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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F/A
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
 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, 2006
 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
  2,515,276 Class A Common Shares
65,000 Class G Preferred Shares
  o þ
  o þ
  þ o
  o o þ
  þ o
  o þ




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##### 



TABLE OF CONTENTS
 PageAmendment Explanatory Note
    
    iiPresentation of Financial Information
    
    iiPART IITEM 3  KEY INFORMATION
    
    
    1PART IIIITEM 17  FINANCIAL STATEMENTS
    
    
    7ITEM 19  EXHIBITS
    
    
    7Signature
    
    
    8Index to Consolidated Financial Statements
    
    
    9Certification of Robert DepatieCertification of Yvan GingrasCertification of Robert DepatieCertification of Yvan Gingras




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##### Table of Contents



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




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
    
    although depreciation and amortization are non-cash charges, the assets being
amortized will often have to be replaced in the future, and operating income does not
reflect cash requirements for such capital expenditures;
    
    it does not reflect income tax expense or the cash necessary to pay income taxes; and
    
    it does not reflect financial expenses or the cash necessary to pay financial expenses.




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##### Table of Contents



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




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Year Ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(restated)(1)
    
    
    (restated)(1)
    
    
    (restated)(1)
    
    
    (restated)(1)(dollars in thousands)AMOUNTS UNDER CANADIAN GAAPConsolidated Statement of Operations Data:Operating revenues:Cable television
    
    $
    579,200
    
    
    $
    558,887
    
    
    $
    576,825
    
    
    $
    618,346
    
    
    $
    677,273Internet
    
    
    135,514
    
    
    
    183,268
    
    
    
    222,458
    
    
    
    270,791
    
    
    
    345,075Business solution
    
    
    62,063
    
    
    
    58,365
    
    
    
    66,117
    
    
    
    78,409
    
    
    
    74,352Telephony
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,088
    
    
    
    108,565Video stores
    
    
    35,344
    
    
    
    38,450
    
    
    
    48,058
    
    
    
    55,146
    
    
    
    55,585Other(2)
    
    
    30,982
    
    
    
    23,795
    
    
    
    24,274
    
    
    
    36,626
    
    
    
    48,745Total operating revenues
    
    
    843,103
    
    
    
    862,765
    
    
    
    937,732
    
    
    
    1,080,406
    
    
    
    1,309,595Direct cost(2)
    
    
    253,062
    
    
    
    244,971
    
    
    
    256,155
    
    
    
    293,057
    
    
    
    338,868Operating, general and administrative expenses(2)
    
    
    323,638
    
    
    
    325,511
    
    
    
    317,788
    
    
    
    373,736
    
    
    
    458,019Depreciation and amortization(2)
    
    
    155,769
    
    
    
    159,012
    
    
    
    163,862
    
    
    
    166,292
    
    
    
    185,115Financial expenses(3)
    
    
    96,724
    
    
    
    91,540
    
    
    
    203,916
    
    
    
    74,737
    
    
    
    79,586Dividend income from parent company(3)
    
    
    
    
    
    
    
    
    
    
    (111,055
    )
    
    
    
    
    
    
    Other items(4)
    
    
    30,103
    
    
    
    1,113
    
    
    
    1,930
    
    
    
    
    
    
    
    Income taxes (recovery) expense (2)
    
    
    13,497
    
    
    
    (5,777
    )
    
    
    (6,661
    )
    
    
    69,791
    
    
    
    64,230Non-controlling interest in a subsidiary
    
    
    188
    
    
    
    49
    
    
    
    100
    
    
    
    102
    
    
    
    86Net (loss) income(2)(5)
    
    $
    (29,878
    )
    
    $
    46,346
    
    
    $
    111,697
    
    
    $
    102,691
    
    
    $
    183,691Consolidated Balance Sheet Data (at period end):Cash and cash equivalents
    
    $
    47,398
    
    
    $
    29,724
    
    
    $
    32,411
    
    
    $
    26,699
    
    
    
    Total assets(2)(7)
    
    
    1,894,798
    
    
    
    1,838,539
    
    
    
    1,895,433
    
    
    
    1,977,610
    
    
    
    1,992,940Long-term debt, excluding QMI subordinated
loans(6)(7)(8)
    
    
    1,119,625
    
    
    
    961,175
    
    
    
    990,008
    
    
    
    971,697
    
    
    
    1,021,170QMI subordinated loans(7)
    
    
    
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    Common Shares(6)
    
    
    344,213
    
    
    
    572,448
    
    
    
    388,593
    
    
    
    342,940
    
    
    
    345,727Shareholders equity(6)
    
    $
    (311,392
    )
    
    $
    297,078
    
    
    $
    229,302
    
    
    $
    76,363
    
    
    $
    249,581
 Year Ended December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(restated)(1)
    
    (restated)(1)
    
    (restated)(1)
    
    (restated)(1)(dollars in thousands, except ARPU and ratio)Other Financial DataOperating income (unaudited)(2)(9)
    
    $
    266,403
    
    
    $
    292,283
    
    
    $
    363,789
    
    
    $
    413,613
    
    
    $
    512,708Operating income margin (unaudited)(2)(9)
    
    
    31.6
    %
    
    
    33.9
    %
    
    
    38.8
    %
    
    
    38.3
    %
    
    
    39.2
    %Cash flows from operating activities
    
    
    246,363
    
    
    
    221,484
    
    
    
    329,433
    
    
    
    387,205
    
    
    
    440,619Cash flows used in investing activities
    
    
    (117,478
    )
    
    
    (291,903
    )
    
    
    (111,093
    )
    
    
    (274,977
    )
    
    
    (265,101
    )Cash flows from (used in) financing activities
    
    
    (159,741
    )
    
    
    52,745
    
    
    
    (215,652
    )
    
    
    (117,940
    )
    
    
    (220,687
    )Capital expenditures(10)
    
    $
    112,931
    
    
    $
    108,117
    
    
    $
    144,453
    
    
    $
    219,865
    
    
    $
    302,629Operating Data (unaudited):Homes passed(11)
    
    
    2,329,023
    
    
    
    2,351,344
    
    
    
    2,383,443
    
    
    
    2,419,335
    
    
    
    2,457,213Basic cable customers(12)(13)
    
    
    1,431,060
    
    
    
    1,424,144
    
    
    
    1,452,554
    
    
    
    1,506,113
    
    
    
    1,572,411Basic cable penetration(13)(14)
    
    
    61.4
    %
    
    
    60.6
    %
    
    
    60.9
    %
    
    
    62.3
    %
    
    
    64.0
    %Digital customers
    
    
    171,625
    
    
    
    240,863
    
    
    
    333,664
    
    
    
    474,629
    
    
    
    623,646Digital penetration(15)
    
    
    12.0
    %
    
    
    16.9
    %
    
    
    23.0
    %
    
    
    31.5
    %
    
    
    39.7
    %Cable Internet customers
    
    
    305,054
    
    
    
    406,277
    
    
    
    502,630
    
    
    
    637,971
    
    
    
    791,966Cable Internet penetration(14)
    
    
    13.1
    %
    
    
    17.3
    %
    
    
    21.1
    %
    
    
    26.4
    %
    
    
    32.2
    %Cable telephony customers
    
    
    
    
    
    
    
    
    
    
    2,135
    
    
    
    162,979
    
    
    
    397,860Cable telephony penetration(14)
    
    
    
    
    
    
    
    
    
    
    0.1
    %
    
    
    6.7
    %
    
    
    16.2
    %ARPU(13)(16)
    
    $
    40.70
    
    
    $
    43.68
    
    
    $
    46.50
    
    
    $
    51.86
    
    
    $
    61.43Ratio of earnings to fixed charges(17)
    
    
    0.8
    x
    
    
    1.4
    x
    
    
    2.6
    x
    
    
    3.8
    x
    
    
    3.9
    x
 2




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Year Ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(restated)(1)
    
    
    (restated)(1)
    
    
    (restated)(1)
    
    
    (restated)(1)
    
    
    (restated)(1)(dollars in thousands)AMOUNTS UNDER U.S. GAAPConsolidated Statement of Operations Data:Operating revenues:Cable television
    
    $
    579,200
    
    
    $
    558,887
    
    
    $
    584,187
    
    
    $
    621,493
    
    
    $
    677,970Internet
    
    
    135,514
    
    
    
    183,268
    
    
    
    224,450
    
    
    
    272,926
    
    
    
    345,112Business solution
    
    
    62,063
    
    
    
    58,365
    
    
    
    66,117
    
    
    
    78,409
    
    
    
    74,352Telephony
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,983
    
    
    
    110,501Video stores
    
    
    35,344
    
    
    
    38,450
    
    
    
    48,058
    
    
    
    55,146
    
    
    
    55,585Other(2)
    
    
    30,982
    
    
    
    23,795
    
    
    
    24,274
    
    
    
    36,626
    
    
    
    48,745Total operating revenues
    
    
    843,103
    
    
    
    862,765
    
    
    
    947,086
    
    
    
    1,086,583
    
    
    
    1,312,265Direct cost(2)
    
    
    252,420
    
    
    
    244,971
    
    
    
    256,155
    
    
    
    293,057
    
    
    
    338,868Operating, general and administrative expenses(2)
    
    
    325,242
    
    
    
    322,531
    
    
    
    328,721
    
    
    
    381.741
    
    
    
    464,367Depreciation and amortization(2)
    
    
    173,195
    
    
    
    168,564
    
    
    
    175,743
    
    
    
    177,415
    
    
    
    196,335Financial expenses(3)
    
    
    93,386
    
    
    
    90,516
    
    
    
    196,227
    
    
    
    75,157
    
    
    
    87,771Dividend income from parent company(3)
    
    
    
    
    
    
    
    
    
    
    (111,055
    )
    
    
    
    
    
    
    Other items(4)
    
    
    5,709
    
    
    
    3,613
    
    
    
    1,930
    
    
    
    
    
    
    
    Income taxes (recovery) expenses(2)
    
    
    15,570
    
    
    
    (8,365
    )
    
    
    (1,208
    )
    
    
    60,408
    
    
    
    56,073Non-controlling interest in a subsidiary
    
    
    188
    
    
    
    49
    
    
    
    100
    
    
    
    102
    
    
    
    86Impairment of goodwill(5)
    
    
    2,274,627
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)(2)(5)
    
    $
    (2,297,234
    )
    
    $
    40,886
    
    
    $
    100,473
    
    
    $
    98,703
    
    
    $
    168,765
 2002
    
    2003
    
    2004
    
    2005
    
    2006(restated)(1)
    
    (restated)(1)
    
    (restated)(1)
    
    (restated)(1)
    
    (restated)(1)Balance Sheet Data (at period end):Cash and cash equivalents
    
    $
    47,398
    
    
    $
    29,724
    
    
    $
    32,411
    
    
    $
    26,699
    
    
    
    Total assets(2)
    
    
    4,280,091
    
    
    
    4,212,386
    
    
    
    4,162,179
    
    
    
    4,225,866
    
    
    
    4,222,810Long-term debt, excluding QMI subordinated
loans(6)(7)(8)
    
    
    1,119,625
    
    
    
    963,669
    
    
    
    991,280
    
    
    
    958,433
    
    
    
    1,007,557QMI subordinated loans(7)
    
    
    
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    Common Shares(6)
    
    
    344,213
    
    
    
    572,448
    
    
    
    388,593
    
    
    
    342,940
    
    
    
    345,727Shareholders equity(6)
    
    
    1,996,442
    
    
    
    2,597,996
    
    
    
    2,437,970
    
    
    
    2,273,593
    
    
    
    2,429,137
 Year Ended December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(restated)(1)
    
    (restated)(1)
    
    (restated) (1)
    
    (restated)(1)
    
    (restated)(1)(dollars in thousands, except ratio)Other Financial Data:Operating income (unaudited)(2)(9)
    
    $
    265,441
    
    
    $
    295,263
    
    
    $
    362,210
    
    
    $
    411,785
    
    
    $
    509,030Operating income margin (unaudited)(2)(9)
    
    
    31.5
    %
    
    
    34.2
    %
    
    
    38.2
    %
    
    
    37.9
    %
    
    
    38.8
    %Cash flows from operating activities
    
    
    238,578
    
    
    
    221,284
    
    
    
    327,854
    
    
    
    385,377
    
    
    
    437,841Cash flows used in investing activities
    
    
    (109,693
    )
    
    
    (291,703
    )
    
    
    (109,514
    )
    
    
    (273,149
    )
    
    
    (262,323
    )Cash flows from (used in) financing activities
    
    
    (159,741
    )
    
    
    52,745
    
    
    
    (215,652
    )
    
    
    (117,940
    )
    
    
    (220,687
    )Capital expenditures(10)
    
    
    112,304
    
    
    
    108,117
    
    
    
    144,453
    
    
    
    219,865
    
    
    
    302,629Ratio of earnings to fixed charges(17)
    
    
    
    
    
    
    1.3
    x
    
    
    2.7
    x
    
    
    3.6
    x
    
    
    3.4
    x
 
 (1)
    
    On January 1, 2006, a company under common control, Videotron Telecom Ltd., merged with the
Company. On July 1, 2006, the Company also merged with its parent, 9101-0827 Québec inc.
Those transactions have been accounted for using the continuity of interest method, and the
results of operations and financial position of Videotron Telecom Ltd. and 9101-0827 Québec
inc. have been included in these consolidated financial statements as if the three companies
had always been combined. Comparative figures have been restated from statements previously
presented. In respect of U.S. GAAP financial data, see also Note 24, Significant differences
between generally accepted 3




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accounting principles (GAAP) in Canada and the United States to the consolidated annual
financial statements included under Item 17.(2)
    
    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.(3)
    
    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.(4)
    
    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.(5)
    
    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.(6)
    
    Long-term debt, excluding QMI subordinated loans, does not include the retractable preferred
shares held by Quebecor Media. The retraction price of the retractable preferred shares was
$332.5 million as of December 31, 2002. During the year ended December 31, 2003, $332.5
million of the retractable preferred shares were converted into our common shares. The excess
of the retraction price of the preferred shares over the stated capital converted into common
shares was credited to our contributed surplus account in an amount of $301.2 million. The
outstanding $2.0 million of retractable preferred shares as of December 31, 2003 was redeemed
for an amount of $3.7 million in 2004. The excess of the consideration paid over the preferred
shares was charged to deficit in an amount of $1.7 million. No retractable preferred share was
outstanding as at December 31, 2005 and December 31, 2006.(7)
    
    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.(8)
    
    We believe that long-term debt, excluding QMI subordinated loans, is a meaningful measure of
the amount of 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 4




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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: Year Ended December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(restated)(1)
    
    
    
    (restated)(1)
    
    
    
    (restated)(1)
    
    
    
    (restated)(1)(unaudited; dollars in millions)AMOUNTS UNDER CANADIAN GAAPLong-term debt
    
    $
    1,119.6
    
    
    $
    1,111.2
    
    
    $
    1,140.0
    
    
    $
    1,121.7
    
    
    $
    1,021.2QMI subordinated loans
    
    
    
    
    
    
    (150.0
    )
    
    
    (150.0
    )
    
    
    (150.0
    )
    
    
    Long-term debt, excluding QMI subordinated loans, as
defined
    
    $
    1,119.6
    
    
    $
    961.2
    
    
    $
    990.0
    
    
    $
    971.7
    
    
    $
    1,021.2AMOUNTS UNDER U.S. GAAPLong-term debt
    
    $
    1,119.6
    
    
    $
    1,113.7
    
    
    $
    1,141.3
    
    
    $
    1,108.4
    
    
    $
    1,007.6QMI subordinated loans
    
    
    
    
    
    
    (150.0
    )
    
    
    (150.0
    )
    
    
    (150.0
    )
    
    
    Long-term debt, excluding
QMI subordinated loans, as
defined
    
    $
    1,119.6
    
    
    $
    963.7
    
    
    $
    991.3
    
    
    $
    958.4
    
    
    $
    1,007.6
  (9)
    
    We use the supplemental financial measure operating income to assess our operating results
and financial performance. Operating income and ratios based on this measure are not required
by or recognized under Canadian GAAP or U.S. GAAP. We define operating income, as reconciled
to net income under Canadian GAAP, as net income before depreciation and amortization,
financial expenses, dividend income from parent company, other items (consisting of
restructuring charges), income taxes and non-controlling interest in a subsidiary. Operating
income margin is operating income as a percentage of operating revenues. Operating income, and
ratios using this measure, are not intended to be regarded as an alternative to other
financial operating performance measures, or to the statement of cash flows as a measure of
liquidity. Operating income is not intended to represent funds available for debt service,
reinvestment, distributions of dividends, or other discretionary uses, and should not be
considered in isolation from, or as a substitute for, our financial information reported under
Canadian GAAP and U.S. GAAP. We use operating income because we believe that it is a
meaningful measure of performance since operating income excludes, among other things, certain
non-cash items and items that are not readily comparable from year to year. Operating income
is also commonly used in the sector in which we operate, as well as by the investment
community to analyze and compare companies. You should note our definition of operating income
may not be identical to similarly titled measures reported by other companies, limiting its
usefulness as a comparative measure. Our operating income is calculated from and reconciled
to net income (loss) as follows: 5




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##### Table of Contents



Year Ended December 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(restated)(1)
    
    (restated)(1)
    
    (restated)(1)
    
    (restated)(1)
    
    (restated)(1)(dollars in millions)AMOUNTS UNDER CANADIAN GAAPNet (loss) income(1)(2)(5)
    
    $
    (29.9
    )
    
    $
    46.3
    
    
    $
    111.7
    
    
    $
    102.7
    
    
    $
    183.7Depreciation and amortization(2)
    
    
    155.8
    
    
    
    159.0
    
    
    
    163.9
    
    
    
    166.3
    
    
    
    185.1Financial expenses(3)
    
    
    96.7
    
    
    
    91.5
    
    
    
    203.9
    
    
    
    74.7
    
    
    
    79.6Dividend income from parent company(3)
    
    
    
    
    
    
    
    
    
    
    (111.0
    )
    
    
    
    
    
    
    Other items(4)
    
    
    30.1
    
    
    
    1.1
    
    
    
    1.9
    
    
    
    
    
    
    
    Income taxes (recovery) expense (2)
    
    
    13.5
    
    
    
    (5.8
    )
    
    
    (6.7
    )
    
    
    69.8
    
    
    
    64.2Non-controlling interest in a subsidiary
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Operating income as defined
    
    $
    266.4
    
    
    $
    292.3
    
    
    $
    363.8
    
    
    $
    413.6
    
    
    $
    512.7AMOUNTS UNDER U.S. GAAPNet income (loss)(1)(2)(5)
    
    $
    (2,297.2
    )
    
    $
    40.9
    
    
    $
    100.5
    
    
    $
    98.7
    
    
    $
    168.8Depreciation and amortization(2)
    
    
    173.2
    
    
    
    168.6
    
    
    
    175.7
    
    
    
    177.4
    
    
    
    196.3Financial expenses(3)
    
    
    93.4
    
    
    
    90.5
    
    
    
    196.2
    
    
    
    75.2
    
    
    
    87.8Dividend income from parent company(3)
    
    
    
    
    
    
    
    
    
    
    (111.0
    )
    
    
    
    
    
    
    Other items(4)
    
    
    5.7
    
    
    
    3.6
    
    
    
    1.9
    
    
    
    
    
    
    
    Income taxes(2)
    
    
    15.6
    
    
    
    (8.4
    )
    
    
    (1.2
    )
    
    
    60.4
    
    
    
    56.1Non-controlling interest in a subsidiary
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Goodwill amortization(5)
    
    
    2,274.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating income as defined
    
    $
    265.5
    
    
    $
    295.3
    
    
    $
    362.2
    
    
    $
    411.8
    
    
    $
    509.1
  (10)
    
    Capital expenditures are comprised of acquisition of fixed assets.(11)
    
    Homes passed means the number of residential premises, such as single dwelling units or
multiple dwelling units, and commercial premises passed by the cable television distribution
network in a given cable system service area in which the programming services are offered.(12)
    
    Basic cable customers are customers who receive basic cable television service, including
analog and digital customers.(13)
    
    The numbers of basic customers for the years 2002 and 2003 were restated in order to permit
such numbers to be compared to the numbers of basic customers for the years 2004 to 2006,
inclusive.(14)
    
    Represents customers as a percentage of total homes passed.(15)
    
    Represents customers as a percentage of basic customers.(16)
    
    Average monthly revenue per user, or ARPU, is an industry metric that we use to measure our
average cable, Internet and telephony revenues per month per basic cable customer. ARPU is not
a measurement that is required by or recognized under Canadian GAAP or U.S. GAAP, and our
definition and calculation of ARPU may not be the same as identically titled measurements
reported by other companies. We calculate ARPU by dividing our combined cable television,
Internet access and cable telephony revenues by the average number of our basic cable
customers during the applicable period, and then dividing that result by the number of months
in the applicable period.(17)
    
    For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings consist
of net (loss) income plus non-controlling interest in a subsidiary, income taxes, fixed
charges, amortized capitalized interest, less interest capitalized, and (ii) fixed charges
consist of interest expensed and capitalized, excluding interest on QMI subordinated loans,
plus amortized premiums, discounts and capitalized expenses relating to indebtedness and an
estimate of the interest within rental expense. For the year ended December 31, 2002,
earnings, as calculated under both Canadian and U.S. GAAP, were inadequate to cover our fixed
charges, and the coverage deficiency was respectively $15.5 million and $1,980.0 million. 6




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##### Table of Contents



PART III
 
 ITEM 17  FINANCIAL STATEMENTS
 The consolidated financial statements included in this Item 17 include a new report of
the auditors. In addition, Note 24 Significant differences between generally accepted accounting
principles (GAAP) in Canada and the United States has been
revised to reflect the restatements and the note 23, Subsequent
events has been updated.
Except for those revisions, the consolidated financial statements
included in this Item 17 have not been restated.
  
 ITEM 19  EXHIBITS
 Other than the certifications, which are updated for this filing, no other new exhibits
are filed and all other exhibits to the Original Filing remain unchanged.
  ExhibitNumber
    
    Description12.1
    
    Certification of 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.
 7




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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  8




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##### Table of Contents



VIDEOTRON LTD.  Consolidated Financial Statements
  Financial StatementsConsolidated Statements of Operations
    
    
    F-1Consolidated Statements of Shareholders Equity
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Cash Flows
    
    
    F-4Notes to Consolidated Financial Statements
    
    
    F-6
 9




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE BOARD OF DIRECTORS AND TO THE SHAREHOLDER OF VIDEOTRON LTD.




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##### Table of Contents



VIDEOTRON LTD.
 
  
 2004
    
    
    2005
    
    
    2006(Restated -
    
    
    (Restated -note 2 (f))
    
    
    note 2 (f))Operating revenuesCable television
    
    $
    576,825
    
    
    $
    618,346
    
    
    $
    677,273Internet
    
    
    222,458
    
    
    
    270,791
    
    
    
    345,075Business solution
    
    
    66,117
    
    
    
    78,409
    
    
    
    74,352Telephony
    
    
    
    
    
    
    21,088
    
    
    
    108,565Video stores
    
    
    48,058
    
    
    
    55,146
    
    
    
    55,585Other
    
    
    24,274
    
    
    
    36,626
    
    
    
    48,745937,732
    
    
    
    1,080,406
    
    
    
    1,309,595Direct cost
    
    
    256,155
    
    
    
    293,057
    
    
    
    338,868Operating, general and administrative
expenses
    
    
    317,788
    
    
    
    373,736
    
    
    
    458,019Depreciation and amortization (note 4)
    
    
    163,862
    
    
    
    166,292
    
    
    
    185,115Financial expenses (note 5)
    
    
    203,916
    
    
    
    74,737
    
    
    
    79,586Dividend income from parent company
    
    
    (111,055
    )
    
    
    
    
    
    
    Other items
    
    
    1,930
    
    
    
    
    
    
    
    Income before income taxes and
non-controlling interest in a subsidiary
    
    
    105,136
    
    
    
    172,584
    
    
    
    248,007Income taxes (note 6):Current
    
    
    2,530
    
    
    
    2,911
    
    
    
    (439
    )Future
    
    
    (9,191
    )
    
    
    66,880
    
    
    
    64,669(6,661
    )
    
    
    69,791
    
    
    
    64,230111,797
    
    
    
    102,793
    
    
    
    183,777Non-controlling interest in a subsidiary
    
    
    100
    
    
    
    102
    
    
    
    86Net income
    
    $
    111,697
    
    
    $
    102,691
    
    
    $
    183,691
  F-1




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##### Table of Contents



VIDEOTRON LTD.
 
  
 TotalShare
    
    
    Contributed
    
    
    
    
    
    
    shareholderscapital
    
    
    surplus
    
    
    Deficit
    
    
    equityBalance as at December 31, 2003
(restated  note 2 (f))
    
    $
    572,448
    
    
    $
    366,345
    
    
    $
    (641,715
    )
    
    $
    297,078Transfer of tax deductions from a company
controlled by the ultimate parent company (note 6)
    

    

    
    
    
    
    (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 6)
    
    
    
    
    
    
    26,800
    
    
    
    
    
    
    
    26,800Reduction of paid-up capital credited to
contributed surplus
    
    
    (183,855
    )
    
    
    183,855
    
    
    
    
    
    
    
    Acquisition and wind-up of a company
under common control acquired in
March 2004
    
    
    
    
    
    
    
    
    
    
    686
    
    
    
    686Net income for the year
    
    
    
    
    
    
    
    
    
    
    111,697
    
    
    
    111,697Dividend
    
    
    
    
    
    
    
    
    
    
    (205,233
    )
    
    
    (205,233
    )Balance as at December 31, 2004
(restated  note 2 (f))
    
    
    388,593
    
    
    
    576,934
    
    
    
    (736,225
    )
    
    
    229,302Transfer of tax deductions from a company
controlled by the ultimate parent company (note 6)
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    23Reduction of paid-up capital (note 14)
    
    
    (45,653
    )
    
    
    
    
    
    
    
    
    
    
    (45,653
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    102,691
    
    
    
    102,691Dividend
    
    
    
    
    
    
    
    
    
    
    (210,000
    )
    
    
    (210,000
    )Balance as at December 31, 2005
(restated  note 2 (f))
    
    
    342,940
    
    
    
    576,957
    
    
    
    (843,534
    )
    
    
    76,363Transfer of tax deductions from a company
controlled by the ultimate parent company (note 6)
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Issuance of shares (note 14)
    
    
    111,536
    
    
    
    
    
    
    
    
    
    
    
    111,536Reduction of paid-up capital (note 14)
    
    
    (108,749
    )
    
    
    
    
    
    
    
    
    
    
    (108,749
    )Excess of consideration paid over the carrying value
of debt transferred to the parent company (note 12)
    
    
    
    
    
    
    
    
    
    
    (3,282
    )
    
    
    (3,282
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    183,691
    
    
    
    183,691Dividend
    
    
    
    
    
    
    
    
    
    
    (10,000
    )
    
    
    (10,000
    )Balance as at December 31, 2006
    
    $
    345,727
    
    
    $
    576,979
    
    
    $
    (673,125
    )
    
    $
    249,581
  F-2




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##### Table of Contents



VIDEOTRON LTD.
 
  
 2005
    
    
    2006(Restated -note 2 (f))AssetsCurrent assets:Cash and cash equivalents
    
    $
    26,699
    
    
    $
    Temporary investments
    
    
    40,496
    
    
    
    987Accounts receivable (note 7)
    
    
    117,094
    
    
    
    139,585Amounts receivable from affiliated companies (note 19)
    
    
    8,332
    
    
    
    2,660Income taxes
    
    
    845
    
    
    
    310Inventories (note 8)
    
    
    29,365
    
    
    
    39,451Prepaid expenses
    
    
    7,110
    
    
    
    8,568Future income taxes (note 6)
    
    
    76,607
    
    
    
    24,728306,548
    
    
    
    216,289Fixed assets (note 9)
    
    
    1,151,818
    
    
    
    1,289,429Goodwill
    
    
    438,682
    
    
    
    438,582Other assets (note 10)
    
    
    43,849
    
    
    
    45,282Future income taxes (note 6)
    
    
    36,713
    
    
    
    3,358$
    1,977,610
    
    
    $
    1,992,940Liabilities and Shareholders EquityCurrent liabilities:Bank indebtedness and outstanding cheques
    
    $
    
    
    
    $
    18,470Accounts payable and accrued liabilities (note 11)
    
    
    227,908
    
    
    
    268,198Amounts payable to affiliated companies (note 19)
    
    
    43,134
    
    
    
    41,529Deferred revenue
    
    
    116,696
    
    
    
    135,335Income taxes
    
    
    882
    
    
    
    81Additional amount payable (note 12)
    
    
    111,540
    
    
    
    500,160
    
    
    
    463,613Deferred revenue
    
    
    22,033
    
    
    
    22,407Pension plan accrued liability
    
    
    7,090
    
    
    
    8,624Derivative financial instruments
    
    
    73,835
    
    
    
    71,828Future income taxes (note 6)
    
    
    175,748
    
    
    
    154,943Long-term debt (note 13)
    
    
    1,121,697
    
    
    
    1,021,170Non-controlling interest in subsidiaries
    
    
    684
    
    
    
    7741,901,247
    
    
    
    1,743,359Shareholders equity:Common shares (note 14)
    
    
    342,940
    
    
    
    345,727Contributed surplus
    
    
    576,957
    
    
    
    576,979Deficit
    
    
    (843,534
    )
    
    
    (673,125
    )76,363
    
    
    
    249,581$
    1,977,610
    
    
    $
    1,992,940Commitments and guarantees (note 17)Contingencies (note 20)Subsequent
events (note 23)
  F-3




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##### Table of Contents



VIDEOTRON LTD.
 
  
 2004
    
    
    2005
    
    
    2006(Restated -
    
    
    (Restated -note 2 (f))
    
    
    (note 2 (f))Cash flows from operating activities:Net income
    
    $
    111,697
    
    
    $
    102,691
    
    
    $
    183,691Adjustments for the following items:Depreciation and amortization
(notes 4 and 5)
    
    
    170,490
    
    
    
    178,225
    
    
    
    203,420Future income taxes
    
    
    (9,191
    )
    
    
    66,880
    
    
    
    64,669Loss (gain) on disposal of fixed assets
    
    
    13,564
    
    
    
    (1,318
    )
    
    
    1,416Non-controlling interest in a subsidiary
    
    
    100
    
    
    
    102
    
    
    
    86Amortization of debt premium and discount
    
    
    (1,106
    )
    
    
    (2,188
    )
    
    
    (1,534
    )Loss (gain) on revaluation of additional
amount payable
    
    
    26,902
    
    
    
    10,140
    
    
    
    (3,286
    )Change in fair value of derivative financial
instruments (note 5)
    
    
    4,579
    
    
    
    (1,165
    )
    
    
    (19
    )Loss (gain) on repayment of long-term debt
    
    
    187
    
    
    
    (312
    )
    
    
    Loss on foreign currency translation
of long-term debt (note 5)
    
    
    1,298
    
    
    
    1,413
    
    
    
    Other
    
    
    341
    
    
    
    (765
    )
    
    
    755Cash flows from operations
    
    
    318,861
    
    
    
    353,703
    
    
    
    449,198Net change in non-cash operating items:Accounts receivable
    
    
    (20,258
    )
    
    
    (19,315
    )
    
    
    (22,187
    )Current income taxes
    
    
    (2,206
    )
    
    
    7,425
    
    
    
    154Amounts receivable from and payable to
affiliated companies
    
    
    (4,772
    )
    
    
    24,131
    
    
    
    3,606Inventories
    
    
    (4,505
    )
    
    
    4,286
    
    
    
    (10,225
    )Prepaid expenses
    
    
    693
    
    
    
    967
    
    
    
    (1,363
    )Accounts payable and accrued liabilities
    
    
    22,980
    
    
    
    16,189
    
    
    
    19,015Pension plan accrued liability
    
    
    1,538
    
    
    
    1,257
    
    
    
    2,310Deferred revenue
    
    
    31,277
    
    
    
    15,320
    
    
    
    19,013Other assets
    
    
    (14,175
    )
    
    
    (16,758
    )
    
    
    (18,902
    )10,572
    
    
    
    33,502
    
    
    
    (8,579
    )Cash flows from operating activities
    
    
    329,433
    
    
    
    387,205
    
    
    
    440,619Cash flows from investing activities:Acquisition of fixed assets
    
    
    (144,453
    )
    
    
    (219,865
    )
    
    
    (302,629
    )Net change in other assets
    
    
    (2,993
    )
    
    
    (1,970
    )
    
    
    (2,850
    )Proceeds from disposal of fixed assets and
investments
    
    
    2,990
    
    
    
    1,251
    
    
    
    641Acquisition of shares of parent company
    
    
    (1,100,000
    )
    
    
    
    
    
    
    Proceeds from disposal of shares of parent
company
    
    
    1,100,000
    
    
    
    
    
    
    
    Disposal (acquisition) of temporary investments
    
    
    40,535
    
    
    
    (19,246
    )
    
    
    39,509Net disposal (acquisition) of video store
assets (note 2 (a))
    
    
    (7,162
    )
    
    
    53
    
    
    
    228Acquisition of non-controlling interest
    
    
    (10
    )
    
    
    
    
    
    
    Payment of tax deductions to parent company
    
    
    
    
    
    
    (35,200
    )
    
    
    Cash flows used in investing activities
    
    
    (111,093
    )
    
    
    (274,977
    )
    
    
    (265,101
    )
 F-4




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##### Table of Contents



VIDEOTRON LTD.  Consolidated Statements of Cash Flows, Continued
 
 2004
    
    
    2005
    
    
    2006Cash flows from financing activities:Net change in bank credit facility (note 13)
    
    $
    
    
    
    $
    
    
    
    $
    49,000Repayment of long-term debt
    
    
    (355,630
    )
    
    
    (92,284
    )
    
    
    Settlement of derivative financial instruments
    
    
    
    
    
    
    (10,955
    )
    
    
    (938
    )Issuance of long-term debt, net of financing costs
    
    
    389,843
    
    
    
    200,185
    
    
    
    Increase in intercompany loan from
parent company
    
    
    1,100,000
    
    
    
    
    
    
    
    Issuance of shares
    
    
    
    
    
    
    
    
    
    
    111,536Transfer of additional amount payable to
parent company
    
    
    
    
    
    
    
    
    
    
    (111,536
    )Repayment of the subordinated loan to parent
company
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Repayment of intercompany loan
from parent company
    
    
    (1,100,000
    )
    
    
    
    
    
    
    Advance to parent company
    
    
    (40,893
    )
    
    
    
    
    
    
    Reimbursement of advance to parent company
    
    
    
    
    
    
    40,893
    
    
    
    Redemption of shares
    
    
    (3,660
    )
    
    
    
    
    
    
    Dividends
    
    
    (205,233
    )
    
    
    (210,000
    )
    
    
    (10,000
    )Reduction in paid-up capital
    
    
    
    
    
    
    (45,653
    )
    
    
    (108,749
    )Other
    
    
    (79
    )
    
    
    (126
    )
    
    
    Cash flows used in financing activities
    
    
    (215,652
    )
    
    
    (117,940
    )
    
    
    (220,687
    )Net change in cash and cash equivalents
    
    
    2,688
    
    
    
    (5,712
    )
    
    
    (45,169
    )Cash and cash equivalents at beginning of year
    
    
    29,723
    
    
    
    32,411
    
    
    
    26,699Cash and cash equivalents at end of year
    
    $
    32,411
    
    
    $
    26,699
    
    
    $
    (18,470
    )Cash and cash equivalents are comprised of:Cash and cash equivalents
    
    $
    32,411
    
    
    $
    26,699
    
    
    $
    Bank indebtedness and outstanding cheques
    
    
    
    
    
    
    
    
    
    
    (18,470
    )$
    32,411
    
    
    $
    26,699
    
    
    $
    (18,470
    )
  F-5




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##### Table of Contents



VIDEOTRON LTD.
 
   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 provides business
telecommunication services, wireless communication services and 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 Videotron Ltd. and its subsidiaries, CF Cable TV Inc.,
Le SuperClub Vidéotron Ltée and SETTE inc. formerly Société dédition et de transcodage
T.E. ltée.(b)
    
    Temporary investments:Temporary investments consist primarily of commercial paper maturing in the short-term, and
are recorded at the lower of cost and market value.(c)
    
    Fixed assets:Fixed assets are recorded at cost, net of related government grants and income tax credits.
Costs include material, direct labour, overhead 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.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
    %
 F-6




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  1.
    
    Significant accounting policies (continued):
 (c)
    
    Fixed assets (continued):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.(d)
    
    Impairment of long-lived assets:The Company reviews, when a triggering event occurs, the carrying values of its long-lived
assets by comparing the carrying amount of the asset or group of assets to the expected
future undiscounted cash flows to be generated by the asset or group of assets. An
impairment loss is recognized when the carrying amount of an asset or group of assets held
for use exceeds the sum of the undiscounted cash flows expected from its use and eventual
disposition. The impairment loss is measured as the amount by which the assets carrying
amount exceeds its fair value, based on quoted market prices, when available, or on the
estimated present value of future cash flows.(e)
    
    Asset retirement obligation:Asset retirement obligations are legal obligations associated with the retirement of a
tangible long-lived asset that result from acquisition, construction, development or normal
operations.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. A liability must 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.
 F-7




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  1.
    
    Significant accounting policies (continued):
 (f)
    
    Revenue recognition:The Cable and wireless services are provided under arrangement with multiple deliverables
and are comprised of two separate accounting units: one for subscriber services (connecting
fees and operating services) and the other, for equipment sales to subscribers including
activation fees related to wireless phones.Cable connection fee revenues are deferred and recognized as revenue over a thirty-month
period, the estimated average period that subscribers are expected to remain connected to
the network. The incremental and direct costs related to cable connection fees, in an
amount not exceeding the revenue, are deferred and recognized as an operating expense over
the same thirty-month period. Operating revenues from cable television, business solution
and other services, such as Internet access, telephony and wireless, are recognized when
the services are rendered. Revenues from equipment sales to subscribers and their costs
are recognized when the equipment is delivered. Revenues from video rentals are recorded
as revenue when the services are provided. Promotional offers are accounted for as a
reduction of the related service revenue when customers take advantage of the offer.Operating revenues related to service contracts are recognized in income over the life of
the specific contracts on a straight-line basis representing the period over which the
services are provided.(g)
    
    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.
 F-8




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  1.
    
    Significant accounting policies (continued):
 (h)
    
    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.(i)
    
    Inventories:Inventories are recorded at the lower of cost, using the weighted average cost method, or
replacement value.(j)
    
    Foreign currency translation:Foreign currency transactions 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.(k)
    
    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 trading purposes. The Company documents all
relationships between derivatives and hedged items, its strategy for using hedges and its
risk-management objective. The Company assesses the effectiveness of derivatives when the
hedge is put in place and on an ongoing basis.The Company 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 U.S. dollar 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.
 F-9




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial
Statements, Continued
  1.
    
    Significant accounting policies (continued):
 (k)
    
    Derivative financial instruments (continued):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.(l)
    
    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.(m)
    
    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. A valuation allowance is recorded if
realization is not considered more likely than not.(n)
    
    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.
 F-10




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  1.
    
    Significant accounting policies (continued):
 (n)
    
    Employee future benefits (continued):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 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.(o)
    
    Advertizing:Advertizing cost is expensed as incurred. The advertizing expenses for 2004, 2005 and 2006
amounted to $22.0 million, $24.3 million and $30.9 million, respectively.(p)
    
    Stock-based compensation:Stock-based awards are granted by the parent company to certain of the Companys employees.
Compensation costs attributable to stock-based awards to employees that call for
settlement in cash or other assets are recognized over the vesting period in operating
expenses. Changes in intrinsic value of the stock option awards between the grant date and
the measurement date result in a change in the measure of the compensation cost.(q)
    
    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
provisions for income taxes, pension and other employee benefits, the useful life of assets
for depreciation and amortization and evaluation of expected future cash flows to be
generated from fixed assets, implied fair value of goodwill, and other assets. Actual
results could differ from those estimates.
 F-11




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  2.
    
    Business combinations and reorganization:
 (a)
    
    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.
  (in millions)Assets acquired:Inventories
    
    $
    1.1Fixed assets
    
    
    0.9Goodwill
    
    
    5.2Assets acquired at fair value
    
    $
    7.2
 (b)
    
    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.(c)
    
    On December 31, 2004, the subsidiary, Videotron (1998) ltée, was wound up into
Videotron Ltd. This transaction had no impact on the consolidated financial statements.(d)
    
    On January 1, 2005, the subsidiary, Vidéotron TVN Inc., was wound up into Vidéotron
Ltd. This transaction had no impact on the consolidated financial statements.(e)
    
    On January 1, 2006, the subsidiary, Vidéotron (Régional) Ltée, was wound up into CF
Cable Inc. This transaction had no impact on the consolidated financial statements.(f)
    
    On January 1, 2006, a company under common control, Videotron Telecom Ltd., merged
with the Company. On July 1, 2006, the Company also merged with its parent, 9101-0827
Québec Inc. Those transactions have been accounted for using the continuity of interest
method, and the results of operations and financial position of Videotron Telecom Ltd. and
9101-0827 Québec Inc. have been included in these consolidated financial statements as if
the three companies had always been combined. Comparative figures have been restated from
statements previously presented.
 F-12




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  2.
    
    Business combinations and reorganization (continued):
 (f)
    
    (continued):The following table summarizes the impacts of the two amalgamations on the Companys
comparative consolidated net income and consolidated balance sheet:
 Videotron
    
    
    9101-0827
    
    
    Eliminated on
    
    
    TotalVideotron Ltd.
    
    
    Telecom Ltd.
    
    
    Quebec Inc.
    
    
    consolidation
    
    
    restated(in thousands of Canadian dollars)Consolidated net
income (loss) for the
years ended
December 31:2004
    
    $
    147,372
    
    
    $
    (9,522
    )
    
    $
    (34,862
    )
    
    $
    8,709
    
    
    $
    111,6972005
    
    
    113,875
    
    
    
    (167
    )
    
    
    (15,730
    )
    
    
    4,713
    
    
    
    102,691Consolidated balance
sheet as at
December 31, 2005:Total assets
    
    
    1,719,265
    
    
    
    277,383
    
    
    
    104,514
    
    
    
    (123,552
    )
    
    
    1,977,610Total liabilities
    
    
    1,777,337
    
    
    
    33,518
    
    
    
    111,662
    
    
    
    (21,270
    )
    
    
    1,901,247Shareholders
equity
    
    
    (58,072
    )
    
    
    243,865
    
    
    
    (7,148
    )
    
    
    (102,282
    )
    
    
    76,363
 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 during fiscal year 2007 as
at December 31, 2006.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.
 F-13




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  3.
    
    Employee future benefits (continued):The following tables provide a reconciliation of the changes in the plans benefit obligations
and fair value of plan assets for the years ended December 31, 2005 and 2006, and a statement
of funded status as at these dates:
 2005
    
    
    2006Post-
    
    
    
    
    
    
    
    
    
    
    Post-Pension
    
    
    retirement
    
    
    
    
    
    
    Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total
    
    
    benefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Change in benefit obligations:Benefit obligations,
beginning of year
    
    $
    52,556
    
    
    $
    5,488
    
    
    $
    58,044
    
    
    $
    78,434
    
    
    $
    7,755
    
    
    $
    86,189Service costs
    
    
    3,695
    
    
    
    247
    
    
    
    3,942
    
    
    
    5,876
    
    
    
    355
    
    
    
    6,231Plan participants
contributions
    
    
    3,436
    
    
    
    
    
    
    
    3,436
    
    
    
    4,115
    
    
    
    
    
    
    
    4,115Interest costs
    
    
    3,458
    
    
    
    342
    
    
    
    3,800
    
    
    
    4,265
    
    
    
    403
    
    
    
    4,668Actuarial loss (gain)
    
    
    18,072
    
    
    
    1,737
    
    
    
    19,809
    
    
    
    (1,220
    )
    
    
    1,309
    
    
    
    89Benefits and settlement
paid
    
    
    (2,783
    )
    
    
    (59
    )
    
    
    (2,842
    )
    
    
    (3,947
    )
    
    
    
    
    
    
    (3,947
    )Benefit obligations,
end of year
    
    $
    78,434
    
    
    $
    7,755
    
    
    $
    86,189
    
    
    $
    87,523
    
    
    $
    9,822
    
    
    $
    97,345
 2005
    
    
    2006Post-
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    59,328
    
    
    $
    
    
    
    $
    59,328
    
    
    $
    70,781
    
    
    $
    
    
    
    $
    70,781Plan participants
contributions
    
    
    3,436
    
    
    
    
    
    
    
    3,436
    
    
    
    4,115
    
    
    
    
    
    
    
    4,115Actual return on
plan assets
    
    
    9,271
    
    
    
    
    
    
    
    9,271
    
    
    
    13,616
    
    
    
    
    
    
    
    13,616Employer contributions
    
    
    1,529
    
    
    
    59
    
    
    
    1,588
    
    
    
    2,696
    
    
    
    62
    
    
    
    2,758Benefits and settlement
paid
    
    
    (2,783
    )
    
    
    (59
    )
    
    
    (2,842
    )
    
    
    (3,947
    )
    
    
    (62
    )
    
    
    (4,009
    )Fair value of plan assets,
end of year
    
    $
    70,781
    
    
    $
    
    
    
    $
    70,781
    
    
    $
    87,261
    
    
    $
    
    
    
    $
    87,261
 F-14




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  3.
    
    Employee future benefits (continued):The plan assets are comprised of:
 2005
    
    
    2006Equity securities
    
    
    72.2
    %
    
    
    68.1
    %Debt securities
    
    
    25.0
    %
    
    
    26.1
    %Real estate
    
    
    2.8
    %
    
    
    5.8
    %
 As at December 31, 2006, plan assets included shares of the parent company and a company under
common control at a market value of $1.1 million ($0.8 million in 2005).
 2005
    
    
    2006Post-
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    (7,653
    )
    
    $
    (7,755
    )
    
    $
    (15,408
    )
    
    $
    (262
    )
    
    $
    (9,822
    )
    
    $
    (10,084
    )Past service cost gain
    
    
    
    
    
    
    (1,099
    )
    
    
    (1,099
    )
    
    
    
    
    
    
    (1,032
    )
    
    
    (1,032
    )Unrecognized
actuarial loss
    
    
    10,823
    
    
    
    2,540
    
    
    
    13,363
    
    
    
    1,891
    
    
    
    3,714
    
    
    
    5,605Net amount recognized in
balance sheet
    
    $
    3,170
    
    
    $
    (6,314
    )
    
    $
    (3,144
    )
    
    $
    1,629
    
    
    $
    (7,140
    )
    
    $
    (5,511
    )
 Presented as follows:
 2005
    
    
    2006Post-
    
    
    
    
    
    
    
    
    
    
    Post-Pension
    
    
    retirement
    
    
    
    
    
    Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total
    
    

    benefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Deferred pension charges
    
    $
    3,946
    
    
    $
    
    
    
    $
    3,946
    
    
    $
    3,215
    
    
    $
    (102
    )
    
    $
    3,113Accrued benefit liability
    
    
    (776
    )
    
    
    (6,314
    )
    
    
    (7,090
    )
    
    
    (1,586
    )
    
    
    (7,038
    )
    
    
    (8,624
    )Net amount recognized
    
    $
    3,170
    
    
    $
    (6,314
    )
    
    $
    (3,144
    )
    
    $
    1,629
    
    
    $
    (7,140
    )
    
    $
    (5,511
    )
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  3.
    
    Employee future benefits (continued):Components of the net benefit costs are as follows:
 2004(Restated - see note 2 (f))Post-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
    
    
    3,854
    
    
    
    
    
    
    
    3,854Net benefit costs
    
    $
    5,605
    
    
    $
    2,378
    
    
    $
    7,983
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  3.
    
    Employee future benefits (continued):
 2005(Restated - see note 2 (f))Post-Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Service costs
    
    $
    3,695
    
    
    $
    247
    
    
    $
    3,942Interest costs
    
    
    3,458
    
    
    
    342
    
    
    
    3,800Actual 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
    
    
    15,954
    
    
    
    2,326
    
    
    
    18,280Difference 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
    
    
    4,117
    
    
    
    
    
    
    
    4,117Net benefit costs
    
    $
    6,800
    
    
    $
    541
    
    
    $
    7,341
 F-17




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  3.
    
    Employee future benefits (continued):
 2006Post-Pension
    
    
    retirementbenefits
    
    
    benefits
    
    
    Total(in thousands of Canadian dollars)Service costs
    
    $
    5,876
    
    
    $
    355
    
    
    $
    6,231Interest costs
    
    
    4,265
    
    
    
    403
    
    
    
    4,668Actual return on plan assets
    
    
    (13,616
    )
    
    
    
    
    
    
    (13,616
    )Actuarial (gain) loss on accrued benefit obligation
    
    
    (1,220
    )
    
    
    1,309
    
    
    
    89Elements of net benefit cost adjustments to recognize the
long-term nature and valuation allowance
    
    
    (4,695
    )
    
    
    2,067
    
    
    
    (2,628
    )Difference between actual and expected return on plan assets
    
    
    8,388
    
    
    
    
    
    
    
    8,388Deferral of actuarial loss on accrued benefit obligation
    
    
    1,220
    
    
    
    (1,309
    )
    
    
    (89
    )Amortization of previously deferred actuarial loss
    
    
    (676
    )
    
    
    135
    
    
    
    (541
    )Other
    
    
    
    
    
    
    (67
    )
    
    
    (67
    )Total adjustments to recognize the long-term nature of benefit costs
    
    
    8,932
    
    
    
    (1,241
    )
    
    
    7,691Defined contribution pension plan:Employers contribution during the period
    
    
    4,754
    
    
    
    
    
    
    
    4,754Net benefit costs
    
    $
    8,991
    
    
    $
    826
    
    
    $
    9,817
 The expense related to defined contribution pension plans amounts to $4.8 million for the
year ended December 31, 2006 ($4.1 million (restated) in 2005 and $3.9 million (restated) in
2004).Also, the total cash amount paid or payable for employee future benefits for all plans,
consisting of cash contributed by the Company to its funded pension plans, cash payment
directly to beneficiaries for its unfunded other benefit plans and cash contributed to its
defined contribution plans, totaled $7.5 million for the year ended December 31, 2006 ($5.7
million (restated) in 2005 and $5.1 million (restated) in 2004).
 F-18




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  3.
    
    Employee future benefits (continued):The weighted average rates used in the measurement of the Companys benefit obligations as at
December 31, 2006, 2005 and 2004 and current periodic costs are as follows:
 2004
    
    
    2005
    
    
    2006Benefit obligations:Rates at end of year:Discount rate
    
    
    6.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Expected return on plan assets
    
    
    7.50
    %
    
    
    7.50
    %
    
    
    7.25
    %Rate of compensation increase
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    3.50
    %Current periodic costs:Rates at beginning 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
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    3.50
    %
 The assumed health care cost trend rate used in measuring the accumulated postretirement
benefit obligations was 8.6% at the end of 2006. The cost is expected to decrease gradually to
5% over the next nine years and remain at that level thereafter. A one-percentage point change
in the assumed health care cost trend would have the following effects:
 PostretirementbenefitsIncrease
    
    
    DecreaseSensitivity analysis
    
    
    1%
    
    
    
    1%Effect on service and interest costs
    
    $
    1
    
    
    $
    (1
    )Effect on benefit obligations
    
    
    17
    
    
    
    (15
    )
 F-19




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  4.
    
    Depreciation and amortization:
 2004
    
    
    2005
    
    
    2006(in thousands of Canadian dollars)(Restated - note 2 (f))Fixed assets
    
    $
    162,348
    
    
    $
    164,684
    
    
    $
    183,619Other assets
    
    
    1,514
    
    
    
    1,608
    
    
    
    1,496$
    163,862
    
    
    $
    166,292
    
    
    $
    185,115
 Direct costs include $3.3 million in 2004, $3.5 million in 2005 and $4.7 million in 2006 of
depreciation on video rental inventory. Operating, general and administrative expenses include
$1.9 million in 2004, $6.6 in 2005 and $11.6 million in 2006 of amortization of connection
fees.
 5.
    
    Financial expenses:
 2004
    
    
    2005
    
    
    2006(in thousands of Canadian dollars)(Restated - note 2 (f))Third parties:Interest on long-term debt
    
    $
    56,923
    
    
    $
    61,207
    
    
    $
    81,316Amortization of deferred financing costs
    
    
    1,397
    
    
    
    1,836
    
    
    
    1,966Amortization of debt premium and discount
    
    
    (1,106
    )
    
    
    (2,188
    )
    
    
    (1,534
    )Loss (gain) on revaluation of additional
amount payable
    
    
    26,902
    
    
    
    10,140
    
    
    
    (3,286
    )Loss (gain) on repayment of long-term debt
    
    
    187
    
    
    
    (312
    )
    
    
    Change in fair value of derivative financial instruments
    
    
    4,579
    
    
    
    (1,165
    )
    
    
    (19
    )Loss on foreign currency translation of
long-term debt
    
    
    1,298
    
    
    
    1,413
    
    
    
    (Gain) loss on foreign currency translation of
short-term monetary items
    
    
    (907
    )
    
    
    (1,447
    )
    
    
    1,113Other
    
    
    1,706
    
    
    
    542
    
    
    
    7090,979
    
    
    
    70,026
    
    
    
    79,626Interest income
    
    
    (1,191
    )
    
    
    (1,271
    )
    
    
    (512
    )89,788
    
    
    
    68,755
    
    
    
    79,114Parent company:Interest expense (note 2 (b))
    
    
    114,707
    
    
    
    6,862
    
    
    
    472Interest income
    
    
    (579
    )
    
    
    (880
    )
    
    
    114,128
    
    
    
    5,982
    
    
    
    472$
    203,916
    
    
    $
    74,737
    
    
    $
    79,586
 F-20




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  5.
    
    Financial expenses (continued):Interest paid to and interest received from third parties in 2004 amounted to $51.1 million and
$2.1 million (restated), respectively, $66.0 million and $3.2 million (restated) in 2005 and
$81.4 million and $0.9 million in 2006.Interest paid to and interest received from affiliated companies in 2004 amounted to $108.5
million and nil, respectively, nil and nil in 2005, and $18.0 and nil in 2006.6.
    
    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:
 2004
    
    
    2005
    
    
    2006(in thousands of Canadian dollars)(Restated - note 2 (f))Income taxes based on statutory
tax rates of 31.02% in 2004, 31.02%
in 2005 and 32.02% in 2006
    
    $
    32,613
    
    
    $
    53,536
    
    
    $
    79,412Change due to the following items:Federal large corporations tax
    
    
    2,241
    
    
    
    2,156
    
    
    
    Non-taxable dividend from the parent
company
    
    
    (34,449
    )
    
    
    
    
    
    
    Settlement of notices of assessment
    
    
    (17,483
    )
    
    
    1,080
    
    
    
    Non-deductible charges and/or
loss deductible at a lower rate
or for which the tax benefit was
not recorded
    
    
    9,800
    
    
    
    3,245
    
    
    
    (1,001
    )(Reduction) increase in future enacted
tax rate
    
    
    
    
    
    
    10,661
    
    
    
    (14,914
    )Other
    
    
    617
    
    
    
    (887
    )
    
    
    733Income taxes based on the effective
income tax rate
    
    $
    (6,661
    )
    
    $
    69,791
    
    
    $
    64,230
 Income taxes paid were $9.9 million (restated) in 2004, $3.9 million (restated) in 2005 and
$1.4 million in 2006.
 F-21




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  6.
    
    Income taxes (continued):The tax effects of significant items comprising the Companys net future tax liability are as
follows:
 2005
    
    
    2006(in thousands of Canadian dollars)(Restated -note 2 (f))Operating loss carryforwards
    
    $
    90,193
    
    
    $
    17,676Other provisions
    
    
    7,723
    
    
    
    8,384Fixed assets
    
    
    (149,004
    )
    
    
    (147,080
    )Other assets
    
    
    (11,340
    )
    
    
    (5,837
    )Net future income tax liability
    
    $
    (62,428
    )
    
    $
    (126,857
    )Presented as follows:Future income tax assets:Current
    
    $
    76,607
    
    
    $
    24,728Long-term
    
    
    36,713
    
    
    
    3,358113,320
    
    
    
    28,086Future income tax liability:Long-term
    
    
    (175,748
    )
    
    
    (154,943
    )Net future income tax liability
    
    $
    (62,428
    )
    
    $
    (126,857
    )
 During the year ended December 31, 2003, the Company obtained from a company under common
control of the ultimate parent company, income tax deductions. This transaction allowed the
Company to realize a gain of $3.4 million which was credited to contributed surplus. During
the year ended December 31, 2004, an adjustment was made to this transaction and $0.07 million
was debited to contributed surplus.
 F-22




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  6.
    
    Income taxes (continued):During the year ended December 31, 2004, the Company acquired from the parent company, income
tax assets of $62.0 million, of which $55.5 million was recorded as future income tax assets
and $6.5 million as income taxes receivable. The consideration payable to the parent company
amounted to $35.2 million. The difference of $26.8 million was credited to contributed
surplus.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 allowed the Company to realize a gain of $0.023 million which has been credited to
contributed surplus.During the year ended December 31, 2006, the Company acquired from a company under common
control of the ultimate parent company income tax deductions of $0.3 million, of which $0.2
million is recorded as income taxes receivable and $0.05 million as future income tax assets.
The consideration payable to this company under common control amounts to $0.3 million. This
transaction allowed the Company to realize a gain of $0.022 million which has been credited to
contributed surplus.As at December 31, 2006, the Company had net operating loss carryforwards for income tax
purposes available to reduce future federal and provincial taxable income of approximately
$52.9 million and $59.7 million which expire as follows:
 Federal
    
    
    Provincial(in thousands of Canadian dollars)2007
    
    $
    14,891
    
    
    $
    16,1432008
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    2010
    
    
    560
    
    
    
    5602014
    
    
    36,248
    
    
    
    41,2732015
    
    
    290
    
    
    
    8042026
    
    
    952
    
    
    
    952$
    52,941
    
    
    $
    59,732
 F-23




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  7.
    
    Accounts receivable:
 2005
    
    
    2006(in thousands of Canadian dollars)(Restated -note 2 (f))Trade
    
    $
    121,770
    
    
    $
    145,518Interest receivable on swaps
    
    
    6,375
    
    
    
    4,908Allowance for doubtful accounts
    
    
    (11,051
    )
    
    
    (10,841
    )$
    117,094
    
    
    $
    139,585
 Allowance for doubtful accounts is based on the aging of the receivables for cable services and
video rental and on a specific entity analysis for other commercial accounts.
 8.
    
    Inventories:
 2005
    
    
    2006(in thousands of Canadian dollars)(Restated -note 2 (f))Subscribers equipment
    
    $
    15,541
    
    
    $
    23,345Video store materials
    
    
    5,469
    
    
    
    5,524Other supplies and spare parts
    
    
    8,355
    
    
    
    10,582$
    29,365
    
    
    $
    39,451
 F-24




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  9.
    
    Fixed assets:
 2005Accumulated
    
    
    Net bookCost
    
    
    depreciation
    
    
    value(in thousands of Canadian dollars)(Restated - note 2 (f))Receiving and distribution networks
    
    $
    2,041,121
    
    
    $
    1,055,707
    
    
    $
    985,414Furniture and equipment
    
    
    331,144
    
    
    
    245,540
    
    
    
    85,604Terminals and operating system
    
    
    128,161
    
    
    
    76,718
    
    
    
    51,443Buildings
    
    
    37,880
    
    
    
    14,391
    
    
    
    23,489Coding and transmission material
    
    
    7,647
    
    
    
    4,578
    
    
    
    3,069Land
    
    
    2,799
    
    
    
    
    
    
    
    2,799$
    2,548,752
    
    
    $
    1,396,934
    
    
    $
    1,151,818
 2006Accumulated
    
    
    Net bookCost
    
    
    depreciation
    
    
    value(in thousands of Canadian dollars)Receiving and distribution networks
    
    $
    2,273,398
    
    
    $
    1,194,817
    
    
    $
    1,078,581Furniture and equipment
    
    
    365,533
    
    
    
    264,765
    
    
    
    100,768Terminals and operating system
    
    
    151,624
    
    
    
    79,429
    
    
    
    72,195Buildings
    
    
    45,342
    
    
    
    15,649
    
    
    
    29,693Coding and transmission material
    
    
    8,047
    
    
    
    2,695
    
    
    
    5,352Land
    
    
    2,840
    
    
    
    
    
    
    
    2,840$
    2,846,784
    
    
    $
    1,557,355
    
    
    $
    1,289,429
 F-25




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  10.
    
    Other assets:
 2005
    
    
    2006(in thousands of Canadian dollars)(Restated -note 2 (f))Deferred financing costs (i)
    
    $
    16,630
    
    
    $
    14,499Employee future benefit costs (note 3)
    
    
    3,946
    
    
    
    3,113Development and pre-operating costs (ii)
    
    
    2,784
    
    
    
    4,227Deferred connection fees
    
    
    15,530
    
    
    
    18,201Video rental inventory
    
    
    3,371
    
    
    
    3,739Easements at cost (with indefinite life)
    
    
    994
    
    
    
    994Other
    
    
    594
    
    
    
    509$
    43,849
    
    
    $
    45,282
 (i)
    
    Net of accumulated amortization of $3.1 million in 2005 and $5.0 million in 2006.(ii)
    
    Net of accumulated amortization of $0.9 million in 2005 and $2.2 million in 2006. 11.
    
    Accounts payable and accrued liabilities:
 2005
    
    
    2006(in thousands of Canadian dollars)(Restated -note 2 (f))Trade accounts payable and accruals
    
    $
    154,145
    
    
    $
    196,274Employees salaries and dues
    
    
    33,418
    
    
    
    37,884Government sales tax
    
    
    14,067
    
    
    
    9,084Interest
    
    
    26,278
    
    
    
    24,956$
    227,908
    
    
    $
    268,198
 12.
    
    Additional amount payable:The value of the additional amount payable resulting from the repurchase of redeemable
preferred shares in 2003, fluctuated based on the market value of the
parent companys common shares. Until the parent company is listed on a stock exchange, the value of the additional
amount payable is based on a formula established in the agreement. At the date of the
transaction, both parties had agreed to an initial value of $70.0 million. As at December 31,
2005, the additional amount payable was valued at $111.5 million. Change in the amount payable
is recorded as a financial expense in the statement of operations.
 F-26




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  12.
    
    Additional amount payable (continued):On June 30, 2006, the additional amount payable of $108.3 million was transferred to the parent
company in exchange of a cash consideration of $111.5 million. The excess of the consideration
paid in the amount of $3.3 million was charged to retained earnings.13.
    
    Long-term debt:
 2005
    
    
    2006(in thousands of Canadian dollars)Bank facility (a):Revolving credit
    
    $
    
    
    
    $
    49,000Senior Notes (b)
    
    
    971,697
    
    
    
    972,170Subordinated loan  Quebecor Media Inc. (c)
    
    
    150,000
    
    
    
    Long-term portion of the long-term debt
    
    $
    1,121,697
    
    
    $
    1,021,170
 (a)
    
    Bank facility:Bank credit facility, bearing interest at Bankers Acceptances and Canadian prime rates,
plus, in each case, a margin depending upon Videotron Ltd. leverage ratio, is secured by a
first ranking hypothec on the universality of all tangible and intangible assets, current
and future, of Videotron Ltd. and its subsidiaries.The credit facilities contain usual covenants such as maintaining certain financial ratios
and certain restrictions as to the payment of dividends and acquisitions and disposals of
assets. The unused amount under the revolving facility is $401.0 million as at December
31, 2006 and was $450.0 million as at December 31, 2005.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.(b)
    
    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.On November 19, 2004, the Company issued an additional US$315.0 million of aggregate
principal amount of Senior Notes at a premium of 5.0% for total proceeds of US$330.8
million, before issuance fees of US$4.1 million.
 F-27




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  13.
    
    Long-term debt (continued):
 (b)
    
    Senior Notes:
 (i)
    
    (continued):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. These Notes contain certain restrictions
for Videotron Ltd., including limitations on its ability to incur additional
indebtedness, and are unsecured. The Company has fully hedged the foreign currency
risk associated with these Senior Notes by using cross-currency interest rate swaps
under which all payments were set in Canadian dollars. These 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 Videotron Ltd.,
including limitations on its ability to incur additional indebtedness, and are
unsecured. The Company has fully hedged the foreign currency risk associated with the
Senior Notes by using cross-currency interest rate swaps under which all payments were
set in Canadian dollars. The notes 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.
 (c)
    
    Subordinated loan  Quebecor Media Inc.:The $150.0 million subordinated loan from the Companys parent company, bore interest at
the rate of 90-day Bankers Acceptance rates plus 1.5%. On January 17, 2006, the Company
reimbursed the principal amount of the subordinated loan and all interest owed at that date
to Quebecor Media Inc. for a total consideration of $168.0 million.(d)
    
    Senior Secured First Priority Notes:On July 15, 2005, the Company repurchased the aggregate principal amount of the Senior
Secured First Priority Notes of US$75.6 million of its subsidiary, CF Cable TV Inc., which
bore interest at 9.125%. The gain on settlement of long-term debt included 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.
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  13.
    
    Long-term debt (continued):
 (d)
    
    Senior Secured First Priority Notes (continued):
  (in thousands of Canadian dollars)2007
    
    
    $             2008
    
    
    2009
    
    
    49,0002010
    
    
    2011 and thereafter
    
    
    972,170
 14.
    
    Share capital:Previously authorized:
        F-29




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VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  14.
    
    Share capital (continued):Previously authorized (continued):
        2005
    
    
    
    
    
    
    2006Retractable
    
    
    
    
    
    
    RetractableCommon
    
    
    preferred
    
    
    Common
    
    
    preferredshares
    
    
    shares
    
    
    shares
    
    
    shares(Restated - see note 2(f))Issued and paid:2,515,276 common
shares, Series A
(2005  68,690,189) (i)
    
    $
    342,940
    
    
    $
    
    
    
    $
    345,727
    
    
    $
    Nil preferred shares,
Series B (2005  2 Class C shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000 preferred
shares, Series G
(170,000 as of
December 31, 2005)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    342,940
    
    
    $
    
    
    
    $
    345,727
    
    
    $
    
 F-30




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  14.
    
    Share capital (continued):
 (i)
    
    The following table summarizes the impacts of the two amalgamations on the Companys
share capital as at December 31, 2005:
 Videotron
    
    
    9101-0827
    
    
    TotalVideotron Ltd.
    
    
    Telecom Ltd.
    
    
    Quebec inc.
    
    
    restatedNumber
Common shares
    
    
    11,174,813
    
    
    
    2,515,276
    
    
    
    55,000,100
    
    
    
    68,690,189$(in thousands of
Canadian dollars)Common shares
    
    $
    173,236
    
    
    $
    160,357
    
    
    $
    9,347
    
    
    $
    342,940
       F-31




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  14.
    
    Share capital (continued):On January 17, 2006, March 6, 2006, April 17, 2006 and May 15, 2006, the Company reduced the
paid-up capital of the common shares, Series A, by $83.7 million, $10.0 million, $10.0 million
and $5.0 million, respectively. Those amounts have been paid to the parent company.On June 30, 2006, Videotron Ltd. redeemed 105,000 preferred shares, Series G, from Groupe de
Divertissement SuperClub Inc. for a total cash consideration of $105.0 million.On June 30, 2006, 9101-0827 Québec inc. issued 103,274 common shares to its parent company for
a total consideration of $111.5 million.On July 1, 2006, as a result of the merger of Videotron Ltd. and 9101-0827 Québec Inc., the
previously issued common shares were converted into 2,515,276 common shares of the new
authorized share capital; the 2 preferred shares, Series B of Videotron Ltd. were cancelled;
the 65,000 preferred shares, Series G were converted into 65,000 preferred shares, Series G of
the new authorized share capital.The preferred shares, Series G are owned by Groupe de Divertissement SuperClub Inc., a
wholly-owned subsidiary of the Company, and are eliminated upon consolidation.
 F-32




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  15.
    
    Stock option plan:Under a stock option plan established by the Company, 6,185,714 common shares of the parent
company were set aside for officers, senior employees, directors and other key employees of the
Company and its subsidiaries. Each option may be exercised within a maximum period of 10 years
following the date of grant at an exercise price not lower than, as the case may be, the fair
market value of the common shares of the parent company, 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 five-day weighted average closing
price ending on the day preceding the date of grant of the common shares of the parent company
on the stock exchange where such shares are listed at the time of 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. Should the common shares of the parent company not be so listed on
March 1, 2008, optionees may exercise, from March 1 to March 30, from June 1 to June 29, from
September 1 to September 29 and from December 1 to December 30 of each year, starting March 1,
2008, their right to receive an amount in cash equal to the difference between the fair market
value, as determined by the parent companys Board of Directors, and the exercise price of
their vested options or, subject to certain stated conditions,common shares of the parent
company.Except under specific circumstances, and unless the Compensation Committee decides
otherwise, options vest over a five-year period in accordance with one of the following vesting
schedules as determined by the Compensation Committee at the time of grant: (i) equally over
five years with the first 20% vesting on the first anniversary of the date of the grant; (ii)
equally over four years with the first 25% vesting on the second anniversary of the date of
grant; and (iii) equally over three years with the first 33% vesting on the third anniversary
of the date of grant.
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  15.
    
    Stock option plan:The following table gives summary information on outstanding options granted by the parent
company to the employees of the Company as at December 31, 2005 and 2006:
 2005
    
    
    
    
    
    
    2006Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exerciseOptions
    
    
    price
    
    
    Options
    
    
    price(Restated - see note 2 (f))Balance at beginning of year
    
    
    562,067
    
    
    $
    18.69
    
    
    
    588,257
    
    
    $
    19.34Granted
    
    
    42,835
    
    
    
    28.08
    
    
    
    291,782
    
    
    
    31.97Exercised
    
    
    
    
    
    
    
    
    
    
    (8,887
    )
    
    
    29.48Transferred and cancelled
    
    
    (16,645
    )
    
    
    18.38
    
    
    
    (9,385
    )
    
    
    27.17Balance at end of year
    
    
    588,257
    
    
    $
    19.34
    
    
    
    861,767
    
    
    $
    23.43Vested options at end of year
    
    
    222,111
    
    
    $
    18.36
    
    
    
    378,451
    
    
    $
    18.69
  Outstanding options
    
    
    
    
    
    
    Vested optionsWeighted average
    
    
    
    
    
    Weighted averageExercise price
    
    Number
    
    
    years to maturity
    
    
    Number
    
    
    exercise price$15.19
    
    
    28,637
    
    
    6.41 years
    
    
    17,182
    
    
    $
    15.1916.17
    
    
    172,229
    
    
    5.27 years
    
    
    130,517
    
    
    
    16.1719.46
    
    
    240,749
    
    
    6.59 years
    
    
    160,037
    
    
    
    19.4621.42
    
    
    8,869
    
    
    6.92 years
    
    
    5,322
    
    
    
    21.4221.75
    
    
    17,470
    
    
    7.20 years
    
    
    6,988
    
    
    
    21.7521.77
    
    
    62,011
    
    
    5.23 years
    
    
    46,509
    
    
    
    21.7722.98
    
    
    11,752
    
    
    7.69 years
    
    
    4,701
    
    
    
    22.9827.86
    
    
    35,979
    
    
    8.12 years
    
    
    7,195
    
    
    
    27.8630.47
    
    
    63,579
    
    
    9.12 years
    
    
    
    
    
    
    31.92
    
    
    140,977
    
    
    9.59 years
    
    
    
    
    
    
    33.41
    
    
    79,515
    
    
    9.78 years
    
    
    
    
    
    
    $15.19 to $33.41
    
    
    861,767
    
    
    7.29 years
    
    
    378,451
    
    
    $
    18.69
  F-34




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  16.
    
    Financial instruments:
 (a)
    
    Fair value:The carrying amount of cash and cash equivalents, temporary investments, 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:
 2005
    
    
    
    
    
    
    2006Book
    
    
    Fair
    
    
    Book
    
    
    Fairvalue
    
    
    value
    
    
    value
    
    
    value(in thousands of Canadian dollars)Liabilities:Financial liabilities:Long-term debt
    
    $
    1,121,697
    
    
    $
    1,117,398
    
    
    $
    1,021,170
    
    
    $
    1,010,601Derivative financial
instruments:Interest rate swaps
    
    
    (935
    )(i)
    
    
    (935
    )
    
    
    21
    
    
    
    29Assets (liabilities):Cross currency interest
rate swaps
    
    
    (73,835
    )
    
    
    (135,048
    )
    
    
    (71,828
    )
    
    
    (141,062
    )Forward exchange
    
    
    
    
    (158
    )
    
    
    
    
    2,083
 (i)
    
    Including an amount of $0.9 million in 2005 and nil in 2006 classified with
interest payable in the balance sheet.
 The fair value of the financial liabilities are estimated based on discounted cash flows
using year-end market yields or market value of similar instruments with the same maturity.
The fair value of the derivative financial instruments is estimated using year-end market
rates, and reflects the amount the Company would receive or pay if the instruments were
closed out at those dates.(b)
    
    Management of interest rate risk and foreign exchange risk:
 (i)
    
    Interest-rate swaps:The Company entered into interest rate swaps to manage its interest rate exposure and
has committed to exchange, at specific intervals, the difference between the fixed and
floating interest rates calculated by reference to the notional amounts.
 F-35




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  16.
    
    Financial instruments (continued):
 (b)
    
    Management of interest rate risk and foreign exchange risk (continued):
 (i)
    
    Interest-rate swaps (continued):The amounts of outstanding contracts as at December 31, 2006 by the Company are shown
in the table below:
 Notional
    
    
    Pay/
    
    
    Fixed
    
    
    FloatingMaturity
    
    amount
    
    
    receive
    
    
    rate
    
    
    rateSeptember 2007
    
    $
    5.0
    
    
    Pay fixed/
    
    
    3.75
    %
    
    Bankers acceptance
3 monthsreceive floating
 (ii)
    
    Cross-currency interest rate swaps:
 Exchange rateAnnual
    
    
    Annual
    
    
    of interest andeffective
    
    
    nominal
    
    
    capital paymentsPeriod
    
    
    Notional
    
    
    interest
    
    
    interest
    
    
    per CA dollar forcovered
    
    
    amount
    
    
    rate
    
    
    rate
    
    
    one US dollarSenior Notes
    
    
    2003 to 2014
    
    
    US$
    200.0
    
    
    Bankers
    
    
    6.875
    %
    
    
    1.3425acceptances3 monthsplus 2.73%Senior Notes
    
    
    2003 to 2014
    
    
    US$
    135.0
    
    
    
    7.66
    %
    
    
    6.875
    %
    
    
    1.3425Senior Notes
    
    
    2004 to 2014
    
    
    US$
    190.0
    
    
    Bankers
    
    
    6.875
    %
    
    
    1.2000acceptances3 monthsplus 2.80%Senior Notes
    
    
    2004 to 2014
    
    
    US$
    125.0
    
    
    
    7.45
    %
    
    
    6.875
    %
    
    
    1.1950Senior Notes
    
    
    2005 to 2015
    
    
    US$
    175.0
    
    
    
    5.98
    %
    
    
    6.375
    %
    
    
    1.1781
  F-36




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  16.
    
    Financial instruments (continued):
 (c)
    
    Other disclosures:
 (i)
    
    The credit risk of the financial instruments arises from the possibility that
the counterparties to the agreements or contracts may default on their obligations
under the agreements. In order to minimize this risk, the Companys general policy is
to deal only with counterparties with a Standard & Poors rating (or the equivalent)
of at least A -.(ii)
    
    The Company is exposed to a credit risk towards its customers. However,
credit risk concentration is minimized because of the large number of customers.
 17. Commitments and guarantees:
 (a)
    
    Under the terms of operating leases, the Company is committed to make the following
minimum annual lease payments over the next years:
 (in thousands of Canadian dollars)Minimum
    
    
    Leases
    
    
    Minimum netannual lease
    
    
    assumed by
    
    
    annual leasepayments
    
    
    franchisees (b)
    
    
    payments2007
    
    $
    35,244
    
    
    $
    1,763
    
    
    $
    33,4812008
    
    
    18,351
    
    
    
    1,540
    
    
    
    16,8112009
    
    
    12,331
    
    
    
    1,340
    
    
    
    10,9912010
    
    
    6,780
    
    
    
    1,027
    
    
    
    5,7532011
    
    
    3,503
    
    
    
    534
    
    
    
    2,9692012 and thereafter
    
    
    8,267
    
    
    
    1,535
    
    
    
    6,732
 The operating lease expense amounted to $16.8 million (restated) in 2004, $21.3 million
(restated) in 2005 and $21.0 million in 2006.(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.
Management fees amounted to $8.4 million (restated) in 2004, $13.3 million (restated) in
2005 and $23.4 million in 2006. The agreement provides for an annual management fee to be
agreed upon for the year 2007. In addition, Quebecor Media is entitled to the
reimbursement of out-of-pocket expenses incurred in connection with the services provided
under the agreement.
 F-37




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  17.
    
    Commitments and guarantees (continued):
 (c)
    
    Disclosure of guarantees:Operating leases:The Company has guaranteed a portion of the residual values of certain assets under
operating leases for the benefit of the lessor. Should the Company terminate these
operating leases prior to maturity and should the fair value of the leased assets be less
than the guaranteed residual value, the Company must, under certain conditions, compensate
the lessor for a portion of the shortfall. As at December 31, 2006, the maximum exposure
in respect of these guarantees is $5.7 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 2015. The Company must, under certain
conditions, compensate the lessor should the franchisee default. As at December 31, 2006,
the maximum exposure in respect of these guarantees is $7.7 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-38




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  18.
    
    Supplemental cash flow information:
 2004
    
    
    2005
    
    
    2006(in thousands of Canadian dollars)(restated - note 2 (f))Non-cash financing and investing activities:(i) Purchase of fixed assets financed
by accounts payable and accrued
liabilities
    
    $
    9,574
    
    
    $
    16,569
    
    
    $
    20,976(ii) Deferred charge expenditures financed
by accounts payable and accrued
liabilities and by affiliated companies
    
    
    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:
 2004
    
    
    2005
    
    
    2006(in thousands of Canadian dollars)(restated - note 2 (f))Parent company:Operating revenue
    
    $
    72
    
    
    $
    103
    
    
    $
    150Operating and administrative expenses
    
    
    3,053
    
    
    
    4,212
    
    
    
    4,110Operating and administrative expenses
recovered
    
    
    (159
    )
    
    
    (155
    )
    
    
    (23
    )Companies under common control:Operating revenue
    
    
    16,768
    
    
    
    28,673
    
    
    
    25,146Direct costs
    
    
    9,769
    
    
    
    12,181
    
    
    
    15,565Operating and administrative expenses
    
    
    28,241
    
    
    
    41,288
    
    
    
    43,819Acquisition of fixed assets
    
    
    3,268
    
    
    
    
    
    
    
    Directors of the parent company:Operating and administrative expenses
    
    
    502
    
    
    
    768
    
    
    
    682Acquisition of deferred financing costs
    
    
    91
    
    
    
    85
    
    
    
    
 F-39




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  19.
    
    Related party transactions (continued):The Company entered into an affiliation agreement with Groupe Archambault Inc. (Archambault),
a company under common control, a subsidiary of Quebecor Media. This agreement provides that
the Company pay to Archambault 54% of all revenues generated from the fees paid by customers to
use Archambaults video-on-demand services. This agreement expires on August 31, 2008 and is
renewable.In connection with this affiliation agreement, the Company entered into a video-on-demand
services agreement with Archambault. Under this agreement, various technical services will be
provided to Archambault. In consideration of these services, Archambault will pay a fee of 8%
of all revenues generated from fees paid by customers to use Archambaults video-on-demand
services. The term of this agreement is the same as that of the affiliation agreement.Under the affiliation agreement, the Company paid fees to Archambault of $3.7 million, $6.7
million and $9.0 million and received fees from Archambault of $0.5 million, $1.0 million and
$1.9 million for the years 2004, 2005 and 2006, respectively.On January 1, 2006, pursuant to the merger of Videotron Telecom, Videotron Ltd. became party to
the information technology outsourcing agreement between its affiliates, Quebecor World Inc.,
and Videotron Telecom. Under this agreement, Quebecor World Inc. has retained Videotron Ltd.
to outsource Quebecor World Inc.s corporate information technology services.Under this seven-year information technology management services agreement, the Company is to
provide infrastructure services in support of hosting server-based applications and services
related to computer operations, production control, technical support, network support,
regional support, desktop support for certain sites, help-desk and corporate assistance,
firewall and security support, business continuity and disaster recovery and voice and video
support. The monthly revenues for such services are approximately $1.1 million, for an annual
total of approximately $12.8 million. The term of the agreement is through June 30, 2011.20.
    
    Contingencies:On March 13, 2002, a legal action was initiated by the shareholders of a cable company against
Videotron Ltd. They contend that Videotron Ltd. 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, 2006 cannot be determined
with certainty, management believes that their outcome will not have a material adverse impact
on its operating results or financial position.
 F-40




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  21.
    
    Comparative figures:Certain comparative figures have been reclassified from statements previously presented to
conform to the presentation adopted in the current period.22.
    
    Rates subject to CRTC regulations:The Companys operations are subject to rate regulations on certain services based on
geographical regions, mainly by the Broadcasting Act (Canada)and the Telecommunications Act
(Canada), both managed by the Canadian Radio-Television and Telecommunication Commissions
(CRTC). Accordingly, the Companys operating revenues could be affected by changes in
regulations or decisions made by this regulating body. The Company does not select accounting
policies that would differ from generally accepted accounting principles, even though the
Company is subject to these regulations.23.
    
    Subsequent events:On January 3, 2007, the Company contracted a
subordinated loan of $1.0 billion from Quebecor Media Inc.,
bearing interest at a rate of 10.5% payable every six months on
June 20 and December 20, and maturing on January 3,
2022. On May 31, 2007, the Company increased the subordinated
loan by $870 million. On the same day, the Company invested the
whole proceeds of $1.0 billion and $870 million into
1,000,000 and 870,000 preferred shares, Series B, of 9101-0835
Quebec Inc., a subsidiary of Quebecor Media Inc. These
shares carry the right to receive an annual dividend of 10.85%
payable semi-annually.On May 31, 2007, CF Câble TV inc., a wholly
owned subsidiary of the Company, contracted a subordinated loan of
$125 million from Quebecor Media Inc., bearing interest at
a rate of 10.5% payable every six months on June 20 and
December 20, and maturing on May 31, 2022. On the same
day, CF Câble TV inc. invested the whole proceeds of
$125 million into 125,000 preferred shares, Series B, of
9101-0835 Quebec Inc., a subsidiary of Quebecor Media Inc.
These shares carry the right to receive an annual dividend of 10.85%
payable semi-annually.24.
    
    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, that are required under US GAAP.
 F-41




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for
Fair Value Hedge RelationshipsThe following 2004, 2005 and 2006 U.S. GAAP financial information from the consolidated
statements of income, comprehensive income and consolidated balance sheets have been restated
to reflect certain adjustments to previously reported financial information for the correction
of an error related to the accounting for certain fair value hedge relationships.As describe in Note 24 (iv), the Company has entered into fair value hedges of its debt with
derivative instruments. The accounting for a fair value hedge in accordance with GAAP in the
United States requires that the change in fair value of the hedging instrument and the change
in fair value of the hedged item attributable to the hedged risk, be recognized currently in
earnings. The Company has determined that the adjustment to the carrying value of the debt
(hedged item) attributable to the hedged risks was calculated and recorded incorrectly in
previously presented financial information calculated in accordance with GAAP in the United
States due to a misinterpretation of the applicable GAAP in the United Stated.
 F-42




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Restatement of U.S. GAAP Reconciliation Note to Financial Statements Relating to Accounting for
Fair Value Hedge Relationships (continued):The following tables summarize the effects of the adjustments on the previously reported
financial information.Consolidated Statements of Operations and Comprehensive Income:
 2004
    
    
    2005
    
    
    2006Decrease in change in fair value and
ineffective portion of derivative
instruments
    
    $
    (4,844
    )
    
    $
    (8,600
    )
    
    $
    (9,168
    )Decrease in income tax expense
    
    
    
    
    
    
    2,801
    
    
    
    1,389Net decrease of net income and
Comprehensive income
    
    $
    (4,844
    )
    
    $
    (5,799
    )
    
    $
    (7,779
    )
 Consolidated Balance Sheets:
 December 31,
    

    December 31,
    
    
    December 31,2004
    

    2005
    
    
    2006Increase in long-term debt
    
    $
    5,998
    

    $
    14,598
    
    
    $
    23,766Decrease in future income tax liabilities
    
    
    
    

    
    (2,801
    )
    
    
    (4,190
    )Increase in deficit
    
    $
    5,998
    

    $
    11,797
    
    
    $
    19,576
 Adjustment to unaudited interim financial information calculated in accordance with U.S.
GAAP:
 First
    
    
    Second
    
    
    Third
    
    
    Fourthquarter
    
    
    quarter
    
    
    quarter
    
    
    quarter2006
    
    
    2006
    
    
    2006
    
    
    2006Decrease in change in fair
value and ineffective
portion of derivative
instruments
    
    $
    (2,292
    )
    
    $
    (2,292
    )
    
    $
    (2,292
    )
    
    $
    (2,292
    )Decrease in income tax
expense
    
    
    440
    
    
    
    440
    
    
    
    440
    
    
    
    69Net decrease of net
income andcomprehensive
income
    
    $
    (1,852
    )
    
    $
    (1,852
    )
    
    $
    (1,852
    )
    
    $
    (2,223
    )
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Statements of Operations, Comprehensive Income and Accumulated Other Comprehensive
Loss:
 2004
    
    
    2005
    
    
    2006(in thousands of Canadian dollars)
(Restated)Net income for the year based
on Canadian GAAP
    
    $
    111,697
    
    
    $
    102,691
    
    
    $
    183,691Adjustments:Push-down basis of accounting (i)
    
    
    (18,108
    )
    
    
    (7,096
    )
    
    
    (6,253
    )Development and pre-operating costs (iii)
    
    
    (721
    )
    
    
    (795
    )
    
    
    (1,454
    )Accounting for derivative instruments and
hedging activities (iv)
    
    
    7,422
    
    
    
    (1,058
    )
    
    
    (8,185
    )Share-based payment (viii)
    
    
    
    
    
    
    
    
    
    
    (900
    )Income taxes (v)
    
    
    183
    
    
    
    4,961
    
    
    
    1,866Net income for the year based
on US GAAP
    
    
    100,473
    
    
    
    98,703
    
    
    
    168,765Other comprehensive gain (loss) (vi):Pension and postretirement benefits (vii)
    
    
    835
    
    
    
    (61
    )
    
    
    153Accounting for derivative instruments
and hedging activities (iv)
    
    
    (14,473
    )
    
    
    (18,271
    )
    
    
    1,963Income taxes (v)
    
    
    
    
    
    
    10,882
    
    
    
    (1,704
    )Comprehensive income for the year
based on US GAAP
    
    $
    86,835
    
    
    $
    91,253
    
    
    $
    169,177Accumulated other comprehensive loss
at beginning of year
    
    $
    (1,770
    )
    
    $
    (15,408
    )
    
    $
    (22,858
    )Adjustments (vii)
    
    
    
    
    
    
    
    
    
    
    (3,160
    )Changes in the year
    
    
    (13,638
    )
    
    
    (7,450
    )
    
    
    412Accumulated other comprehensive loss at
end of year
    
    $
    (15,408
    )
    
    $
    (22,858
    )
    
    $
    (25,606
    )Pension and postretirement benefits (vii)
    
    $
    (92
    )
    
    $
    (153
    )
    
    $
    (4,493
    )Accounting for derivative instruments
and hedging activities (iv)
    
    
    (15,316
    )
    
    
    (33,587
    )
    
    
    (31,624
    )Income taxes (v)
    
    
    
    
    
    
    10,882
    
    
    
    10,511Accumulated other comprehensive loss at
end of year
    
    $
    (15,408
    )
    
    $
    (22,858
    )
    
    $
    (25,606
    )
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada
and the United States (continued):Consolidated Shareholders Equity
 2005
    
    
    2006(in thousands of Canadian dollars)
(Restated)Shareholders equity based on Canadian GAAP
    
    $
    76,363
    
    
    $
    249,581Cumulative adjustments:Push-down basis of accounting (i)
    
    
    4,499,157
    
    
    
    4,492,904Goodwill impairment (ii)
    
    
    (2,274,627
    )
    
    
    (2,274,627
    )Development and pre-operating costs (iii)
    
    
    (2,692
    )
    
    
    (4,146
    )Accounting for derivative instruments and
hedging activities (iv)
    
    
    (40,886
    )
    
    
    (47,108
    )Share-based payments (viii)
    
    
    
    
    
    
    (900
    )Income taxes (v)
    
    
    16,431
    
    
    
    17,926Pension and postretirement benefits (vii)
    
    
    (153
    )
    
    
    (4,493
    )Shareholders equity based on US GAAP
    
    $
    2,273,593
    
    
    $
    2,429,137
 (i)
    
    Push-down basis of accounting (restated  see note 2 (f)):The basis of accounting used in the preparation of this reconciliation of Canadian GAAP to
US GAAP reflects the push-down resulting from the acquisition of the Company and its
subsidiaries on October 23, 2000 by Quebecor Media Inc. Under Canadian GAAP, each entity
has retained the historical carrying value basis of its assets and liabilities. The excess
of the purchase price over the value assigned to the net assets of the Company at the date
of acquisition has been allocated to goodwill and has been amortized, up to December 31,
2001, on the straight-line basis over 40 years.The principal adjustments, taking into account the final allocation of the purchase price
finalized in the fourth quarter of 2001, to the historical consolidated financial
statements of the Company to reflect Parents cost basis were:
 (a)
    
    The carrying values of fixed assets were increased by $110.8 million;(b)
    
    The deferred charges related to financing fees and exchange losses on
long-term debt have been written off to reflect the fair value of the assumed
long-term debt, and further reduction in deferred charges was recorded for a total
amount of $22.6 million;(c)
    
    Accrued charges increased by $41.5 million;
 F-45




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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 $24.4 million; and(e)
    
    The $4,631.1 million excess of parents cost over the value assigned to the
net assets of the Company at the date of acquisition has been recorded as goodwill and
$4,653.4 million was credited to contributed surplus. In 2004, the Company and its
parent materialized income tax benefits in the amount of $84.3 million which had not
been recognized at the date of acquisition. Therefore, the goodwill has been reduced
by $84.3 million, contributed surplus has been reduced by $67.4 million and income tax
expense for 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.
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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-47




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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:Under GAAP in the United States, Statement No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans(FAS 158), was issued in 2006 and requires
the recognition in the balance sheet of the over or under funded positions of defined
benefit pension and other postretirement plans, along with a corresponding non-cash
adjustment, which will be recorded in the accumulated other comprehensive loss. FAS158 was
effective prospectively for fiscal years ended after December 15, 2006 and the amounts
presented for prior periods have not been restated for this change. This change in
accounting policy resulted in an adjustment of $3,160 recorded in accumulated other
comprehensive loss and did not have an impact on the Companys consolidated statement of
operations.Under GAAP in the United States, for 2005 and prior years, if the accumulated benefit
obligation exceeded the fair value of a pension plans assets, the Company was required to
recognize a minimum accrued liability equal to the unfunded accumulated benefit obligation,
which was recorded in accumulated other comprehensive loss. The additional minimum
liability concept from FAS 87 has been eliminated with the adoption of FAS158.Under GAAP in Canada, a company is not required to recognize the over or under funded
positions or to recognize an additional minimum liability.(viii)
    
    Share-based payment:Under U.S. GAAP, the Company adopted the new standards of FASB No. 123(R), Share-Based
Payment (SFAS123(R)). In accordance with SFAS 123(R), the liability related to stock-based
awards that call for settlement in cash or other asset must be measured at its fair value
based on the fair value of stock option awards, and shall be remeasured at the end of each
reporting period through settlement. Under Canadian GAAP, the liability is measured and
remeasured based on the intrinsic value of the stock option awards instead of the fair
value.(ix)
    
    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.
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Consolidated Shareholders Equity (continued)
 (x)
    
    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.(xi)
    
    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, 2005 and 2006 and for the
years 2004, 2005 and 2006 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 Videotron Ltd.. Each Subsidiary Guarantor is wholly-owned by the
Company. All guarantees are full and unconditional, and joint and several (to the extent
permitted by applicable law).The main subsidiaries included under the column Subsidiary Guarantors are CF Cable TV
Inc. and Le SuperClub Vidéotron Ltée, and its subsidiary, Groupe de Divertissement
SuperClub Inc.The Non-Subsidiary Guarantors is Société dÉdition et de Transcodage T.E. Ltée.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
Videotron Ltd.
 F-49




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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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
 Non-
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    subsidiary
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)Revenues
    
    $
    505,577
    
    
    $
    282,872
    
    
    $
    168,315
    
    
    $
    (9,678
    )
    
    $
    947,086Direct cost
    
    
    168,180
    
    
    
    31,481
    
    
    
    56,755
    
    
    
    (261
    )
    
    
    256,155Operating and administrative
expenses
    
    
    161,201
    
    
    
    131,734
    
    
    
    45,203
    
    
    
    (9,417
    )
    
    
    328,721Depreciation and amortization
    
    
    118,315
    
    
    
    37,111
    
    
    
    20,317
    
    
    
    
    
    
    
    175,743Financial expenses
    
    
    16,918
    
    
    
    153,145
    
    
    
    27,364
    
    
    
    (1,200
    )
    
    
    196,227Dividend income from related
companies
    
    
    
    
    
    
    (121,824
    )
    
    
    (16,658
    )
    
    
    27,427
    
    
    
    (111,055
    )Other items
    
    
    1,930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,930Income (loss) before the undernoted
    
    
    39,033
    
    
    
    51,225
    
    
    
    35,334
    
    
    
    (26,227
    )
    
    
    99,365Income taxes
    
    
    17,591
    
    
    
    (21,436
    )
    
    
    2,407
    
    
    
    230
    
    
    
    (1,208
    )21,442
    
    
    
    72,661
    
    
    
    32,927
    
    
    
    (26,457
    )
    
    
    100,573Share in the results of a company
subject to significant influence
    
    
    (10,628
    )
    
    
    
    
    
    
    (138
    )
    
    
    10,766
    
    
    
    Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    99
    
    
    
    100Net income (loss)
    
    $
    32,070
    
    
    $
    72,661
    
    
    $
    33,064
    
    
    $
    (37,322
    )
    
    $
    100,473
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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
 Non-
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    subsidiary
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)Cash flows from operating activities:Net income (loss)
    
    $
    32,070
    
    
    $
    72,661
    
    
    $
    33,064
    
    
    $
    (37,322
    )
    
    $
    100,473Adjustments for the following items:Depreciation and amortization
    
    
    119,449
    
    
    
    40,451
    
    
    
    20,314
    
    
    
    
    
    
    
    180,214Future income taxes
    
    
    16,134
    
    
    
    (21,667
    )
    
    
    1,565
    
    
    
    230
    
    
    
    (3,738
    )Loss on disposal of fixed assets
    
    
    9,664
    
    
    
    439
    
    
    
    3,461
    
    
    
    
    
    
    
    13,564Loss on foreign currency translation
of long-term debt
    
    
    
    
    
    
    
    
    
    
    1,332
    
    
    
    (34
    )
    
    
    1,298Other
    
    
    4,277
    
    
    
    (83
    )
    
    
    1,415
    
    
    
    9,699
    
    
    
    15,308Net change in non-cash operating items
    
    
    (17,050
    )
    
    
    4,045
    
    
    
    33,740
    
    
    
    
    
    
    
    20,735164,544
    
    
    
    95,846
    
    
    
    94,891
    
    
    
    (27,427
    )
    
    
    327,854Cash flows from investing activities:Acquisition of fixed assets
    
    
    (92,265
    )
    
    
    (41,753
    )
    
    
    (24,098
    )
    
    
    13,663
    
    
    
    (144,453
    )Net change in other assets
    
    
    (1,002
    )
    
    
    (412
    )
    
    
    
    
    
    
    
    
    
    
    (1,414
    )Proceeds from disposal of fixed assets
    
    
    2,266
    
    
    
    13,829
    
    
    
    558
    
    
    
    (13,663
    )
    
    
    2,990Acquisition of video store assets
    
    
    
    
    
    
    (7,162
    )
    
    
    
    
    
    
    
    
    
    
    (7,162
    )Proceeds from disposal (acquisition)
of temporary investments
    
    
    40,755
    
    
    
    
    
    
    
    (220
    )
    
    
    
    
    
    
    40,535Acquisition 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
    )19,754
    
    
    
    (35,498
    )
    
    
    (93,770
    )
    
    
    
    
    
    
    (109,514
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (355,630
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (355,630
    )Issuance of long-term debt, net of
financing costs
    
    
    389,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    389,843Increase 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
    )Advance to parent company
    
    
    (40,893
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,893
    )Redemption of retractable preferred
shares
    
    
    (3,660
    )
    
    
    (165,000
    )
    
    
    
    
    
    
    165,000
    
    
    
    (3,660
    )Dividends
    
    
    (171,002
    )
    
    
    (61,658
    )
    
    
    
    
    
    
    27,427
    
    
    
    (205,233
    )Issuance of preferred shares
    
    
    
    
    
    
    165,000
    
    
    
    
    
    
    
    (165,000
    )
    
    
    Other
    
    
    311
    
    
    
    
    
    
    
    (390
    )
    
    
    
    
    
    
    (79
    )(181,031
    )
    
    
    (61,658
    )
    
    
    (390
    )
    
    
    27,427
    
    
    
    (215,652
    )Net increase (decrease) in cash
    
    
    3,267
    
    
    
    (1,310
    )
    
    
    731
    
    
    
    
    
    
    
    2,688Cash and cash equivalents, beginning
of year
    
    
    29,633
    
    
    
    (327
    )
    
    
    417
    
    
    
    
    
    
    
    29,723Cash and cash equivalents, end of year
    
    $
    32,900
    
    
    $
    (1,637
    )
    
    $
    1,148
    
    
    $
    
    
    
    $
    32,411
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##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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
 Non-
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    subsidiary
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)Revenues
    
    $
    855,709
    
    
    $
    227,393
    
    
    $
    4,886
    
    
    $
    (1,405
    )
    
    $
    1,086,583Direct cost
    
    
    216,431
    
    
    
    76,855
    
    
    
    
    
    
    
    (229
    )
    
    
    293,057Operating and administrative expenses
    
    
    305,125
    
    
    
    74,358
    
    
    
    3,432
    
    
    
    (1,174
    )
    
    
    381,741Depreciation and amortization
    
    
    154,333
    
    
    
    22,593
    
    
    
    587
    
    
    
    (98
    )
    
    
    177,415Financial expenses
    
    
    51,068
    
    
    
    25,490
    
    
    
    
    
    
    
    (1,401
    )
    
    
    75,157Dividend income from related companies
    
    
    
    
    
    
    (17,920
    )
    
    
    
    
    
    
    17,920
    
    
    
    Income (loss) before the undernoted
    
    
    128,752
    
    
    
    46,017
    
    
    
    867
    
    
    
    (16,423
    )
    
    
    159,213Income taxes
    
    
    50,154
    
    
    
    9,764
    
    
    
    221
    
    
    
    269
    
    
    
    60,40878,598
    
    
    
    36,253
    
    
    
    646
    
    
    
    (16,692
    )
    
    
    98,805Share in the results of a company
subject to significant influence
    
    
    (15,146
    )
    
    
    (142
    )
    
    
    
    
    
    
    15,288
    
    
    
    Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    102Net income (loss)
    
    $
    93,744
    
    
    $
    36,395
    
    
    $
    646
    
    
    $
    (32,082
    )
    
    $
    98,703
 F-52




---



##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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
 Non-
    
    
    AdjustmentsVidéotron
    
    
    Subsidiary
    
    
    subsidiary
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)Cash flows from operating activities:Net income (loss)
    
    $
    93,744
    
    
    $
    36,395
    
    
    $
    646
    
    
    $
    (32,082
    )
    
    $
    98,703Adjustments for the following items:Depreciation and amortization
    
    
    161,215
    
    
    
    27,006
    
    
    
    587
    
    
    
    (98
    )
    
    
    188,710Future income taxes
    
    
    47,619
    
    
    
    9,454
    
    
    
    155
    
    
    
    269
    
    
    
    57,497Loss on foreign currency translation
of long-term debt
    
    
    80
    
    
    
    1,333
    
    
    
    
    
    
    
    
    
    
    
    1,413Other
    
    
    (42,989
    )
    
    
    581
    
    
    
    105
    
    
    
    13,990
    
    
    
    (28,313
    )Net change in non-cash operating
items
    
    
    102,821
    
    
    
    (34,640
    )
    
    
    (814
    )
    
    
    
    
    
    
    67,367362,490
    
    
    
    40,129
    
    
    
    679
    
    
    
    (17,921
    )
    
    
    385,377Cash flows from investing activities:Acquisition of fixed assets
    
    
    (189,647
    )
    
    
    (29,019
    )
    
    
    (1,199
    )
    
    
    
    
    
    
    (219,865
    )Net change in other assets
    
    
    (57
    )
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    (142
    )Proceeds from disposal of fixed assets
    
    
    947
    
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    1,251Payment of tax deductions to the
parent company
    
    
    (25,800
    )
    
    
    (9,400
    )
    
    
    
    
    
    
    
    
    
    
    (35,200
    )(Acquisition) disposal of
temporary investments
    
    
    (20,000
    )
    
    
    
    
    
    
    754
    
    
    
    
    
    
    
    (19,246
    )Dividends
    
    
    11,000
    
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    Cash transfer pursuant to the
liquidation of a subsidiary
    
    
    (533
    )
    
    
    533
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of video store assets
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    53(224,090
    )
    
    
    (48,614
    )
    
    
    (445
    )
    
    
    
    
    
    
    (273,149
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    
    
    
    
    (92,284
    )
    
    
    
    
    
    
    
    
    
    
    (92,284
    )Issuance of long-term debt, net
of financing costs
    
    
    200,185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,185Settlement of derivative financial
instruments
    
    
    (3,588
    )
    
    
    (7,367
    )
    
    
    
    
    
    
    
    
    
    
    (10,955
    )Advance (from) to an affiliated
company
    
    
    (110,168
    )
    
    
    110,168
    
    
    
    
    
    
    
    
    
    
    
    Dividends
    
    
    (227,921
    )
    
    
    
    
    
    
    
    
    
    
    17,921
    
    
    
    (210,000
    )Reimbursement of advance to
parent company
    
    
    40,893
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,893Reduction in paid-up capital
    
    
    (45,653
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,653
    )Other
    
    
    497
    
    
    
    177
    
    
    
    (800
    )
    
    
    
    
    
    
    (126
    )(145,755
    )
    
    
    10,694
    
    
    
    (800
    )
    
    
    17,921
    
    
    
    (117,940
    )Net (decrease) increase in cash
    
    
    (7,355
    )
    
    
    2,209
    
    
    
    (566
    )
    
    
    
    
    
    
    (5,712
    )Cash and cash equivalents,
beginning of year
    
    
    32,900
    
    
    
    (1,731
    )
    
    
    1,242
    
    
    
    
    
    
    
    32,411Cash and cash equivalents, end year
    
    $
    25,545
    
    
    $
    478
    
    
    $
    676
    
    
    $
    
    
    
    $
    26,699
 F-53




---



##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    Significant differences between generally accepted accounting principles (GAAP) in Canada and
the United States (continued):Consolidated Balance SheetAs at December 31, 2005
 Non-
    
    
    AdjustmentsVideotron
    
    
    Subsidiary
    
    
    subsidiaries
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    25,545
    
    
    $
    478
    
    
    $
    676
    
    
    $
    
    
    
    $
    26,699Temporary investments
    
    
    40,000
    
    
    
    
    
    
    
    496
    
    
    
    
    
    
    
    40,496Accounts receivable
    
    
    108,385
    
    
    
    8,018
    
    
    
    691
    
    
    
    
    
    
    
    117,094Amounts receivable from affiliated
companies
    
    
    223,471
    
    
    
    249,256
    
    
    
    49
    
    
    
    (464,444
    )
    
    
    8,332Income taxes
    
    
    431
    
    
    
    301
    
    
    
    113
    
    
    
    
    
    
    
    845Inventories and prepaid expenses
    
    
    29,998
    
    
    
    6,304
    
    
    
    173
    
    
    
    
    
    
    
    36,475Future income taxes
    
    
    62,778
    
    
    
    13,829
    
    
    
    
    
    
    
    
    
    
    
    76,607490,608
    
    
    
    278,186
    
    
    
    2,198
    
    
    
    (464,444
    )
    
    
    306,548Fixed assets
    
    
    1,038,403
    
    
    
    233,167
    
    
    
    3,285
    
    
    
    (391
    )
    
    
    1,274,464Goodwill
    
    
    1,903,756
    
    
    
    445,040
    
    
    
    
    
    
    
    233,711
    
    
    
    2,582,507Other assets
    
    
    414,870
    
    
    
    178,264
    
    
    
    
    
    
    
    (567,500
    )
    
    
    25,634Future income taxes
    
    
    34,337
    
    
    
    2,376
    
    
    
    
    
    
    
    
    
    
    
    36,713$
    3,881,974
    
    
    $
    1,137,033
    
    
    $
    5,483
    
    
    $
    (798,624
    )
    
    $
    4,225,866Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued
liabilities
    
    $
    330,491
    
    
    $
    32,354
    
    
    $
    542
    
    
    $
    (142
    )
    
    $
    363,245Amounts payable to company under
common control
    
    
    42,744
    
    
    
    464,537
    
    
    
    155
    
    
    
    (464,302
    )
    
    
    43,134Deferred revenue and prepaid services
    
    
    94,874
    
    
    
    21,640
    
    
    
    182
    
    
    
    
    
    
    
    116,696Income taxes
    
    
    750
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    882Additional amount payable
    
    
    111,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,540580,399
    
    
    
    518,663
    
    
    
    879
    
    
    
    (464,444
    )
    
    
    635,497Future income taxes
    
    
    148,901
    
    
    
    51,995
    
    
    
    261
    
    
    
    
    
    
    
    201,157Long-term deferred revenue
    
    
    4,821
    
    
    
    1,655
    
    
    
    26
    
    
    
    
    
    
    
    6,502Long-term debt
    
    
    1,108,433
    
    
    
    25,969
    
    
    
    
    
    
    
    (25,969
    )
    
    
    1,108,433Non-controlling interest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    684
    
    
    
    6841,842,554
    
    
    
    598,282
    
    
    
    1,166
    
    
    
    (489,729
    )
    
    
    1,952,273Shareholders Equity:Share capital
    
    
    512,938
    
    
    
    165,001
    
    
    
    25
    
    
    
    (335,024
    )
    
    
    342,940Contributed surplus
    
    
    4,466,821
    
    
    
    708,538
    
    
    
    462
    
    
    
    (3,400
    )
    
    
    5,172,421(Deficit) retained earnings
    
    
    (2,917,634
    )
    
    
    (334,635
    )
    
    
    3,830
    
    
    
    29,529
    
    
    
    (3,218,910
    )Other comprehensive loss
    
    
    (22,705
    )
    
    
    (153
    )
    
    
    
    
    
    
    
    
    
    
    (22,858
    )2,039,420
    
    
    
    538,751
    
    
    
    4,317
    
    
    
    (308,895
    )
    
    
    2,273,593$
    3,881,974
    
    
    $
    1,137,033
    
    
    $
    5,483
    
    
    $
    (798,624
    )
    
    $
    4,225,866
 F-54




---



##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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, 2006
 Non-
    
    
    AdjustmentsVideotron
    
    
    Subsidiary
    
    
    subsidiary
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)Revenues
    
    $
    1,066,286
    
    
    $
    241,527
    
    
    $
    5,610
    
    
    $
    (1,158
    )
    
    $
    1,312,265Direct cost
    
    
    254,087
    
    
    
    84,943
    
    
    
    
    
    
    
    (162
    )
    
    
    338,868Operating and administrative expenses
    
    
    377,143
    
    
    
    84,057
    
    
    
    4,163
    
    
    
    (996
    )
    
    
    464,367Depreciation and amortization
    
    
    170,246
    
    
    
    25,448
    
    
    
    674
    
    
    
    (33
    )
    
    
    196,335Financial expenses
    
    
    67,965
    
    
    
    19,806
    
    
    
    
    
    
    
    
    
    
    
    87,771Dividend income from related companies
    
    
    
    
    
    
    (13,170
    )
    
    
    
    
    
    
    13,170
    
    
    
    Income (loss) before the undernoted
    
    
    196,845
    
    
    
    40,443
    
    
    
    773
    
    
    
    (13,137
    )
    
    
    224,924Income taxes
    
    
    51,350
    
    
    
    4,492
    
    
    
    231
    
    
    
    
    
    
    
    56,073145,495
    
    
    
    35,951
    
    
    
    542
    
    
    
    (13,137
    )
    
    
    168,851Share in the results of a company
subject to significant influence
    
    
    (11,417
    )
    
    
    (119
    )
    
    
    
    
    
    
    11,536
    
    
    
    Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    86Net income (loss)
    
    $
    156,912
    
    
    $
    36,070
    
    
    $
    542
    
    
    $
    (24,759
    )
    
    $
    168,765
 F-55




---



##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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, 2006
 Non-
    
    
    AdjustmentsVideotron
    
    
    Subsidiary
    
    
    subsidiary-
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)Cash flows from operating activities:Net income (loss)
    
    $
    156,912
    
    
    $
    36,070
    
    
    $
    542
    
    
    $
    (24,759
    )
    
    $
    168,765Adjustments for the following items:Depreciation and amortization
    
    
    181,382
    
    
    
    32,617
    
    
    
    674
    
    
    
    (33
    )
    
    
    214,640Future income taxes
    
    
    51,997
    
    
    
    4,482
    
    
    
    33
    
    
    
    
    
    
    
    56,512Other
    
    
    (14,427
    )
    
    
    1,288
    
    
    
    549
    
    
    
    11,622
    
    
    
    (968
    )Net change in non-cash operating items
    
    
    (32,305
    )
    
    
    28,593
    
    
    
    95
    
    
    
    2,509
    
    
    
    (1,108
    )343,559
    
    
    
    103,050
    
    
    
    1,893
    
    
    
    (10,661
    )
    
    
    437,841Cash flows from investing activities:Acquisition of fixed assets
    
    
    (260,720
    )
    
    
    (37,665
    )
    
    
    (1,793
    )
    
    
    (2,451
    )
    
    
    (302,629
    )Net change in other assets
    
    
    (1
    )
    
    
    (71
    )
    
    
    
    
    
    
    
    
    
    
    (72
    )Proceeds from disposal of fixed assets
    
    
    515
    
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    641Disposal (acquisition) of temporary
investments
    
    
    40,000
    
    
    
    
    
    
    
    (491
    )
    
    
    
    
    
    
    39,509Dividend from subsidiary
    
    
    19,000
    
    
    
    (19,000
    )
    
    
    
    
    
    
    
    
    
    
    Acquisition of video store assets
    
    
    
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    228(201,206
    )
    
    
    (56,382
    )
    
    
    (2,284
    )
    
    
    (2,451
    )
    
    
    (262,323
    )Cash flows from financing activities:Net change in bank credit facility
    
    
    49,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,000Settlement of derivative financial
instruments
    
    
    (938
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (938
    )Issuance of shares
    
    
    111,536
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,536Repayment of subordinated loan to
parent company
    
    
    (150,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150,000
    )Transfer of additional amount payable
to parent company
    
    
    (111,536
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111,536
    )Reduction in paid-up capital
    
    
    (108,749
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (108,749
    )Dividends
    
    
    (23,170
    )
    
    
    
    
    
    
    
    
    
    
    13,170
    
    
    
    (10,000
    )Advance to (from) an affiliated company
    
    
    47,094
    
    
    
    (47,036
    )
    
    
    
    
    
    
    (58
    )
    
    
    (186,763
    )
    
    
    (47,036
    )
    
    
    
    
    
    
    13,112
    
    
    
    (220,687
    )Net decrease in cash
    
    
    (44,410
    )
    
    
    (368
    )
    
    
    (391
    )
    
    
    
    
    
    
    (45,169
    )Cash and cash equivalents,
beginning of year
    
    
    25,545
    
    
    
    478
    
    
    
    676
    
    
    
    
    
    
    
    26,699Cash and cash equivalents, end of year
    
    $
    (18,865
    )
    
    $
    110
    
    
    $
    285
    
    
    $
    
    
    
    $
    (18,470
    )
 F-56




---



##### Table of Contents



VIDEOTRON LTD.  Notes to Consolidated Financial Statements, Continued
  24.
    
    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, 2006
 Non-
    
    
    AdjustmentsVideotron
    
    
    Subsidiary
    
    
    subsidiary
    
    
    andLtd.
    
    
    Guarantors
    
    
    Guarantors
    
    
    eliminations
    
    
    Consolidated(in thousands of Canadian dollars)
(Restated)AssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    110
    
    
    $
    285
    
    
    $
    (395
    )
    
    $
    Temporary investments
    
    
    
    
    
    
    
    
    
    
    987
    
    
    
    
    
    
    
    987Accounts receivable
    
    
    129,816
    
    
    
    8,758
    
    
    
    1,011
    
    
    
    
    
    
    
    139,585Amounts receivable from affiliated
companies
    
    
    89,478
    
    
    
    330,891
    
    
    
    141
    
    
    
    (417,850
    )
    
    
    2,660Income taxes
    
    
    136
    
    
    
    40
    
    
    
    134
    
    
    
    
    
    
    
    310Inventories and prepaid expenses
    
    
    41,406
    
    
    
    6,605
    
    
    
    8
    
    
    
    
    
    
    
    48,019Future income taxes
    
    
    16,281
    
    
    
    8,607
    
    
    
    140
    
    
    
    
    
    
    
    25,028277,117
    
    
    
    355,011
    
    
    
    2,706
    
    
    
    (418,245
    )
    
    
    216,589Fixed assets
    
    
    1,148,150
    
    
    
    245,547
    
    
    
    6,192
    
    
    
    (358
    )
    
    
    1,399,531Goodwill
    
    
    1,903,756
    
    
    
    444,940
    
    
    
    
    
    
    
    233,711
    
    
    
    2,582,407Other assets
    
    
    404,639
    
    
    
    71,344
    
    
    
    
    
    
    
    (455,058
    )
    
    
    20,925Future income taxes
    
    
    
    
    
    
    3,358
    
    
    
    
    
    
    
    
    
    
    
    3,358$
    3,733,662
    
    
    $
    1,120,200
    
    
    $
    8,898
    
    
    $
    (639,950
    )
    
    $
    4,222,810Liabilities and Shareholders EquityCurrent liabilities:Bank indebtedness and outstanding
cheques
    
    $
    18,865
    
    
    $
    
    
    
    $
    
    
    
    $
    (395
    )
    
    $
    18,470Accounts payable and accrued
liabilities
    
    
    376,785
    
    
    
    34,675
    
    
    
    792
    
    
    
    (297
    )
    
    
    411,955Amounts payable to company under
common control
    
    
    370,735
    
    
    
    86,496
    
    
    
    2,748
    
    
    
    (417,550
    )
    
    
    42,429Deferred revenue and prepaid services
    
    
    101,212
    
    
    
    33,980
    
    
    
    143
    
    
    
    
    
    
    
    135,335Income taxes
    
    
    45
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    81867,642
    
    
    
    155,151
    
    
    
    3,719
    
    
    
    (418,242
    )
    
    
    608,270Future income taxes
    
    
    120,878
    
    
    
    51,694
    
    
    
    294
    
    
    
    
    
    
    
    172,866Long-term deferred revenue
    
    
    3,423
    
    
    
    783
    
    
    
    
    
    
    
    
    
    
    
    4,206Long-term debt
    
    
    1,007,557
    
    
    
    25,969
    
    
    
    
    
    
    
    (25,969
    )
    
    
    1,007,557Non-controlling interest in a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    774
    
    
    
    7741,999,500
    
    
    
    233,597
    
    
    
    4,013
    
    
    
    (443,437
    )
    
    
    1,793,673Shareholders Equity:Share capital
    
    
    410,725
    
    
    
    378,633
    
    
    
    25
    
    
    
    (443,656
    )
    
    
    345,727Contributed surplus
    
    
    4,464,822
    
    
    
    783,633
    
    
    
    488
    
    
    
    (76,500
    )
    
    
    5,172,443(Deficit) retained earnings
    
    
    (3,117,174
    )
    
    
    (274,268
    )
    
    
    4,372
    
    
    
    323,643
    
    
    
    (3,063,427
    )Other comprehensive loss
    
    
    (24,211
    )
    
    
    (1,395
    )
    
    
    
    
    
    
    
    
    
    
    (25,606
    )1,734,162
    
    
    
    886,603
    
    
    
    4,885
    
    
    
    (196,513
    )
    
    
    2,429,137$
    3,733,662
    
    
    $
    1,120,200
    
    
    $
    8,898
    
    
    $
    (639,950
    )
    
    $
    4,222,810
 F-57