
    301
    
    
    
    113
    
    
    
    
    
    
    
    799Inventories and prepaid expenses
    
    
    26,059
    
    
    
    6,304
    
    
    
    173
    
    
    
    
    
    
    
    32,536Future income taxes
    
    
    50,142
    
    
    
    13,829
    
    
    
    
    
    
    
    
    
    
    
    63,971464,749
    
    
    
    278,817
    
    
    
    2,238
    
    
    
    (464,444
    )
    
    
    281,360Fixed assets
    
    
    840,675
    
    
    
    233,167
    
    
    
    3,285
    
    
    
    (391
    )
    
    
    1,076,736Goodwill
    
    
    1,903,756
    
    
    
    445,040
    
    
    
    
    
    
    
    233,711
    
    
    
    2,582,507Other assets
    
    
    413,778
    
    
    
    178,264
    
    
    
    
    
    
    
    (567,500
    )
    
    
    24,542Future income taxes
    
    
    
    
    
    
    2,376
    
    
    
    
    
    
    
    
    
    
    
    2,376Total assets
    
    $
    3,622,958
    
    
    $
    1,137,664
    
    
    $
    5,523
    
    
    $
    (798,624
    )
    
    $
    3,967,521Liabilities and Shareholders EquityCurrent liabilities:Issued and outstanding cheques
    
    $
    4,919
    
    
    $
    631
    
    
    $
    40
    
    
    $
    
    
    
    $
    5,590Accounts payable and accrued liabilities
    
    
    304,302
    
    
    
    32,354
    
    
    
    542
    
    
    
    (142
    )
    
    
    337,056Amounts payable to company under
common control
    
    
    53,003
    
    
    
    464,537
    
    
    
    155
    
    
    
    (464,302
    )
    
    
    53,393Deferred revenue and prepaid services
    
    
    92,844
    
    
    
    21,640
    
    
    
    182
    
    
    
    
    
    
    
    114,666Income taxes payable
    
    
    750
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    882455,818
    
    
    
    519,294
    
    
    
    919
    
    
    
    (464,444
    )
    
    
    511,587Future income taxes
    
    
    151,702
    
    
    
    51,995
    
    
    
    261
    
    
    
    
    
    
    
    203,958Long-term deferred revenue
    
    
    4,821
    
    
    
    1,655
    
    
    
    26
    
    
    
    
    
    
    
    6,502Long-term debt
    
    
    1,093,835
    
    
    
    25,969
    
    
    
    
    
    
    
    (25,969
    )
    
    
    1,093,835Non-controlling interest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    684
    
    
    
    6841,706,176
    
    
    
    598,913
    
    
    
    1,206
    
    
    
    (489,729
    )
    
    
    1,816,566Shareholders Equity:Share capital
    
    
    343,234
    
    
    
    165,001
    
    
    
    25
    
    
    
    (335,024
    )
    
    
    173,236Contributed surplus
    
    
    4,008,204
    
    
    
    708,538
    
    
    
    462
    
    
    
    (3,400
    )
    
    
    4,713,804(Deficit) retained earnings
    
    
    (2,411,951
    )
    
    
    (334,635
    )
    
    
    3,830
    
    
    
    29,529
    
    
    
    (2,713,227
    )Other comprehensive loss
    
    
    (22,705
    )
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    (22,858
    )1,916,782
    
    
    
    538,751
    
    
    
    4,317
    
    
    
    (308,895
    )
    
    
    2,150,955$
    3,622,958
    
    
    $
    1,137,664
    
    
    $
    5,523
    
    
    $
    (798,624
    )
    
    $
    3,967,521
 F-57




---



##### Table of Contents



AUDITORS REPORT TO THE BOARD OF DIRECTORS
     
   F-58




---



##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
  
 2004
    
    
    2005Operating revenue
    
    $
    78,589
    
    
    $
    102,063Direct costs
    
    
    (11,900
    )
    
    
    (17,391
    )Operating and administrative expenses (note 4)
    
    
    (44,435
    )
    
    
    (53,319
    )Depreciation and amortization (note 5)
    
    
    (33,647
    )
    
    
    (34,451
    )Financial expenses (income) (note 6)
    
    
    (110
    )
    
    
    29Other items (note 7)
    
    
    (1,526
    )
    
    
    Loss before income taxes
    
    
    (13,029
    )
    
    
    (3,069
    )Income taxes (note 8):Current
    
    
    428
    
    
    
    348Future
    
    
    (3,935
    )
    
    
    (3,250
    )(3,507
    )
    
    
    (2,902
    )Net loss
    
    
    (9,522
    )
    
    
    (167
    )Deficit at beginning of year
    
    
    (92,210
    )
    
    
    (104,315
    )Acquisition and wind-up of a company under common control
acquired in March 2004 (note 3)
    
    
    (2,583
    )
    
    
    Deficit at end of year
    
    $
    (104,315
    )
    
    $
    (104,482
    )
  F-59




---



##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
  
 2004
    
    
    2005AssetsCurrent assets:Bank
    
    $
    
    
    
    $
    65Accounts receivable (note 9)
    
    
    15,287
    
    
    
    27,480Inventories
    
    
    3,490
    
    
    
    2,237Prepaid expenses
    
    
    2,459
    
    
    
    1,809Future tax assets (note 8)
    
    
    353
    
    
    
    12,63621,589
    
    
    
    44,227Fixed assets (note 10)
    
    
    205,699
    
    
    
    197,727Future tax assets (note 8)
    
    
    43,370
    
    
    
    34,337Other assets (note 11)
    
    
    1,663
    
    
    
    1,092$
    272,321
    
    
    $
    277,383Liabilities and Shareholders EquityCurrent liabilities:Bank indebtedness
    
    $
    747
    
    
    $
    Accounts payable and accrued liabilities
    
    
    18,755
    
    
    
    26,546Accounts payable to affiliated companies (note 12)
    
    
    3,992
    
    
    
    2,606Deferred revenue
    
    
    2,566
    
    
    
    2,13726,060
    
    
    
    31,289Retractable preferred shares (note 13)
    
    
    2,229
    
    
    
    2,229Shareholders equity:Share capital (note 13)
    
    
    160,357
    
    
    
    160,357Contributed surplus
    
    
    187,990
    
    
    
    187,990Deficit
    
    
    (104,315
    )
    
    
    (104,482
    )244,032
    
    
    
    243,865$
    272,321
    
    
    $
    277,383Commitments (note 15)Contingencies (note 18)Subsequent event (note 20)
  F-60




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VIDÉOTRON
TÉLÉCOM LTÉE
 
  
 2004
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (9,522
    )
    
    $
    (167
    )Adjustments for:Depreciation and amortization
    
    
    33,647
    
    
    
    34,451Future income taxes
    
    
    (3,935
    )
    
    
    (3,250
    )Loss (gain) on disposal and write-off of assets
    
    
    390
    
    
    
    (34
    )Loss on exit of an operating lease at
cease-use date (note 4 (b))
    
    
    652
    
    
    
    21,232
    
    
    
    31,000Net change in non-cash operating items (note 14 (a))
    
    
    (178
    )
    
    
    (2,176
    )21,054
    
    
    
    28,824Cash flows from investing activities:Purchase of other assets
    
    
    (8
    )
    
    
    (57
    )Acquisition of fixed assets
    
    
    (21,423
    )
    
    
    (27,955
    )Proceeds from sale of fixed assets
    
    
    1,544
    
    
    
    Acquisition of easements
    
    
    (994
    )
    
    
    (20,881
    )
    
    
    (28,012
    )Net decrease in bank indebtedness
    
    
    173
    
    
    
    812Bank indebtedness, beginning of year
    
    
    (920
    )
    
    
    (747
    )(Bank indebtedness) cash, end of year
    
    $
    (747
    )
    
    $
    65
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
  
 The Company was incorporated under Part 1A of the Québec Companies Act and provides
telecommunication services in the business sector.1.
    
    Accounting changes:
 (a)
    
    Long-lived assets:Effective January 1, 2004, the Company adopted the Canadian Institute of Chartered
Accountants (CICA ) Handbook Section 3063, Impairment of Long-Lived Assets. Long-lived
assets, including fixed assets and intangible assets with finite useful lives, are
amortized over their useful lives. The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of a group of
assets may not be recoverable. If the sum of undiscounted net cash flows expected to
result from the use and eventual disposition of a group of assets is less than its carrying
amount, it is considered to be impaired. An impairment loss is measured as the amount by
which the carrying amount of the group of assets exceeds its fair value. During the
two-year period ended December 31, 2005, no such impairment had occurred.(b)
    
    Asset retirement obligation:Effective January 1, 2004, the Company retroactively adopted CICA Handbook Section 3110
Asset Retirement Obligation. The standard provides guidance for the recognition,
measurement and disclosure of liabilities for asset retirement obligations and the
associated asset retirement costs. The standard applies to legal obligations associated
with the retirement of a tangible long-lived asset that result from their acquisition,
construction, development or normal operations.The standard requires the Company to record the fair value of a liability for an asset
retirement obligation in the year in which it is incurred and when a reasonable estimate of
fair value can be made. The asset retirement cost is capitalized as part of the related
asset and is amortized to earnings over time. The standard describes the fair value of a
liability for an asset retirement obligation as the amount at which that liability could be
settled in a current transaction between willing parties, that is, other than in forced or
liquidation transaction and is adjusted for any changes resulting from passage of time and
any changes to the timing or the amount of the original estimate or undiscounted cash
flows. The Company is subsequently required to allocate the asset retirement cost to
expense using a systematic and rational method over the asset useful life.The adoption of this standard had no impact on the Companys financial position, results of
operations or cash flows.
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 2.
    
    Significant accounting policies:
 (a)
    
    Cash and cash equivalents:Cash and cash equivalents are comprised of cash and term deposits with initial maturities
of less than three months, less outstanding cheques.(b)
    
    Inventories:Inventories consist primarily of fiber optic cables and related electronics equipment and
are valued at the lower of cost, determined essentially on a weighted average cost basis,
or replacement value.(c)
    
    Fixed assets:Fixed assets are recorded at cost, net of related grants and investment tax credits. Cost
includes primarily equipment and direct labour, but also includes financial expenses
relating to projects to construct and connect external and internal telecommunication
networks for those projects that extend beyond a three-month period. Acquisition,
improvement and replacement costs are capitalized, whereas expenses for maintenance and
repairs are charged to operating and administrative expenses.The Company reviews the recoverability of fixed assets whenever events or circumstances
indicate that the carrying amount may not be recoverable. Recoverability and measurement
of the decline in value are estimated by comparing the carrying amounts of an asset or of a
group of assets to undiscounted net cash flows expected to be generated by asset or that
group of assets and measurement of impairment represents the difference between carrying
and fair value of the asset or group of assets.Depreciation is calculated using the following depreciation methods and periods or rates:
 Asset
    
    Method
    
    
    Rate/periodTelecommunication networks
    
    Straight-line
    
    

    20yearsTechnical equipment
    
    Mainly straight-line
    
    

    3 to 20 yearsFurniture and equipment
    
    Declining balance
    
    20% to 30%and straight-line
    
    
    3 to 7 yearsBuildings
    
    Declining balance
    
    
    5%Leasehold improvements
    
    Straight-line
    
    
    Over thelease term
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 2.
    
    Significant accounting policies (continued):
 (c)
    
    Fixed assets (continued):The Company does not record an asset retirement obligation in connection with its cable
distribution networks. The Company expects to renew all of its agreements with utility
companies to access their support structures in the future, making the retirement date,
relating to these assets, undeterminable.(d)
    
    Intangible assets:Easements have indefinite useful lives and are not amortized.Intangible assets that have an indefinite useful life are tested for impairment annually,
or more frequently if events or changes in circumstances indicate that the asset might be
impaired. The impairment test compares the carrying amount of the intangible asset with
its fair value and an impairment loss is recognized in the statement of operations, if any.(e)
    
    Other assets:Deferred charges are recorded at cost and include primarily expenses relating to the
pre-operating period of certain telecommunication operations. These charges are amortized
on a straight-line basis over a period of three to five years. Licenses are amortized
using the straight-line method over a period of eight years.(f)
    
    Future taxes:Future income tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements carrying amounts
of existing assets and liabilities and their respective tax bases. Future income tax
assets and liabilities are measured using enacted or substantively enacted tax rates in
effect for the year in which those temporary differences are expected to be recovered or
settled. Future income tax assets and liabilities resulting from a change in tax rates are
recognized in income in the period that includes the enactment date. Future income tax
assets are recognized and, if realization is not considered more likely than not, a
valuation allowance is provided.(g)
    
    Revenue recognition and deferred revenue:Operating revenue related to service contracts is recognized in income over the life of the
specific contracts on a straight-line basis representing the period over which the services
are provided. Operating revenue from telecommunication services, network access fees and
point-to-point telephony is recorded when services are provided. When customers are
invoiced, the portion of unearned revenue is recorded as deferred revenue.
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 2.
    
    Significant accounting policies (continued):
 (h)
    
    Currency translation:Revenue and expense items arising from transactions in foreign currency are converted into
Canadian dollars at the rate in effect on the transaction date. Monetary assets and
liabilities are converted into Canadian dollars at the rates in effect at the balance sheet
date, non-monetary items are translated at the rates in effect on the transaction date.
Exchange gains or losses are recognized in income.(i)
    
    Pensions:Certain employees of the Company participate in a multi-employer defined benefits pension
plan sponsored by affiliated companies. This plan provides for the payment of benefits
based on the number of years of service and career average earnings of the employees
covered by the plans. Accordingly, pension costs are recorded as if the plan is a defined
contribution plan.Also, other employees of the Company participate in defined contribution pension plans
sponsored by affiliated companies. The Company also contributes to its unionized and
administrative employees personal registered retirement savings plans. The Company
accounts for the cost of its share of the defined contribution pension plans and to the
retirement savings plan on the accrual basis of accounting.(j)
    
    Use of estimates:The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 3.
    
    Corporate reorganization:On March 1, 2004, the Company has acquired from its parent company all the outstanding shares
of Mensys Business Solutions Centre Inc. (Mensys), at an agreed value of $686,000. On
December 19, 2003, Mensys sold its entire business to a third party and, since then, Mensys is
an inoperative company. As consideration, the Company issued one Class C share, with a stated
capital of $686,000. The Company wound up Mensys on the same date. As this transaction is
between companies under common control, the net assets acquired were recorded by the Company at
the carrying amount in the books of Mensys. The impact of the acquisition and wind-up is
summarized as follows:
 Net liabilities acquired:Future tax assets
    
    $
    686Taxes receivable
    
    
    47Assumption of amounts payable to affiliated companies
    
    
    (2,630
    )Net liabilities assumed
    
    $
    (1,897
    )Consideration:Issuance of 1 Class C retractable preferred share
    
    $
    686Deficit assumed upon acquisition and wind-up of Mensys
    
    
    (2,583
    )$
    (1,897
    )
 4.
    
    Operating and administrative expenses:
 (a)
    
    Pension plans:Pension plan costs recorded for the pension plans and the retirement savings plan amounted
to $810,000 for the year ended December 31, 2004 and to $1,320,000 for the year ended
December 31, 2005 and were charged to operating and administrative expenses.
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 
 4.
    
    Operating and administrative expenses (continued):
 (b)
    
    Operating and administrative expenses:During 2004, the Company has put in place a restructuring plan of its activities in Ontario
which has resulted in the abandonment of an operating lease, for which the fair value of
the remaining lease payments, net of the expected lease rental revenue from the cease-use
date to the end of the lease, amounting to $652,000, has been recorded in the operating
expenses.
 5.
    
    Depreciation and amortization:
 2004
    
    
    2005Fixed assets
    
    $
    32,706
    
    
    $
    33,824Deferred charges
    
    
    872
    
    
    
    275Licenses
    
    
    69
    
    
    
    352$
    33,647
    
    
    $
    34,451
 6.
    
    Financial expenses (income):
 2004
    
    
    2005Interest on advances to an affiliated company
    
    $
    (152
    )
    
    $
    Other interest expenses
    
    
    211
    
    
    
    17Foreign exchange loss (gain)
    
    
    51
    
    
    
    (46
    )$
    110
    
    
    $
    (29
    )
 7.
    
    Other items:
 2004
    
    
    2005Network outages recovery
    
    $
    (479
    )
    
    $
    Severance pay and other charges (i)
    
    
    2,005
    
    
    
    $
    1,526
    
    
    $
    
 F-67




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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 7.
    
    Other items (continued):
 (i)
    
    In September 2004, the Company settled outstanding claims with former management
employees, for a total amount of $3.5 million, of which $1.5 million was already recorded
in the books.
 8.
    
    Income taxes:The following schedule reconciles income taxes computed on the loss before income taxes using
the combined basic income tax rate and the effective income tax rate:
 2004
    
    
    2005Income taxes based on the combined:Federal and provincial basic income tax
rate of 31.02% (2004  31.02%)
    
    $
    (4,041
    )
    
    $
    (952
    )Change due to the following items:Non-deductible charges
    
    
    12
    
    
    
    11Federal large corporation tax
    
    
    405
    
    
    
    368Change in effective tax rate
    
    
    
    
    
    
    (2,191
    )Other
    
    
    117
    
    
    
    (138
    )Effective income tax
    
    $
    (3,507
    )
    
    $
    (2,902
    )
  2004
    
    
    2005Future tax assets:Operating loss carryforwards
    
    $
    30,129
    
    
    $
    27,299Fixed assets and other assets
    
    
    13,241
    
    
    
    18,608Provisions
    
    
    353
    
    
    
    1,066Net future tax assets
    
    
    43,723
    
    
    
    46,973Less current future tax asset
    
    
    (353
    )
    
    
    (12,636
    )Net long-term future tax asset
    
    $
    43,370
    
    
    $
    34,337
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 8.
    
    Income taxes (continued):As at December 31, 2005, the Company had net operating loss carryforwards for income tax
purposes available to reduce future federal and provincial taxable income of approximately
$91,723,000 and $69,962,000 as follows:
 Federal
    
    
    Provincial2006
    
    $
    4,705
    
    
    $
    4,3312007
    
    
    17,588
    
    
    
    17,5882008
    
    
    6,419
    
    
    
    2,9102009
    
    
    195
    
    
    
    982010
    
    
    34,978
    
    
    
    24,5672014
    
    
    27,838
    
    
    
    20,468$
    91,723
    
    
    $
    69,962
 9.
    
    Accounts receivable:
 2004
    
    
    2005Trade:Third parties
    
    $
    7,725
    
    
    $
    6,267Companies under common control
    
    
    7,562
    
    
    
    21,213$
    15,287
    
    
    $
    27,480
 10.
    
    Fixed assets:
 2004Accumulated
    
    
    Net bookCost
    
    
    depreciation
    
    
    valueTelecommunication networks
    
    $
    140,957
    
    
    $
    44,937
    
    
    $
    96,020Technical equipment
    
    
    178,885
    
    
    
    108,290
    
    
    
    70,595Furniture and equipment
    
    
    80,131
    
    
    
    55,381
    
    
    
    24,750Buildings
    
    
    15,423
    
    
    
    4,407
    
    
    
    11,016Leasehold improvements
    
    
    4,902
    
    
    
    2,734
    
    
    
    2,168Land
    
    
    1,150
    
    
    
    
    
    
    
    1,150$
    421,448
    
    
    $
    215,749
    
    
    $
    205,699
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 10.
    
    Fixed assets (continued):
 2005Accumulated
    
    
    Net bookCost
    
    
    depreciation
    
    
    valueTelecommunication networks
    
    $
    144,237
    
    
    $
    52,055
    
    
    $
    92,182Technical equipment
    
    
    198,148
    
    
    
    126,458
    
    
    
    71,690Furniture and equipment
    
    
    83,261
    
    
    
    63,082
    
    
    
    20,179Buildings
    
    
    15,484
    
    
    
    4,958
    
    
    
    10,526Leasehold improvements
    
    
    4,985
    
    
    
    2,985
    
    
    
    2,000Land
    
    
    1,150
    
    
    
    
    
    
    
    1,150$
    447,265
    
    
    $
    249,538
    
    
    $
    197,727
 Included in technical equipment is equipment under capital lease having a cost of $1,040,000
and accumulated depreciation of $876,000 and $1,025,000 as at December 31, 2004 and 2005,
respectively.11.
    
    Other assets:
 2004
    
    
    2005Deferred charges (including $14,557 of accumulated
depreciation) (2004 - $14,281)
    
    $
    316
    
    
    $
    98Licenses (including $543 of accumulated depreciation)
(2004 - $190)
    
    
    353
    
    
    
    Easements at cost (with indefinite life)
    
    
    994
    
    
    
    994$
    1,663
    
    
    $
    1,092
 12.
    
    Accounts payable to affiliated companies:
 2004
    
    
    2005Companies under common control
    
    $
    6
    
    
    $
    33Parent company
    
    
    3,153
    
    
    
    Ultimate parent company
    
    
    833
    
    
    
    2,573$
    3,992
    
    
    $
    2,606
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 13.
    
    Share capital:Authorized:
     2004
    
    
    2005Issued and paid:2,515,576 Class A shares (2,515,276 in 2004)
    
    $
    160,357
    
    
    $
    160,3572 Class C shares (2 in 2004)
    
    
    2,229
    
    
    
    2,229162,586
    
    
    
    162,586Less retractable preferred shares classified as liabilities:2 Class C shares (2 in 2004)
    
    
    (2,229
    )
    
    
    (2,229
    )$
    160,357
    
    
    $
    160,357
 14.
    
    Additional cash flow information:
 2004
    
    
    2005(a) Net change in non-cash operating items:Accounts receivable
    
    $
    (1,415
    )
    
    $
    (12,252
    )Inventories
    
    
    1,396
    
    
    
    1,253Prepaid expenses
    
    
    (493
    )
    
    
    650Accounts payable and accrued liabilities
    
    
    (1,221
    )
    
    
    9,988Amounts payable to affiliated companies
    
    
    1,945
    
    
    
    (1,386
    )Deferred revenue
    
    
    (390
    )
    
    
    (429
    )$
    (178
    )
    
    $
    (2,176
    )(b) Other items:Income taxes paid
    
    $
    510
    
    
    $
    411Interest paid
    
    
    226
    
    
    
    24Interest received
    
    
    (119
    )
    
    
    (4
    )(c) Purchase of fixed assets financed by accounts payable
    
    
    3,905
    
    
    
    1,767
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 15.
    
    Commitments:Under the terms of various operating leases, the Company is committed to make the following
minimum annual rental payments:
 2006
    
    $
    5,7392007
    
    
    3,6792008
    
    
    1,7752009
    
    
    1,5692010
    
    
    1,1932011 and subsequent years
    
    
    6,448
 The Company has guaranteed a portion of the residual values of certain assets under operating
leases for the benefit of the lessor. If the fair value of the assets, at the end of their
respective lease terms is less than the residual value guaranteed, then the Company must, under
certain conditions, compensate the lessor for a portion of the shortfall. The maximum exposure
in respect of these guarantees is $60,000 ($79,000 in 2004).16.
    
    Financial instruments:
 (a)
    
    Fair value:The carrying value of accounts receivable, amounts receivable from parent company, bank
indebtedness, accounts payable and accrued expenses and amounts payable to affiliated
companies and to parent company approximates their fair value, as these items are
short-term in nature.(b)
    
    Credit risks:In the normal course of business, the Company assesses regularly the financial position of
its clients and reviews the credit history of all new clients. The Company records an
allowance for doubtful accounts to cover its exposure to specific customers credit risks
and historical trends.
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 17.
    
    Related party transactions:In addition to transactions disclosed elsewhere in the financial statements, the Company has
entered into the following related party transactions, in the normal course of business. These
transactions have been recorded at the exchange value, which is the amount established and
agreed to by the related parties:
 2004
    
    
    2005Ultimate parent company:Operating revenue
    
    $
    70
    
    
    $
    104Operating and administrative expenses
    
    
    1,101
    
    
    
    1,900Parent company:Interest revenues
    
    
    152
    
    
    
    150Companies under common control:Operating revenue
    
    
    27,479
    
    
    
    50,059Operating and administrative expenses
    
    
    5,019
    
    
    
    5,875Acquisition of fixed assets
    
    
    3,268
    
    
    
    1,035Directors of parent company:Operating and administrative expenses
    
    
    255
    
    
    
    146
 18.
    
    Contingencies:In the normal course of business, the Company is involved in various claims and litigations.
The Company is also being sued by former management employees for wrongful dismissal and other
reasons following the reorganization plan established in February 2001. Even if the outcome of
these various pending cases as at December 31, 2005 cannot be determined with certainty, the
Company believes that they will not have a material adverse impact on its financial position or
operating results.
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 19.
    
    Significant differences between Canadian generally accepted accounting principles (GAAP) and
the United States:The financial statements have been prepared in accordance with Canadian generally accepted
accounting principles (GAAP) which are different in some respects from those in the United
States (US), as described below. The following tables set forth the impact of significant
differences between Canadian GAAP and US GAAP on the Companys financial statements:Consolidated Statements of Operations
 2004
    
    
    2005Net loss for the year based on Canadian GAAP
    
    $
    (9,522
    )
    
    $
    (167
    )Adjustments:Reversal of amortization expense on development
and pre-operating costs (ii)
    
    
    489
    
    
    
    241Income taxes (iii)
    
    
    (192
    )
    
    
    (74
    )Net loss and comprehensive loss for the year based
on US GAAP
    
    $
    (9,225
    )
    
    $
    
  2004
    
    
    2005Shareholders equity based on Canadian GAAP
    
    $
    244,032
    
    
    $
    243,865Cumulative adjustments:Push-down basis of accounting (i)
    
    
    270,627
    
    
    
    270,627Goodwill impairment (i)
    
    
    (270,627
    )
    
    
    (270,627
    )Development and pre-operating costs (ii)
    
    
    (241
    )
    
    
    Income taxes (iii)
    
    
    74
    
    
    
    Shareholders equity based on US GAAP
    
    $
    243,865
    
    
    $
    243,865
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##### Table of Contents



VIDÉOTRON
TÉLÉCOM LTÉE
 
 19.
    
    Significant differences between Canadian generally accepted accounting principles (GAAP) and
the United States (continued):
 (i)
    
    Push-down basis of accounting:The reconciliation of net loss and shareholders equity from Canadian GAAP to US GAAP
reflects the push-down of the purchase price in connection with the acquisition on October
23, 2000, by Quebecor Media Inc., the ultimate parent company of Vidéotron Télécom Ltée.
Under Canadian GAAP, each entity has retained the historical carrying value basis of its
assets and liabilities. The excess of the purchase price over the fair value assigned to
the net assets of the Company at the date of acquisition has been allocated to goodwill and
has been amortized, up to December 31, 2001, on the straight-line basis over 40 years.The main adjustment, taking into account the final allocation of the purchase price
finalized in the fourth quarter of 2001, to the historical consolidated financial
statements of the Company to reflect Parents cost basis, consisted in the recording of
goodwill in the amount of $270.6 million with a corresponding amount in the contributed
surplus. This goodwill has been completely written off following the implementation of the
CICA Handbook Section 3062 and the US equivalent standard.(ii)
    
    Development and pre-operating costs:Under Canadian GAAP, certain development and pre-operating costs, which satisfy specified
criteria for recoverability, are deferred and amortized. Under US GAAP, these costs are
expensed as incurred.(iii)
    
    Income taxes:This adjustment represents the tax impact of the US GAAP adjustments.
 20.
    
    Subsequent event:On January 1, 2006, the Company merged its operations with a sister company, Vidéotron ltée.
 F-75