Form 6-K VIDEOTRON LTEE For: Jun 30
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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF AUGUST 2022
VIDEOTRON LTD./VIDÉOTRON LTÉE
(Name of Registrant)
612 St-Jacques, Montreal, Canada, H3C 4M8
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.]
| Form 20-F | x | Form 40-F | ¨ |
[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g 3-2(b) under the Securities Exchange Act of 1934.]
| Yes | ¨ | No | x |
[If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g 3-2(b): 82-____________.]
Quarterly Report for the Period Ending
March 31, 2022
VIDEOTRON LTD.
Filed in this Form 6-K
Documents index
| 1- | Quarterly report for the period ended June 30, 2022 of Videotron Ltd. |
MANAGEMENT DISCUSSION AND ANALYSIS
SECOND QUARTER 2022
CORPORATE PROFILE
Videotron Ltd., a wholly owned subsidiary of Quebecor Media Inc. (“Quebecor Media” or the “parent corporation”), is governed by the Business Corporations Act (Québec) and is one of Canada’s largest telecommunications corporations. Unless the context otherwise requires, “Videotron” or the “Corporation” refers to Videotron Ltd. and its subsidiaries.
The following Management Discussion and Analysis covers the Corporation’s main activities in the second quarter of 2022 and the major changes from the previous financial year. All amounts are stated in Canadian dollars (“CAN”) unless otherwise indicated. This report should be read in conjunction with the information in the Corporation’s Annual Report for the financial year ended December 31, 2021 (Form 20-F), which is available on the website of the U.S. Securities and Exchange Commission at www.sec.gov.
The Corporation uses financial measures not standardized under International Financial Reporting Standards (“IFRS”), such as adjusted EBITDA and adjusted cash flows from operations, and key performance indicators, such as revenue-generating unit (“RGU”) and average monthly revenue per unit (“ARPU”). The previously used average billing per unit (“ABPU”) metric has been abandoned and replaced by ARPU, which affords better comparability in view of the Corporation’s changing business model related to equipment sales. Definitions of the non-IFRS measures and key performance indicators used by the Corporation, including the new ARPU metric, are provided in the “Non-IFRS financial measures” and “Key performance indicators” sections below.
Highlights
Second quarter 2022
Revenues: $912.6 million, a $15.8 million (-1.7%) decrease.
Adjusted EBITDA:1 $487.5 million, a $6.0 million (1.2%) increase.
Net income attributable to shareholders: $192.4 million, a $31.1 million increase.
Adjusted cash flows from operations:1 $369.4 million, a $39.3 million (11.9%) increase.
Cash flows provided by operating activities: $280.8 million, a $31.3 million (12.5%) increase.
Year to date
Revenues: $1.82 billion, a $26.4 million (-1.4%) decrease.
Adjusted EBITDA: $947.5 million, a $15.1 million (1.6%) increase.
Net income attributable to shareholders: $367.3 million, a $38.0 million increase.
Adjusted cash flows from operations: $714.0 million, a $71.0 million (11.0%) increase.
Cash flows provided by operating activities: $545.7 million, a $13.8 million (2.6%) increase.
1 See “Non-IFRS financial measures.”
1
Table 1
Consolidated summary of income, cash flows and balance sheet
(in millions of Canadian dollars)
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | ||||||||||||||||
| Internet | $ | 304.9 | $ | 301.8 | $ | 603.5 | $ | 598.4 | ||||||||
| Television | 200.4 | 211.3 | 397.7 | 424.5 | ||||||||||||
| Mobile telephony | 191.8 | 174.8 | 379.1 | 345.3 | ||||||||||||
| Wireline telephony | 73.7 | 80.7 | 148.9 | 161.4 | ||||||||||||
| Mobile equipment sales | 73.0 | 63.0 | 136.8 | 123.5 | ||||||||||||
| Wireline equipment sales | 20.5 | 50.2 | 52.8 | 96.9 | ||||||||||||
| Other | 48.3 | 46.6 | 97.2 | 92.4 | ||||||||||||
| 912.6 | 928.4 | 1,816.0 | 1,842.4 | |||||||||||||
| Employee costs | (101.2 | ) | (101.7 | ) | (202.5 | ) | (206.2 | ) | ||||||||
| Purchase of goods and services | (323.9 | ) | (345.2 | ) | (666.0 | ) | (703.8 | ) | ||||||||
| Adjusted EBITDA | 487.5 | 481.5 | 947.5 | 932.4 | ||||||||||||
| Depreciation and amortization | (174.7 | ) | (180.1 | ) | (352.5 | ) | (359.2 | ) | ||||||||
| Financial expenses | (62.9 | ) | (56.9 | ) | (120.9 | ) | (112.7 | ) | ||||||||
Loss on valuation and translation of financial instruments | (0.2 | ) | (0.4 | ) | (0.3 | ) | (0.5 | ) | ||||||||
| Restructuring of operations and other items | (2.4 | ) | 2.6 | (3.2 | ) | 0.5 | ||||||||||
| Loss on debt refinancing | – | (40.1 | ) | – | (40.1 | ) | ||||||||||
| Income taxes | (54.9 | ) | (45.3 | ) | (103.3 | ) | (91.0 | ) | ||||||||
| Net income | $ | 192.4 | $ | 161.3 | $ | 367.3 | $ | 329.4 | ||||||||
2
Table 1 (continued)
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Additions to property, plant and equipment and to intangible assets: | ||||||||||||||||
| Additions to property, plant and equipment | $ | 100.2 | $ | 113.6 | $ | 193.4 | $ | 213.0 | ||||||||
| Additions to intangible assets | 17.9 | 37.8 | 40.1 | 76.4 | ||||||||||||
| 118.1 | 151.4 | 233.5 | 289.4 | |||||||||||||
| Cash flows: | ||||||||||||||||
| Adjusted cash flows from operations: | 369.4 | 330.1 | 714.0 | 643.0 | ||||||||||||
| Cash flows provided by operating activities | 280.8 | 249.5 | 545.7 | 531.9 | ||||||||||||
| June 30, 2022 | Dec. 31, 2021 | |||||||||||||||
| Balance sheet | ||||||||||||||||
| Cash and cash equivalents | $ | 1.4 | $ | 10.5 | ||||||||||||
| Working capital | 42.5 | (56.0 | ) | |||||||||||||
| Net assets related to derivative financial instruments | 142.7 | 117.2 | ||||||||||||||
| Total assets | 8,825.0 | 8,905.8 | ||||||||||||||
| Total long-term debt (including current portion) | 5,389.5 | 5,380.1 | ||||||||||||||
| Lease liabilities (current and long term) | 151.5 | 153.8 | ||||||||||||||
| Subordinated loan from parent corporation | 1,595.0 | 1,595.0 | ||||||||||||||
| Equity attributable to the shareholder | (173.1 | ) | (338.7 | ) | ||||||||||||
| · | The Corporation’s revenues decreased by $15.8 million (-1.7%) and its adjusted EBITDA increased by $6.0 million (1.2%) in the second quarter of 2022. |
| · | Videotron’s revenues from mobile services and equipment increased by $27.0 million (11.4%) in the second quarter of 2022. |
| · | Subscriber connections to the mobile telephony service increased by 34,600 (2.1%) in the second quarter of 2022. |
| · | On June 17, 2022, Videotron entered into an agreement with Rogers Communications Inc. (“Rogers”) and Shaw Communications Inc. (“Shaw”) to acquire Freedom Mobile Inc. (“Freedom Mobile”) for a total of $2.85 billion on a cash and debt-free basis. The agreement, which is conditional on regulatory approval, provides for the acquisition of Freedom Mobile brand’s entire wireless and Internet customer base, as well as its owned infrastructure, spectrum and retail outlets. It also includes a long-term undertaking by Shaw and Rogers to provide Videotron with transport services (including backhaul and backbone) and roaming services. This agreement will support the expansion of the Corporation’s telecommunications services in Ontario and Western Canada. The transaction is conditional, among other things, on clearance under the Competition Act and the approval of Innovation, Science and Economic Development Canada and would close substantially concurrently with closing of the acquisition of Shaw by Rogers. Videotron has secured the committed debt financing required for this transaction. |
Financing operations
| · | On May 20, 2022, Videotron amended its $1.50 billion secured revolving credit facility to extend its term to July 2026. Certain terms and conditions were also amended. |
3
ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS AND CASH FLOWS
Second quarter 2022 operating results
Revenues: $912.6 million in the second quarter of 2022, a $15.8 million (-1.7%) decrease.
| · | Revenues from mobile telephony services increased $17.0 million (9.7%) to $191.8 million, due primarily to an increase in the number of subscriber connections and higher average per-connection revenue. |
| · | Revenues from Internet access services increased $3.1 million (1.0%) to $304.9 million, due mainly to an increase in the customer base, partially offset by a decrease in average per-subscriber revenues. |
| · | Revenues from television services decreased $10.9 million (-5.2%) to $200.4 million, mainly because of a decrease in the subscriber base and a decrease in average per-subscriber revenues. |
| · | Revenues from wireline telephony services decreased $7.0 million (-8.7%) to $73.7 million, mainly because of the impact of the net decrease in subscriber connections, partially offset by higher average per-connection revenues. |
| · | Revenues from mobile equipment sales to customers increased $10.0 million (15.9%) to $73.0 million, mainly because of price increases. |
| · | Revenues from wireline equipment sales to customers decreased $29.7 million (-59.2%) to $20.5 million, mainly because of a lower volume of equipment sales related to the Helix platform. |
| · | Other revenues increased $1.7 million (3.6%) to $48.3 million, mainly reflecting a revenue increase at Videotron Business. |
ARPU1: Videotron’s total ARPU was $47.17 in the second quarter of 2022 compared with $47.22 in the same period of 2021, a $0.05 (-0.1%) decrease. Mobile ARPU was $38.94 in the second quarter of 2022 compared with $38.41 in the same period of 2021, a $0.53 (1.4%) increase.
Customer statistics
RGUs1 – The total number of RGUs was 6,191,100 at June 30, 2022, a decrease of 12,300 (-0.2%) from the end of the first quarter of 2022 (compared with a decrease of 20,200 in the same period of 2021), and a 12-month increase of 70,100 (1.1%) (Table 2).
Mobile telephony – The number of subscriber connections to mobile telephony services stood at 1,661,000 at June 30, 2022, an increase of 34,600 (2.1%) from the end of the first quarter of 2022 (compared with an increase of 27,200 in the same period of 2021), and a 12-month increase of 130,600 (8.5%) (Table 2).
Internet access – The number of subscribers to Internet access services stood at 1,846,100 at June 30, 2022, the same number as at the end of the first quarter of 2022 (compared with an increase of 5,300 in the same period of 2021), and a 12-month increase of 35,900 (2.0%) (Table 2).
Television – The number of subscribers to television services stood at 1,393,500 at June 30, 2022, a decrease of 12,900 (-0.9%) from the end of the first quarter of 2022 (compared with a decrease of 16,100 in the same period of 2021), and a 12-month decrease of 47,900 (-3.3%) (Table 2).
Wireline telephony – The number of subscriber connections to wireline telephony services stood at 785,700 at June 30, 2022, a decrease of 17,900 (-2.2%) from the end of the first quarter of 2022 (compared with a decrease of 25,300 in the same period of 2021), and a 12-month decrease of 86,700 (-9.9%) (Table 2).
OTT – The number of subscribers to over-the-top (“OTT”) video services stood at 504,800 at June 30, 2022, a decrease of 16,100 (-3.1%) from the end of the first quarter of 2022 (compared with a decrease of 11,300 in the same period of 2021), and a 12-month increase of 38,200 (8.2%) (Table 2).
1 See “Key performance indicators.”
4
Table 2
Quarter-end RGUs for the last eight quarters
(in thousands of units)
| June 2022 | Mar. 2022 | Dec. 2021 | Sept. 2021 | June 2021 | Mar. 2021 | Dec. 2020 | Sept. 2020 | |||||||||||||||||||||||||
| Mobile telephony | 1,661.0 | 1,626.4 | 1,601.9 | 1,571.3 | 1,530.4 | 1,503.2 | 1,481.1 | 1,452.6 | ||||||||||||||||||||||||
| Internet | 1.846.1 | 1,846.1 | 1,840.8 | 1,832.7 | 1,810.2 | 1,804.9 | 1,796.8 | 1,769.8 | ||||||||||||||||||||||||
| Television | 1,393.5 | 1,406.4 | 1,418.6 | 1,428.0 | 1,441.4 | 1,457.5 | 1,475.6 | 1,481.8 | ||||||||||||||||||||||||
| Wireline telephony | 785.7 | 803.6 | 824.9 | 847.4 | 872.4 | 897.7 | 924.7 | 947.8 | ||||||||||||||||||||||||
| OTT video | 504.8 | 520.9 | 503.4 | 467.2 | 466.6 | 477.9 | 469.7 | 452.9 | ||||||||||||||||||||||||
| Total | 6,191.1 | 6,203.4 | 6,189.6 | 6,146.6 | 6,121.0 | 6,141.2 | 6,147.9 | 6,104.9 | ||||||||||||||||||||||||
Adjusted EBITDA: $487.5 million, a $6.0 million (1.2%) increase due primarily to:
| · | decrease in operating expenses, including customer service expenses and administrative expenses; |
| · | favorable net change in non-recurring items. |
Partially offset by:
| · | impact of lower revenues. |
Cost/revenue ratio: Employee costs and purchases of goods and services for all operations, expressed as a percentage of revenues, were 46.6% in the second quarter of 2022 compared with 48.1% in the same period of 2021. The reduction was mainly due to the decrease in operating expenses and the reversal of a provision in connection with a lawsuit.
Net income attributable to shareholders: $192.4 million in the second quarter of 2022, compared with $161.3 million in the same period of 2021, an increase of $31.1 million.
| · | The main favourable variances were: |
| o | $40.1 million decrease in the loss on debt refinancing; |
| o | $6.0 million increase in adjusted EBITDA; |
| o | $5.4 million decrease in the depreciation and amortization charge. |
| · | The main unfavourable variances were: |
| o | $9.6 million increase in the income tax expense; |
| o | $6.0 million increase in financial expenses; |
| o | $5.0 million unfavourable variance in the charge for restructuring of operations and other items. |
Adjusted cash flows from operations: $369.4 million in the second quarter of 2022 compared with $330.1 million in the same period of 2021 (Table 9). The $39.3 million increase was caused by decreases of $19.9 million in additions to intangible assets and $13.4 million in additions to property, plant and equipment, due primarily to a general slowdown in investment following the review of strategic priorities, and the $6.0 million increase in adjusted EBITDA.
Cash flows provided by operating activities: $280.8 million, a $31.3 million (12.5%) increase due primarily to the favourable net change in non-cash balances related to operating activities and the increase in adjusted EBITDA, partially offset by the increase in current income taxes, the increase in the cash portion of financial expenses and the unfavourable variance in the cash portion related to restructuring of operations and other items.
Depreciation and amortization charge: $174.7 million in the second quarter of 2022, a $5.4 million decrease due mainly to the impact of decreased investment in property, plant and equipment, including lower spending related to the leasing of set-top boxes.
Financial expenses: $62.9 million in the second quarter of 2022, a $6.0 million increase caused by an unfavourable variance in gains and losses on foreign currency translation of short-term monetary items and higher average indebtedness, partially offset by the impact of the lower average interest rate on the long-term debt.
5
Loss on valuation and translation of financial instruments: $0.2 million in the second quarter of 2022, a $0.2 million favourable variance.
Charge for restructuring of operations and other items: $2.4 million in the second quarter of 2022, a $5.0 million unfavourable variance.
| · | A $0.8 million charge was recognized in the second quarter of 2022 in connection with cost-reduction measures ($0.9 million in the second quarter of 2021). Charges for other items totalling $1.6 million were also recognized in the second quarter of 2022 ($3.5 million gain in the second quarter of 2021). |
Loss on debt refinancing: $40.1 million in the second quarter of 2021.
| · | On June 3, 2021, Videotron issued a redemption notice for its 5.000% Senior Notes maturing on July 15, 2022, in the aggregate principal amount of US$800.0 million, at a redemption price of 104.002% of their principal amount. As a result, a $40.1 million net loss was recorded in the consolidated statement of income in the second quarter of 2021. |
Income tax expense: $54.9 million in the second quarter of 2022 (effective tax rate of 26.5%), compared with $45.3 million in the same period of 2021 (effective tax rate of 26.9%), a $9.6 million unfavourable variance caused mainly by the impact of the increase in taxable income. The effective tax rate is calculated considering only taxable and deductible items.
Year-to-date operating results
Revenues: $1.82 billion in the first half of 2022, a $26.4 million (-1.4%) decrease, essentially due to the same factors as those noted above in the discussion of second quarter 2022 results.
| · | Revenues from mobile telephony service increased $33.8 million (9.8%) to $379.1 million. |
| · | Revenues from Internet access services increased $5.1 million (0.9%) to $603.5 million. |
| · | Revenues from television services decreased $26.8 million (-6.3%) to $397.7 million. |
| · | Revenues from wireline telephony service decreased $12.5 million (-7.7%) to $148.9 million. |
| · | Revenues from mobile equipment sales to customers increased $13.3 million (10.8%) to $136.8 million. |
| · | Revenues from wireline equipment sales to customers decreased $44.1 million (-45.5%) to $52.8 million. |
| · | Other revenues increased $4.8 million (5.2%) to $97.2 million. |
ARPU: Videotron’s total ARPU was $46.78 in the first half of 2022 compared with $46.93 in the same period of 2021. The $0.15 (-0.3%) decrease was due in part to the fact that mobile telephony made up a larger proportion of the units. Mobile ARPU was $38.82 in the first half of 2022 compared with $38.25 in the same period of 2021, a $0.57 (1.5%) increase.
Customer statistics
RGUs – 1,500-unit increase in the first half of 2022 compared with a decrease of 26,900 in the same period of 2021.
Mobile telephony – 59,100 (3.7%) subscriber-connection increase in the first half of 2022 compared with an increase of 49,300 in the same period of 2021.
Internet access – 5,300 (0.3%) subscriber increase in the first half of 2022 compared with an increase of 13,400 in the same period of 2021.
Television – 25,100 (-1.8%) decrease in the customer base in the first half of 2022 compared with a decrease of 34,200 in the same period of 2021.
Wireline telephony – 39,200 (-4.8%) subscriber-connection decrease in the first half of 2022 compared with a decrease of 52,300 in the same period of 2021.
OTT – 1,400 (0.3%) subscriber increase in the first half of 2022 compared with a decrease of 3,100 in the same period of 2021.
6
Adjusted EBITDA: $947.5 million, a $15.1 million (1.6%) increase due primarily to:
| · | decrease in operating expenses, including customer service expenses, labour costs and administrative expenses; |
| · | favorable net change in non-recurring items. |
Partially offset by:
| · | impact of lower revenues. |
Cost/revenue ratio: Employee costs and purchases of goods and services for all operations, expressed as a percentage of revenues, were 47.8% in the first half of 2022 compared with 49.4% in the same period of 2021. The reduction was mainly due to the decrease in operating expenses and the reversal of a provision in connection with a lawsuit.
Net income attributable to shareholders: $367.3 million in the first half of 2022, compared with $329.3 million in the same period of 2021, an increase of $38.0 million.
| · | The main favourable variances were: |
| o | $40.1 million decrease in the loss on debt refinancing; |
| o | $15.1 million increase in adjusted EBITDA; |
| o | $6.7 million decrease in the depreciation and amortization charge. |
| · | The main unfavourable variances were: |
| o | $12.3 million increase in the income tax expense; |
| o | $8.2 million increase in financial expenses; |
| o | $3.7 million unfavourable variance in the charge for restructuring of operations and other items. |
Adjusted cash flows from operations: $714.0 million in the first half of 2022 compared with $643.0 million in the same period of 2021 (Table 9). The $71.0 million increase was caused by decreases of $36.3 million in additions to intangible assets and $19.6 million in additions to property, plant and equipment, due primarily to a general slowdown in investment following the review of strategic priorities, and the $15.1 million increase in adjusted EBITDA.
Cash flows provided by operating activities: $545.7 million, a $13.8 million (2.6%) increase due primarily to the favourable net change in non-cash balances related to operating activities and to the increase in adjusted EBITDA, partially offset by the increase in current income taxes, the increase in the cash portion of financial expenses and the unfavourable variance in the cash portion related to restructuring of operations and other items.
Depreciation and amortization charge: $352.5 million in the first half of 2022, a $6.7 million decrease due essentially to the same factors as those noted above under “2022/2021 second quarter operating results.”
Financial expenses: $120.9 million in the first half of 2022, a $8.2 million increase caused by higher average indebtedness and an unfavourable variance in gains and losses on foreign currency translation of short-term monetary items, partially offset by the impact of the lower average interest rate on the long-term debt.
Loss on valuation and translation of financial instruments: $0.3 million in the first half of 2022, a $0.2 million favourable variance.
Charge for restructuring of operations and other items: $3.2 million in the first half of 2022, a $3.7 million unfavourable variance.
| · | A $1.2 million charge was recognized in the first half of 2022 in connection with cost-reduction measures in various segments of the Corporation ($2.2 million in the first half of 2021). Charges for other items totalling $2.0 million were also recognized in the first half of 2022 ($3.5 million gain in the first half of 2021). An impairment charge on assets of $0.8 million was also recorded in the first six months of 2021. |
Loss on debt refinancing: $40.1 million in the first half of 2021, due to the same factors as those noted above under “2022/2021 second quarter operating results.”
Income tax expense: $103.3 million in the first half of 2022 (effective tax rate of 26.3%), compared with $91.0 million in the same period of 2021 (effective tax rate of 26.4%), a $12.3 million unfavourable variance caused essentially by the impact of the increase in taxable income. The effective tax rate is calculated considering only taxable and deductible items.
7
CASH FLOWS AND FINANCIAL POSITION
This section provides an analysis of the Corporation’s sources and uses of cash flows, as well as a financial position analysis as of the balance sheet date.
Operating activities
Second quarter 2022
Cash flows provided by operating activities: $280.8 million in the second quarter of 2022 compared with $249.5 million in the same period of 2021.
The $31.3 million increase was primarily due to:
| · | $46.7 million favourable net change in non-cash balances related to operating activities, due primarily to favourable variances in amounts payable to affiliated corporations, in contract assets and in inventory, partially offset by unfavourable variances in accounts payable, accrued charges and provisions, in interest payable and in accounts receivable; |
| · | $6.0 million increase in adjusted EBITDA. |
Partially offset by:
| · | $10.8 million increase in current income taxes; |
| · | $6.3 million increase in the cash portion of financial expenses |
| · | $5.0 million unfavourable variance in the cash portion of restructuring of operations and other items. |
Year to date
Cash flows provided by operating activities: $545.7 million in the first half of 2022 compared with $531.9 million in the same period of 2021.
The $13.8 million increase was mainly due to:
| · | $36.4 million favourable net change in non-cash balances related to operating activities, due primarily to favourable variances in contract assets, in amounts payable to affiliated corporation, in income tax payable and in accounts receivable, partially offset by unfavourable variances in accounts payable, accrued charges and provisions, in deferred revenues and in inventory. |
| · | $15.1 million increase in adjusted EBITDA; |
Partially offset by:
| · | $23.5 million increase in current income taxes. |
| · | $8.7 million increase in the cash portion of financial expenses; |
| · | $4.5 million unfavourable variance in the cash portion of restructuring of operations and other items. |
Working capital: $42.5 million at June 30, 2022 compared with negative $56.0 million at December 31, 2021. The $98.5 million favourable variance was due primarily to an increase in inventory and decreases in accounts payable, accrued charges and provisions and in deferred revenue, partially offset by investments in contract assets.
Investing activities
Second quarter 2022
Cash flows used for additions to property, plant and equipment: $96.4 million in the second quarter of 2022 compared with $101.3 million in the same period of 2021, a $4.9 million reduction.
Deferred subsidies used to finance additions to property, plant and equipment: $46.1 million in the second quarter of 2022 compared with $4.4 million in the same quarter of 2021. These amounts represent the use of subsidies recorded as a reduction of additions to property, plant and equipment in connection with the program to roll out high-speed Internet services in various regions of Québec. This use is now presented on the consolidated statement of cash flows in accordance with the IFRS Interpretations Committee decision on the inclusion of restricted cash in this statement, which was finalized during the second quarter of 2022.
8
Cash flows used for additions to intangible assets: $18.8 million in the second quarter of 2022 compared with $42.1 million in the same period of 2021. The $23.3 million reduction was mainly due to a slowdown in investment following the completion of certain strategic projects and a $3.4 million favourable net change in current non-cash items.
Proceeds from disposal of assets: $4.1 million in the second quarter of 2022 compared with $3.1 million in the same period of 2021.
Business acquisitions: $6.7 million in the second quarter of 2021.
Year to date
Cash flows used for additions to property, plant and equipment: $185.6 million in the first half of 2022 compared with $208.9 million in the same period of 2021. The $23.3 million reduction was due primarily to a general slowdown in investment following the review of strategic priorities and a $3.7 million favourable net change in current non-cash items.
Deferred subsidies used to finance additions to property, plant and equipment: $77.8 million in the first half of 2022 compared with net subsidies of $206.3 million received in the same period of 2021. The 2022 amount represents the use of subsidies recorded as a reduction of additions to property, plant and equipment in connection with the program to roll out high-speed Internet services in various regions of Québec. In the first half of 2021, $216.2 million was advanced under this program and $9.9 million was utilized. These amounts are now presented on the consolidated statement of cash flows in accordance with the IFRS Interpretations Committee decision on the inclusion of restricted cash in this statement, which was finalized during the second quarter of 2022.
Cash flows used for additions to intangible assets: $44.8 million in the first half of 2022 compared with $93.4 million in the same period of 2021. The $48.6 million reduction was mainly due to a slowdown in investment following the completion of certain strategic projects and a $12.3 million favourable net change in current non-cash items.
Proceeds from disposal of assets: $5.5 million in the first half of 2022 compared with $3.1 million in the same period of 2021.
Business acquisitions: $6.7 million in the first half of 2021.
Financing activities
Consolidated debt (long-term debt plus bank indebtedness): $20.9 million increase in the first half of 2022; $25.5 million net favourable variance in assets and liabilities related to derivative financial instruments.
| · | Debt increases in the first half of 2022 essentially consisted of: |
| o | $40.7 million unfavourable impact of exchange rate fluctuations. The consolidated debt increase attributable to this item was offset by the increase in the asset (or decrease in the liability) related to derivative financial instruments; |
| o | $11.5 million increase in the bank indebtedness; |
| · | Debt reductions in the first half of 2022 essentially consisted of: |
| o | $22.0 million decrease in Videotron’s drawings on its secured revolving credit facility; |
| o | $10.1 million decrease in debt attributable to changes in fair value related to hedged interest risk. |
| · | Assets and liabilities related to derivative financial instruments totalled a net asset of $142.7 million at June 30, 2022 compared with $117.2 million at December 31, 2021. The $25.5 million net favourable variance was mainly due to: |
| o | favourable impact of exchange rate fluctuations on the value of derivative financial instruments. |
Partially offset by:
| o | unfavourable impact of interest rate trends in Canada, compared with the United States, on the fair value of derivative financial instruments. |
| · | On May 20, 2022, Videotron amended its $1.50 billion secured revolving credit facility to extend its term to July 2026. Certain terms and conditions were also amended. |
9
Financial Position
Net available liquidity: $1.22 billion at June 30, 2022 for Videotron and its wholly owned subsidiaries, consisting of $1.24 billion in available unused revolving credit facilities, less $11.5 million in bank indebtedness.
As of June 30, 2022, minimum principal payments on long-term debt in the coming years were as follows:
Table 3
Minimum principal payments on the Corporation’s long-term debt
12-month periods ended June 30
(in millions of Canadian dollars)
| 2023 | $ | – | |||
| 2024 | 772.4 | ||||
| 2025 | 400.0 | ||||
| 2026 | 375.0 | ||||
| 2027 | 1,035.9 | ||||
| 2028 and thereafter | 2,843.6 | ||||
| Total | $ | 5,426.9 |
From time to time, the Corporation may (but is under no obligation to) seek to retire or purchase its outstanding Senior Notes, in open market purchases, privately negotiated transactions, or otherwise. Such repurchases, if any, will depend on its liquidity position and requirements, prevailing market conditions, contractual restrictions and other factors. The amounts involved may be material.
The weighted average term of the Corporation’s consolidated debt was approximately 5.5 years as of June 30, 2022 (5.8 years as of December 31, 2021). After taking into account hedging instruments, the debt consisted of approximately 91.7% fixed-rate debt (91.4% at December 31, 2021) and 8.3% floating-rate debt (8.6% at December 31, 2021).
The Corporation’s management believes that cash flows and available sources of financing should be sufficient to cover committed cash requirements for capital investments, business acquisitions, working capital, interest payments, income tax payments, debt and lease repayments, pension plan contributions, share repurchases and dividends or distributions to the shareholder in the future. The Corporation believes it will be able to meet future debt maturities, which are staggered over the coming years.
Pursuant to its financing agreements, the Corporation is required to maintain certain financial ratios. At June 30, 2022, the Corporation was in compliance with all required financial ratios.
Dividends declared and paid
The Corporation paid $296.0 million in common dividends to the parent corporation in the first half of 2022 ($150.0 million in the same period of 2021). The Corporation expects to make cash distributions to its parent corporation in the future, as determined by the Board of Directors, and within the limits set by the terms of the indebtedness and applicable laws.
Reduction of paid-up capital
During the three-month and six-month periods ended June 30, 2021, the Corporation reduced its paid-up capital for cash considerations of $550.0 million and $700.0 million respectively.
10
Analysis of consolidated balance sheet
Table 4
Consolidated balance sheet of the Corporation
Analysis of main differences between June 30, 2022 and December 31, 2021
(in millions of Canadian dollars)
| June 30,
20221 | Dec. 31, 20211 | Difference | Main reasons for difference | |||||||
| Assets | ||||||||||
| Contract assets | 78.5 | 129.4 | (50.9 | ) | Increased financing of equipment sales. | |||||
| Inventories | 223.3 | 153.4 | 69.9 | Impact of current variances in activities. | ||||||
| Property, plant and equipment | 2,682.6 | 2,761.6 | (79.0 | ) | Depreciation for the period less additions to property, plant and equipment. | |||||
| Intangible assets | 2,180.8 | 2,212.0 | (31.2 | ) | Amortization for the period less additions to intangible assets. | |||||
| Derivative financial instruments2 | 142.7 | 117.2 | 25.5 | See “Financing activities.” | ||||||
| Other assets | 331.9 | 251.3 | 80.6 | Gain on remeasurement of defined benefit plans. | ||||||
| Liabilities | ||||||||||
| Accounts payable, accrued charges and provisions | 512.3 | 568.4 | (56.1 | ) | Impact of current variances in operating activities. | |||||
| Deferred revenue | 253.1 | 284.9 | (31.8 | ) | Impact of current variances in activities. | |||||
| Long-term debt, including bank indebtedness | 5,401.0 | 5,380.1 | 20.9 | See “Financing activities.” | ||||||
| Other liabilities | 118.6 | 188.3 | (69.7 | ) | Gain on remeasurement of defined benefit plans. | |||||
| 1 | The “restricted cash” and “deferred subsidies” line items are combined for the purposes of the analysis. |
| 2 | Long-term assets less long-term liabilities. |
11
ADDITIONAL INFORMATION
Contractual obligations
At June 30, 2022, material contractual obligations of operating activities included: capital repayment and interest on long-term debt; and lease liabilities; capital asset purchases and other commitments; and obligations related to derivative financial instruments, less estimated future receipts on derivative financial instruments. Table 5 below shows a summary of these contractual obligations.
Table 5
Contractual obligations of the Corporation as of June 30, 2022
(in millions of Canadian dollars)
| Total | Under
1 year | 1-3 years | 3-5 years | 5
years or more | ||||||||||||||||
| Long-term debt1,2 | $ | 5,426.9 | $ | – | $ | 1,172.4 | $ | 1,410.9 | $ | 2,843.6 | ||||||||||
| Interest payments3 | 1,220.3 | 195.7 | 443.2 | 325.0 | 256.4 | |||||||||||||||
| Lease liabilities | 151.5 | 36.7 | 60.0 | 31.4 | 23.4 | |||||||||||||||
| Interest payments on lease liabilities | 18.2 | 5.8 | 7.2 | 3.4 | 1.8 | |||||||||||||||
| Additions to property, plant and equipment and other commitments | 907.5 | 182.7 | 497.1 | 106.1 | 121.6 | |||||||||||||||
| Derivative financial instruments4 | (116.3 | ) | – | (110.1 | ) | 32.0 | (38.2 | ) | ||||||||||||
| Total contractual obligations | $ | 7,608.1 | $ | 420.9 | $ | 2,069.8 | $ | 1,908.8 | $ | 3,208.6 | ||||||||||
| 1 | Excludes obligations under subordinated loans due to the parent corporation; the proceeds of which are used to invest in preferred shares of an affiliated corporation for tax consolidation purposes |
| 2 | The carrying value of long-term debt excludes changes in the fair value of long-term debt related to hedged interest rate risk and financing costs. |
| 3 | Estimated interest payable on long-term debt, based on interest rates, hedging of interest rates and hedging of foreign exchange rates as of June 30, 2022. |
| 4 | Estimated future receipts, net of future disbursements, related to foreign exchange hedging on the principal of U.S.-dollar-denominated debt using derivative financial instruments. |
Related party transactions
The following describes transactions in which the Corporation and its directors, executive officers and affiliates are involved. The Corporation believes that each of the transactions described below was on terms no less favourable to the Corporation than could have been obtained from independent third parties.
Operating transactions
During the second quarter of 2022, the Corporation incurred various expenses, including lease charges, from the parent and affiliated corporations, in the amount of $28.7 million ($27.6 million in the same quarter of 2021), which are included in purchase of goods and services. The Corporation generated revenues from the parent and affiliated corporations in the amount of $1.2 million ($1.4 million in the same quarter of 2021).
During the first six months of 2022, the Corporation incurred various expenses, including lease charges, from the parent and affiliated corporations, in the amount of $59.4 million ($55.8 million in the same period of 2021), which are included in purchase of goods and services. The Corporation generated revenues from the parent and affiliated corporations in the amount of $2.1 million ($2.4 million in the same period of 2021).
These transactions were accounted for at the consideration agreed between the parties.
Management arrangements
The Corporation has entered into management arrangements with its parent corporation. Under these management arrangements, the parent corporation provides management services on a cost-reimbursement basis. The Corporation incurred management fees of $6.1 million with its parent corporation in the second quarter of 2022 ($11.0 million in the same quarter of 2021). The Corporation incurred management fees of $13.2 million with its parent corporation in the first six months of 2022 ($23.5 million in the same period of 2021).
12
Financial instruments
The Corporation uses a number of financial instruments, mainly cash and cash equivalents, restricted cash, trade receivables, contract assets, long-term investments, bank indebtedness, trade payables, accrued liabilities, long-term debt, lease liabilities and derivative financial instruments.
In order to manage its foreign exchange and interest rate risks, the Corporation uses derivative financial instruments: (i) to set in CAN dollars future payments on debts denominated in U.S. dollars (interest and principal) and certain purchases of inventories and other capital expenditures denominated in a foreign currency; and (ii) to achieve a targeted balance of fixed- and floating-rate debt. The Corporation does not intend to settle its derivative financial instruments prior to their maturity as none of these instruments is held or issued for speculative purposes.
Certain cross-currency swaps entered into by the Corporation include an option that allows each party to unwind the transaction on a specific date at the then settlement amount.
The carrying value and fair value of long-term debt and derivative financial instruments as of June 30, 2022 and December 31, 2021 were as follows:
Table 6
Fair value of long-term debt and derivative financial instruments
(in millions of Canadian dollars)
| June 30, 2022 | December 31, 2021 | |||||||||||||||
| Asset (liability) | Carrying value | Fair
value | Carrying
value | Fair
value | ||||||||||||
| Long-term debt1 | $ | (5,426.9 | ) | $ | (4,798.5 | ) | $ | (5,408.2 | ) | $ | (5,470.2 | ) | ||||
| Derivative financial instruments | ||||||||||||||||
| Foreign exchange forward contracts | 2.6 | 2.6 | 0.9 | 0.9 | ||||||||||||
| Cross-currency swaps | 140.1 | 140.1 | 116.3 | 116.3 | ||||||||||||
| 1 | The carrying value of long-term debt excludes changes in the fair value of long-term debt related to hedged interest rate risk and financing costs. |
The fair value of long-term debt is estimated based on quoted market prices when available or on valuation models. When the Corporation uses valuation models, the fair value is estimated using discounted cash flows using period-end market yields or the market value of similar instruments with the same maturity.
The fair value of derivative financial instruments recognized in the consolidated balance sheets is estimated as per the Corporation’s valuation models. These models project future cash flows and discount the future amounts to a present value using the contractual terms of the derivative financial instrument and factors observable in external market data, such as period-end swap rates and foreign exchange rates. An adjustment is also included to reflect non-performance risk, impacted by the financial and economic environment prevailing at the date of the valuation, in the recognized measure of the fair value of the derivative financial instruments by applying a credit default premium, estimated using a combination of observable and unobservable inputs in the market, to the net exposure of the counterparty or the Corporation.
13
Losses on valuation and translation of financial instruments for the second quarters and first half of 2022 and 2021 are summarized in Table 7.
Table 7
Loss on valuation and translation of financial instruments
(in millions of Canadian dollars)
| Three
months ended June 30 | Six
months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss on the ineffective portion of fair value hedges | $ | 0.2 | $ | 0.4 | $ | 0.3 | $ | 0.5 | ||||||||
| $ | 0.2 | $ | 0.4 | $ | 0.3 | $ | 0.5 | |||||||||
A $6.3 million gain and a $5.0 million loss on cash flow hedges were recorded under “Other comprehensive income” in the second quarter and first half of 2022 respectively (gains of $0.1 million and $0.5 million in the second quarter and first half of 2021 respectively).
Non-IFRS financial measures
The financial measures not standardized under IFRS that are used by the Corporation to assess its financial performance, such as adjusted EBITDA and adjusted cash flows from operations, are not calculated in accordance with, or recognized by IFRS. The Corporation’s method of calculating these non-IFRS financial measures may differ from the methods used by other companies and, as a result, the non-IFRS financial measures presented in this document may not be comparable to other similarly titled measures disclosed by other companies.
Adjusted EBITDA
In its analysis of operating results, the Corporation defines adjusted EBITDA, as reconciled to net income under IFRS, as net income before depreciation and amortization, financial expenses, loss on valuation and translation of financial instruments, restructuring of operations and other items, loss on debt refinancing and income tax. Adjusted EBITDA as defined above is not a measure of results that is consistent with IFRS. It is not intended to be regarded as an alternative to IFRS financial performance measures or to the statement of cash flows as a measure of liquidity. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. The Corporation’s management and Board of Directors use this measure in evaluating its consolidated results as well as the results of its operating segments. This measure eliminates the significant level of impairment and depreciation/amortization of tangible and intangible assets and is unaffected by the capital structure or investment activities of the Corporation.
Adjusted EBITDA is also relevant because it is a component of the Corporation’s annual incentive compensation programs. A limitation of this measure, however, is that it does not reflect the periodic costs of tangible and intangible assets used in generating revenues of the Corporation. The Corporation also uses other measures that do reflect such costs, such as adjusted cash flows from operations. The Corporation’s definition of adjusted EBITDA may not be the same as similarly titled measures reported by other companies.
14
Table 8 provides a reconciliation of adjusted EBITDA to net income as disclosed in the Corporation’s condensed consolidated financial statements.
Table 8
Reconciliation of the adjusted EBITDA measure used in this report to the net income measure used in the condensed consolidated financial statements
(in millions of Canadian dollars)
| Three
months ended June 30 | Six
months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Adjusted EBITDA | $ | 487.5 | $ | 481.5 | $ | 947.5 | $ | 932.4 | ||||||||
| Depreciation and amortization | (174.7 | ) | (180.1 | ) | (352.5 | ) | (359.2 | ) | ||||||||
| Financial expenses | (62.9 | ) | (56.9 | ) | (120.9 | ) | (112.7 | ) | ||||||||
| Loss on valuation and translation of financial instruments | (0.2 | ) | (0.4 | ) | (0.3 | ) | (0.5 | ) | ||||||||
| Restructuring of operations and other items | (2.4 | ) | 2.6 | (3.2 | ) | 0.5 | ||||||||||
| Loss on debt refinancing | – | (40.1 | ) | – | (40.1 | ) | ||||||||||
| Income taxes | (54.9 | ) | (45.3 | ) | (103.3 | ) | (91.0 | ) | ||||||||
| Net income | $ | 192.4 | $ | 161.3 | $ | 367.3 | $ | 329.4 | ||||||||
15
Adjusted cash flows from operations
Adjusted cash flows from operations
Adjusted cash flows from operations represents adjusted EBITDA, less additions to property, plant and equipment and to intangible assets (excluding licence acquisitions and renewals). Adjusted cash flows from operations represents funds available for interest and income tax payments, expenditures related to restructuring programs, business acquisitions, licence acquisitions and renewals, payment of dividends, reduction of paid-up capital, repayment of long-term debt and lease liabilities, and share repurchases. Adjusted cash flows from operations is not a measure of liquidity that is consistent with IFRS. It is not intended to be regarded as an alternative to IFRS financial performance measures or to the statement of cash flows as a measure of liquidity. Adjusted cash flows from operations is used by the Corporation’s management and Board of Directors to evaluate the cash flows generated by its operations. Adjusted cash flows from operations is also relevant because it is a component of the Corporation’s annual incentive compensation programs. The Corporation’s definition of adjusted cash flows from operations may not be identical to similarly titled measures reported by other companies.
16
Tables 9 and 10 provide a reconciliation of adjusted cash flows from operations to cash flows provided by operating activities reported in the condensed consolidated financial statements.
Table 9
Adjusted cash flows from operations
(in millions of Canadian dollars)
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Adjusted EBITDA | $ | 487.5 | $ | 481.5 | $ | 947.5 | $ | 932.4 | ||||||||
| Additions to property, plant and equipment1 | (100.2 | ) | (113.6 | ) | (193.4 | ) | (213.0 | ) | ||||||||
| Additions to intangible assets2 | (17.9 | ) | (37.8 | ) | (40.1 | ) | (76.4 | ) | ||||||||
| Adjusted cash flows from operations | $ | 369.4 | $ | 330.1 | $ | 714.0 | $ | 643.0 | ||||||||
| 1 Reconciliation to cash flows used for additions to property, plant and equipment as per condensed consolidated financial statements | Three
months ended June 30 | Six months
ended June 30 | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Additions to property, plant and equipment | $ | (100.2 | ) | $ | (113.6 | ) | $ | (193.4 | ) | $ | (213.0 | ) | ||||
| Net variance in current operating items related to additions to property, plant and equipment (excluding government credits receivable for major capital projects) | 3.8 | 12.3 | 7.8 | 4.1 | ||||||||||||
| Cash flows used for additions to property, plant and equipment | $ | (96.4 | ) | $ | (101.3 | ) | $ | (185.6 | ) | $ | (208.9 | ) | ||||
| 2 Reconciliation to cash flows used for additions to intangible assets as per condensed consolidated financial statements | Three
months ended June 30 | Six months
ended June 30 | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Additions to intangible assets | $ | (17.9 | ) | $ | (37.8 | ) | $ | (40.1 | ) | $ | (76.4 | ) | ||||
| Net variance in current operating items related to additions to intangible assets (excluding government credits receivable for major capital projects) | (0.9 | ) | (4.3 | ) | (4.7 | ) | (17.0 | ) | ||||||||
| Cash flows used for additions to intangible assets | $ | (18.8 | ) | $ | (42.1 | ) | $ | (44.8 | ) | $ | (93.4 | ) | ||||
17
Table 10
Free cash flows from continuing operating activities and cash flows provided by operating activities reported in the condensed consolidated financial statements
(in millions of Canadian dollars)
| Three months ended June 30 | Six months ended June 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash flows from operations from Table 9 | $ | 369.4 | $ | 330.1 | $ | 714.0 | $ | 643.0 | ||||||||
| Plus (minus) | ||||||||||||||||
| Additions to property, plant and equipment | 100.2 | 113.6 | 193.4 | 213.0 | ||||||||||||
| Additions to intangible assets | 17.9 | 37.8 | 40.1 | 76.4 | ||||||||||||
| Adjusted EBITDA | 487.5 | 481.5 | 947.5 | 932.4 | ||||||||||||
| Plus (minus) | ||||||||||||||||
| Cash portion of financial expenses | (61.5 | ) | (55.2 | ) | (118.1 | ) | (109.4 | ) | ||||||||
| Cash portion related to restructuring of operations and other items | (2.4 | ) | 2.6 | (3.2 | ) | 1.3 | ||||||||||
| Current income taxes | (72.0 | ) | (61.2 | ) | (147.3 | ) | (123.8 | ) | ||||||||
| Other | (1.9 | ) | (2.6 | ) | (0.7 | ) | 0.3 | |||||||||
| Net change in non-cash balances related to operating activities | (68.9 | ) | (115.6 | ) | (132.5 | ) | (168.9 | ) | ||||||||
| Cash flows provided by operating activities | $ | 280.8 | $ | 249.5 | $ | 545.7 | $ | 531.9 | ||||||||
Key performance indicators
Revenue-generating unit
The Corporation uses RGU, an industry metric, as a key performance indicator. An RGU represents, as the case may be, subscriptions to the Internet access, television and OTT services, and subscriber connections to the mobile and wireline telephony services. RGU is not a measurement that is consistent with IFRS and the Corporation’s definition and calculation of RGU may not be the same as identically titled measurements reported by other companies or published by public authorities.
Average monthly revenue per unit
The Corporation uses ARPU, an industry metric, as a key performance indicator. This indicator is used to measure monthly revenues per average RGU. ARPU is not a measurement that is consistent with IFRS and the Corporation’s definition and calculation of ARPU may not be the same as identically titled measurements reported by other companies. The previously used ABPU metric was abandoned in the first quarter of 2022 and replaced by ARPU, which affords better comparability in view of the Corporation’s changing business model related to equipment sales.
Mobile ARPU is calculated by dividing mobile telephony revenues by the average number of mobile RGUs during the applicable period, and then dividing the resulting amount by the number of months in the applicable period.
Total ARPU is calculated by dividing the combined revenues from mobile and wireline telephony, Internet access, television and OTT services by the total average number of RGUs from mobile and wireline telephony, Internet access and television services during the applicable period, and then dividing the resulting amount by the number of months in the applicable period.
18
Table 11
ARPU for the past eight quarters
(in Canadian dollars)
| Q2-2022 | Q1-2022 | Q4-2021 | Q3-2021 | Q2-2021 | Q1-2021 | Q4-2020 | Q3-2020 | |||||||||||||||||||||||||
| Mobile ARPU | $ | 38.94 | $ | 38.70 | $ | 38.97 | $ | 39.13 | $ | 38.41 | $ | 38.08 | $ | 38.69 | $ | 39.20 | ||||||||||||||||
| Total ARPU | $ | 47.17 | $ | 46.40 | $ | 47.07 | $ | 47.32 | $ | 47.22 | $ | 46.64 | $ | 46.94 | $ | 46.84 | ||||||||||||||||
Cautionary statement regarding forward-looking statements
This report contains forward-looking statements with respect to the Corporation’s financial condition, results of operations, business, and certain of its plans and objectives. These forward-looking statements are made pursuant to the “Safe Harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industries in which the Corporation operates as well as beliefs and assumptions made by its management. Such statements include, in particular, statements about the Corporation’s plans, prospects, financial position and business strategies. Words such as “may,” “will,” “expect,” “continue,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe” or “seek,” or the negatives of those terms or variations of them or similar terminology are intended to identify such forward-looking statements. Although the Corporation believes that the expectations reflected in these forward-looking statements are reasonable, these statements, by their nature, involve risks and uncertainties and are not guarantees of future performance. Such statements are also subject to assumptions concerning, among other things: the Corporation’s anticipated business strategies; anticipated trends in its business; anticipated reorganizations of any of its businesses, and any related restructuring provisions or impairment charges; and its ability to continue to control costs. The Corporation can give no assurance that these estimates and expectations will prove to have been correct. Actual outcomes and results may, and often do, differ from what is expressed, implied or projected in such forward-looking statements, and such differences may be material. Some important factors that could cause actual results to differ materially from those expressed in these forward-looking statements include, but are not limited to:
| · | Videotron’s ability to continue successfully developing its network and the facilities that support its mobile services; |
| · | general economic, financial or market conditions and variations in its businesses; |
| · | the intensity of competitive activity in the industries in which Videotron operates; |
| · | new technologies that might change consumer behaviour towards Videotron’s product suites; |
| · | unanticipated higher capital spending required for developing Videotron’s network or to address the continued development of competitive alternative technologies, or the inability to obtain additional capital to continue the development of Videotron’s businesses; |
| · | Videotron’s ability to implement its business and operating strategies successfully and to manage its growth and expansion; |
| · | disruptions to the network through which Videotron provides its television, Internet access, mobile and wireline telephony and OTT services, and its ability to protect such services against piracy, unauthorized access and other security breaches; |
| · | labour disputes or strikes: |
| · | service interruptions resulting from equipment breakdown, network failure, the threat of natural disaster, epidemics, pandemics and other public health crises, including the COVID-19 pandemic, and political instability in some countries; |
| · | impact of emergency measures implemented by various levels of government; |
| · | changes in Videotron’s ability to obtain services and equipment critical to its operations; |
| · | changes in laws and regulations, or in their interpretations, which could result, among other things, in the loss (or reduction in value) of Videotron’s licenses or markets, or in an increase in competition, compliance costs or capital expenditures; |
| · | Videotron’s substantial indebtedness, the tightening of credit markets, and the restrictions on its business imposed by the terms of its debt; and |
| · | interest rate fluctuations that could affect a portion of Videotron’s interest payment requirements on long-term debt. |
19
The Corporation cautions investors and others that the above list of cautionary statements is not exhaustive. These and other factors are discussed in further detail in the Annual Report on Form 20-F under “Item 3. Key Information – B. Risk Factors”. Each of these forward-looking statements speaks only as of the date of this report. The Corporation disclaims any obligation to update these statements unless applicable securities laws require it to do so. The Corporation advises investors and others to consult any documents it may file with or furnish to the U.S. Securities and Exchange Commission.
20
Condensed consolidated financial statements of
VIDEOTRON LTD.
Three-month and six-month periods ended June 30, 2022 and 2021
VIDEOTRON LTD.
CONSOLIDATED STATEMENTS OF INCOME
| (in millions of Canadian dollars) | Three months ended | Six months ended | ||||||||||||||||
| (unaudited) | June 30 | June 30 | ||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Revenues | ||||||||||||||||||
| Internet | $ | 304.9 | $ | 301.8 | $ | 603.5 | $ | 598.4 | ||||||||||
| Television | 200.4 | 211.3 | 397.7 | 424.5 | ||||||||||||||
| Mobile telephony | 191.8 | 174.8 | 379.1 | 345.3 | ||||||||||||||
| Wireline telephony | 73.7 | 80.7 | 148.9 | 161.4 | ||||||||||||||
| Mobile equipment sales | 73.0 | 63.0 | 136.8 | 123.5 | ||||||||||||||
| Wireline equipment sales | 20.5 | 50.2 | 52.8 | 96.9 | ||||||||||||||
| Other | 48.3 | 46.6 | 97.2 | 92.4 | ||||||||||||||
| 912.6 | 928.4 | 1,816.0 | 1,842.4 | |||||||||||||||
| Employee costs | 2 | 101.2 | 101.7 | 202.5 | 206.2 | |||||||||||||
| Purchase of goods and services | 2 | 323.9 | 345.2 | 666.0 | 703.8 | |||||||||||||
| Depreciation and amortization | 174.7 | 180.1 | 352.5 | 359.2 | ||||||||||||||
| Financial expenses | 3 | 62.9 | 56.9 | 120.9 | 112.7 | |||||||||||||
| Loss on valuation and translation of financial instruments | 0.2 | 0.4 | 0.3 | 0.5 | ||||||||||||||
| Restructuring of operations and other items | 4 | 2.4 | (2.6 | ) | 3.2 | (0.5 | ) | |||||||||||
| Loss on debt refinancing | 6 | - | 40.1 | - | 40.1 | |||||||||||||
| Income before income taxes | 247.3 | 206.6 | 470.6 | 420.4 | ||||||||||||||
| Income taxes (recovery): | ||||||||||||||||||
| Current | 72.0 | 61.2 | 147.3 | 123.8 | ||||||||||||||
| Deferred | (17.1 | ) | (15.9 | ) | (44.0 | ) | (32.8 | ) | ||||||||||
| 54.9 | 45.3 | 103.3 | 91.0 | |||||||||||||||
| Net income | $ | 192.4 | $ | 161.3 | $ | 367.3 | $ | 329.4 | ||||||||||
| Net income attributable to | ||||||||||||||||||
| Shareholder | $ | 192.4 | $ | 161.3 | $ | 367.3 | $ | 329.3 | ||||||||||
| Non-controlling interests | - | - | - | 0.1 | ||||||||||||||
| See accompanying notes to condensed consolidated financial statements. |
1
VIDEOTRON LTD.
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
| (in millions of Canadian dollars) | Three months ended | Six months ended | ||||||||||||||||
| (unaudited) | June 30 | June 30 | ||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||
| Net income | $ | 192.4 | $ | 161.3 | $ | 367.3 | $ | 329.4 | ||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||
| Items that may be reclassified to income: | ||||||||||||||||||
| Cash flow hedges: | ||||||||||||||||||
| Gain (loss) on valuation of derivative financial instruments | 6.3 | 0.1 | (5.0 | ) | 0.5 | |||||||||||||
| Deferred income taxes | (2.1 | ) | 2.1 | 0.3 | 3.0 | |||||||||||||
| Items that will not be reclassified to income: | ||||||||||||||||||
| Defined benefit plans: | ||||||||||||||||||
| Re-measurement gain (loss) | 9 | 67.0 | (4.0 | ) | 135.0 | 98.5 | ||||||||||||
| Deferred income taxes | (18.0 | ) | 1.0 | (36.0 | ) | (26.2 | ) | |||||||||||
| Reclassification to income: | 6 | |||||||||||||||||
| Gain related to cash flow hedges | - | (1.0 | ) | - | (1.0 | ) | ||||||||||||
| Deferred income taxes | - | 0.6 | - | 0.6 | ||||||||||||||
| 53.2 | (1.2 | ) | 94.3 | 75.4 | ||||||||||||||
| Comprehensive income | $ | 245.6 | $ | 160.1 | $ | 461.6 | $ | 404.8 | ||||||||||
| Comprehensive income attributable to | ||||||||||||||||||
| Shareholder | $ | 245.6 | $ | 160.1 | $ | 461.6 | $ | 404.7 | ||||||||||
| Non-controlling interests | - | - | - | 0.1 | ||||||||||||||
| See accompanying notes to condensed consolidated financial statements. | ||||||||||||||||||
2
VIDEOTRON LTD.
CONSOLIDATED STATEMENTS OF EQUITY
| (in millions of Canadian dollars) |
| (unaudited) |
| Equity attributable to shareholder | Equity | |||||||||||||||||||
| Accumulated | attributable | |||||||||||||||||||
| other com- | to non- | |||||||||||||||||||
| Capital | prehensive | controlling | Total | |||||||||||||||||
| stock | Deficit | (loss) income | interests | equity | ||||||||||||||||
| (note 7 | ) | (note 9 | ) | |||||||||||||||||
| Balance as of December 31, 2020 | $ | 1,015.6 | $ | (721.8 | ) | $ | (105.7 | ) | $ | 0.4 | $ | 188.5 | ||||||||
| Net income | - | 329.3 | - | 0.1 | 329.4 | |||||||||||||||
| Other comprehensive income | - | - | 75.4 | - | 75.4 | |||||||||||||||
| Reduction of paid-up capital | (700.0 | ) | - | - | - | (700.0 | ) | |||||||||||||
| Dividends | - | (150.0 | ) | - | (0.1 | ) | (150.1 | ) | ||||||||||||
| Balance as of June 30, 2021 | 315.6 | (542.5 | ) | (30.3 | ) | 0.4 | (256.8 | ) | ||||||||||||
| Net income | - | 364.0 | - | - | 364.0 | |||||||||||||||
| Other comprehensive income | - | - | 9.5 | - | 9.5 | |||||||||||||||
| Reduction of paid-up capital | (20.0 | ) | - | - | - | (20.0 | ) | |||||||||||||
| Dividends | - | (435.0 | ) | - | - | (435.0 | ) | |||||||||||||
| Balance as of December 31, 2021 | 295.6 | (613.5 | ) | (20.8 | ) | 0.4 | (338.3 | ) | ||||||||||||
| Net income | - | 367.3 | - | - | 367.3 | |||||||||||||||
| Other comprehensive income | - | - | 94.3 | - | 94.3 | |||||||||||||||
| Dividends | - | (296.0 | ) | - | (0.2 | ) | (296.2 | ) | ||||||||||||
| Balance as of June 30, 2022 | $ | 295.6 | $ | (542.2 | ) | $ | 73.5 | $ | 0.2 | $ | (172.9 | ) | ||||||||
See accompanying notes to condensed consolidated financial statements.
3
VIDEOTRON LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| (in millions of Canadian dollars) | Three months ended | Six months ended | ||||||||||||||||||
| (unaudited) | June 30 | June 30 | ||||||||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
| Cash flows related to operating activities | ||||||||||||||||||||
| Net income | $ | 192.4 | $ | 161.3 | $ | 367.3 | $ | 329.4 | ||||||||||||
| Adjustments for: | ||||||||||||||||||||
| Depreciation of property, plant and equipment | 130.1 | 137.1 | 261.2 | 274.3 | ||||||||||||||||
| Amortization of intangible assets | 34.4 | 33.4 | 71.1 | 65.8 | ||||||||||||||||
| Depreciation of right-of-use assets | 10.2 | 9.6 | 20.2 | 19.1 | ||||||||||||||||
| Loss on valuation and translation of financial instruments | 0.2 | 0.4 | 0.3 | 0.5 | ||||||||||||||||
| Impairment of assets | 4 | - | - | - | 0.8 | |||||||||||||||
| Loss on debt refinancing | 6 | - | 40.1 | - | 40.1 | |||||||||||||||
| Amortization of financing costs | 3 | 1.4 | 1.7 | 2.8 | 3.3 | |||||||||||||||
| Deferred income taxes | (17.1 | ) | (15.9 | ) | (44.0 | ) | (32.8 | ) | ||||||||||||
| Other | (1.9 | ) | (2.6 | ) | (0.7 | ) | 0.3 | |||||||||||||
| 349.7 | 365.1 | 678.2 | 700.8 | |||||||||||||||||
| Net change in non-cash balances related to operating activities | (68.9 | ) | (115.6 | ) | (132.5 | ) | (168.9 | ) | ||||||||||||
| Cash flows provided by operating activities | 280.8 | 249.5 | 545.7 | 531.9 | ||||||||||||||||
| Cash flows related to investing activities | ||||||||||||||||||||
| Additions to property, plant and equipment | 5 | (96.4 | ) | (101.3 | ) | (185.6 | ) | (208.9 | ) | |||||||||||
| Deferred subsidies (used) received to finance additions to property, plant and equipment | 1,5 | (46.1 | ) | (4.4 | ) | (77.8 | ) | 206.3 | ||||||||||||
| (142.5 | ) | (105.7 | ) | (263.4 | ) | (2.6 | ) | |||||||||||||
| Additions to intangible assets | (18.8 | ) | (42.1 | ) | (44.8 | ) | (93.4 | ) | ||||||||||||
| Business acquisitions | - | (6.7 | ) | - | (6.7 | ) | ||||||||||||||
| Proceeds from disposal of assets | 4.1 | 3.1 | 5.5 | 3.1 | ||||||||||||||||
| Other | (0.1 | ) | (0.5 | ) | (0.2 | ) | (0.5 | ) | ||||||||||||
| Cash flows used in investing activities | (157.3 | ) | (151.9 | ) | (302.9 | ) | (100.1 | ) | ||||||||||||
| Cash flows related to financing activities | ||||||||||||||||||||
| Net change in bank indebtedness | (12.1 | ) | - | 11.5 | - | |||||||||||||||
| Net change under revolving facility | 125.0 | - | (24.0 | ) | - | |||||||||||||||
| Issuance of long-term debt, net of financing costs | 6 | - | 1,342.8 | - | 1,986.8 | |||||||||||||||
| Repayment of lease liabilities | (11.0 | ) | (10.6 | ) | (21.0 | ) | (19.9 | ) | ||||||||||||
| Reduction of paid-up capital | - | (550.0 | ) | - | (700.0 | ) | ||||||||||||||
| Dividends | (271.0 | ) | (150.0 | ) | (296.0 | ) | (150.0 | ) | ||||||||||||
| Dividends paid to non-controlling interests | - | - | (0.2 | ) | (0.1 | ) | ||||||||||||||
| Cash flows (used in) provided by financing activities | (169.1 | ) | 632.2 | (329.7 | ) | 1,116.8 | ||||||||||||||
| Net change in cash, cash equivalents and restricted cash | (45.6 | ) | 729.8 | (86.9 | ) | 1,548.6 | ||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 131.6 | 892.8 | 172.9 | 74.0 | ||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 86.0 | $ | 1,622.6 | $ | 86.0 | $ | 1,622.6 | ||||||||||||
| Cash, cash equivalents and restricted cash consist of | ||||||||||||||||||||
| Cash | $ | 1.4 | $ | 1,415.5 | $ | 1.4 | $ | 1,415.5 | ||||||||||||
| Cash equivalents | - | 0.8 | - | 0.8 | ||||||||||||||||
| Restricted cash | 1 | 84.6 | 206.3 | 84.6 | 206.3 | |||||||||||||||
| $ | 86.0 | $ | 1,622.6 | $ | 86.0 | $ | 1,622.6 | |||||||||||||
| Interest and taxes reflected as operating activities | ||||||||||||||||||||
| Cash interest payments | $ | 95.5 | $ | 67.7 | $ | 120.1 | $ | 105.0 | ||||||||||||
| Cash income tax payments (net of refunds) | 60.0 | 50.7 | 154.0 | 150.2 | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
| VIDEOTRON LTD. | ||||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||||
| (in millions of Canadian dollars) | ||||||||||||
| (unaudited) | June 30 | December 31 | ||||||||||
| Note | 2022 | 2021 | ||||||||||
| Assets | ||||||||||||
| Current assets | ||||||||||||
| Cash and cash equivalents | $ | 1.4 | $ | 10.5 | ||||||||
| Restricted cash | 5 | 84.6 | 162.4 | |||||||||
| Accounts receivable | 531.5 | 530.4 | ||||||||||
| Contract assets | 78.5 | 129.4 | ||||||||||
| Amounts receivable from affiliated corporations | 16.7 | 17.8 | ||||||||||
| Inventories | 223.3 | 153.4 | ||||||||||
| Other current assets | 123.6 | 116.0 | ||||||||||
| 1,059.6 | 1,119.9 | |||||||||||
| Non-current assets | ||||||||||||
| Property, plant and equipment | 2,682.6 | 2,761.6 | ||||||||||
| Intangible assets | 2,180.8 | 2,212.0 | ||||||||||
| Right-of-use assets | 121.3 | 122.9 | ||||||||||
| Goodwill | 542.6 | 542.6 | ||||||||||
| Derivative financial instruments | 151.2 | 140.5 | ||||||||||
| Investments | 1,595.0 | 1,595.0 | ||||||||||
| Promissory note to the parent corporation | 160.0 | 160.0 | ||||||||||
| Other assets | 331.9 | 251.3 | ||||||||||
| 7,765.4 | 7,785.9 | |||||||||||
| Total assets | $ | 8,825.0 | $ | 8,905.8 | ||||||||
| Liabilities and equity | ||||||||||||
| Current liabilities | ||||||||||||
| Bank indebtedness | $ | 11.5 | $ | - | ||||||||
| Accounts payable, accrued charges and provisions | 512.3 | 568.4 | ||||||||||
| Amounts payable to affiliated corporations | 90.3 | 89.2 | ||||||||||
| Deferred revenue | 253.1 | 284.9 | ||||||||||
| Deferred subsidies | 5 | 84.6 | 162.4 | |||||||||
| Income taxes | 28.6 | 36.0 | ||||||||||
| Current portion of lease liabilities | 36.7 | 35.0 | ||||||||||
| 1,017.1 | 1,175.9 | |||||||||||
| Non-current liabilities | ||||||||||||
| Long-term debt | 6 | 5,389.5 | 5,380.1 | |||||||||
| Subordinated loan from parent corporation | 1,595.0 | 1,595.0 | ||||||||||
| Lease liabilities | 114.8 | 118.8 | ||||||||||
| Derivative financial instruments | 8.5 | 23.3 | ||||||||||
| Deferred income taxes | 754.4 | 762.7 | ||||||||||
| Other liabilities | 118.6 | 188.3 | ||||||||||
| 7,980.8 | 8,068.2 | |||||||||||
| Equity | ||||||||||||
| Capital stock | 7 | 295.6 | 295.6 | |||||||||
| Deficit | (542.2 | ) | (613.5 | ) | ||||||||
| Accumulated other comprehensive income (loss) | 9 | 73.5 | (20.8 | ) | ||||||||
| Equity attributable to the shareholder | (173.1 | ) | (338.7 | ) | ||||||||
| Non-controlling interests | 0.2 | 0.4 | ||||||||||
| (172.9 | ) | (338.3 | ) | |||||||||
| Commitments | 11 | |||||||||||
| Total liabilities and equity | $ | 8,825.0 | $ | 8,905.8 | ||||||||
See accompanying notes to condensed consolidated financial statements.
5
VIDEOTRON LTD.
notes to condensed consolidated financial statements
For the three-month and six-month periods ended June 30, 2022 and 2021
(tabular amounts in millions of Canadian dollars, except for option data)
(unaudited)
Videotron Ltd. (“Videotron” or the "Corporation") is incorporated under the laws of Québec. The Corporation is a wholly owned subsidiary of Quebecor Media Inc. (“Quebecor Media” or the “parent corporation”) and the ultimate parent corporation is Quebecor Inc. (“Quebecor”). Unless the context otherwise requires, Videotron or the Corporation refer to Videotron Ltd. and its subsidiaries. The Corporation’s head office and registered office is located at 612 Saint-Jacques Street, Montreal, Québec, Canada.
The Corporation offers Internet access, television distribution, mobile and wireline telephony, business solutions and over-the-top video services in Canada.
| 1. | BASIS OF PRESENTATION |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (IASB), except that they do not include all disclosures required under IFRS for annual consolidated financial statements. In particular, these consolidated financial statements were prepared in accordance with IAS 34, Interim Financial Reporting, and accordingly, they are condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Corporation’s 2021 annual consolidated financial statements, which contain a description of the accounting policies used in the preparation of these condensed consolidated financial statements.
These condensed consolidated financial statements were approved for issue by the Board of Directors of Videotron on August 3, 2022.
Comparative figures for previous periods have been restated to conform to the presentation adopted for the three-month and six-month periods ended June 30, 2022.
In particular, as of the second quarter of 2022, restricted cash is presented with cash and cash equivalents on the consolidated statements of cash flows, in line with the IFRS Interpretations Committee’s agenda decision finalized in the second quarter of 2022 that clarifies the presentation of cash subject to contractual restrictions agreed with a third party (see note 5). Prior period information has been restated to reflect the new presentation. Accordingly, deferred subsidies used to finance additions to property, plant and equipment related to the roll-out of high-speed Internet services in various regions of Québec are now presented under investing activities, which has the effect of increasing cash used in investing activities by $46.1 million and $77.8 million for the three-month and six-month periods ended June 30, 2022 respectively ($4.4 million increase and $206.3 million decrease for the three-month and six-month periods ended June 30, 2021).
6
VIDEOTRON LTD.
notes to condensed consolidated financial statements (continued)
For the three-month and six-month periods ended June 30, 2022 and 2021
(tabular amounts in millions of Canadian dollars, except for option data)
(unaudited)
| 2. | EMPLOYEE COSTS AND PURCHASE OF GOODS AND SERVICES |
| Three months ended June 30 | Six months ended June 30 | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Employee costs | $ | 135.7 | $ | 150.6 | $ | 275.8 | $ | 302.0 |
| Less employee costs capitalized to property, plant and equipment and to intangible assets | (34.5) | (48.9) | (73.3) | (95.8) | ||||
| 101.2 | 101.7 | 202.5 | 206.2 | |||||
| Purchase of goods and services: | ||||||||
| Royalties and rights | 93.1 | 99.6 | 198.1 | 200.7 | ||||
| Cost of products sold | 106.9 | 113.0 | 212.2 | 225.6 | ||||
| Subcontracting costs | 20.8 | 37.7 | 49.3 | 80.9 | ||||
| Marketing and distribution expenses | 13.4 | 14.5 | 26.2 | 28.5 | ||||
| Other | 89.7 | 80.4 | 180.2 | 168.1 | ||||
| 323.9 | 345.2 | 666.0 | 703.8 | |||||
| $ | 425.1 | $ | 446.9 | $ | 868.5 | $ | 910.0 | |
| 3. | FINANCIAL EXPENSES |
| Three months ended June 30 | Six months ended June 30 | |||||||
| 2022 | 2021 | 2022 | 2021 | |||||
| Third parties: | ||||||||
| Interest on long-term debt | $ | 58.1 | $ | 58.1 | $ | 116.0 | $ | 112.6 |
| Amortization of financing costs | 1.4 | 1.7 | 2.8 | 3.3 | ||||
| Interest on lease liabilities | 1.4 | 1.4 | 2.7 | 2.8 | ||||
| Interest on net defined benefit liability | 0.7 | 1.4 | 1.5 | 2.7 | ||||
|
Loss (gain) on foreign currency translation on short-term monetary items |
2.0 | (2.2) | 0.6 | (3.5) | ||||
| Other | 1.3 | (1.5) | 1.2 | (1.3) | ||||
| 64.9 | 58.9 | 124.8 | 116.6 | |||||
| Affiliated corporations: | ||||||||
| Interest expense | 37.7 | 37.7 | 75.1 | 75.1 | ||||
| Dividend income | (38.1) | (38.1) | (75.9) | (75.9) | ||||
| Interest on lease liabilities | 0.4 | 0.4 | 0.8 | 0.8 | ||||
| Interest income | (2.0) | (2.0) | (3.9) | (3.9) | ||||
| (2.0) | (2.0) | (3.9) | (3.9) | |||||
| $ | 62.9 | $ | 56.9 | $ | 120.9 | $ | 112.7 | |
7
VIDEOTRON LTD.
notes to condensed consolidated financial statements (continued)
For the three-month and six-month periods ended June 30, 2022 and 2021
(tabular amounts in millions of Canadian dollars, except for option data)
(unaudited)
| 4. | RESTRUCTURING OF OPERATIONS AND OTHER ITEMS |
During the respective three-month and six-month periods ended June 30, 2022, charges of $0.8 million and $1.2 million were recorded in connection with cost reduction initiatives ($0.9 million and $2.2 million in 2021), while an impairment charge on assets of $0.8 million was also recorded in the six-month period ended June 30, 2021.
In addition, during the respective three-month and six-month periods ended June 30, 2022, the Corporation also recorded charges related to other items of $1.6 million and $2.0 million (gains of $3.5 million in 2021).
| 5. | RESTRICTED CASH AND DEFERRED SUBSIDIES |
On March 22, 2021, Videotron and the Québec government, jointly with the Canadian government, signed agreements to support the achievement of the government’s targets for the roll-out of high-speed Internet services in various regions of Québec. Under these agreements, the government is committed to provide financial assistance in the amount of approximately $258.0 million, which will be fully invested in Videotron’s high-speed Internet network extension. In accordance with the terms of the agreements, an amount of $216.2 million received in advance from the government in March 2021 was recorded as deferred subsidies on the consolidated balance sheets (balance of $84.6 million as of June 30, 2022). When the required investments as per the program are realized, corresponding subsidies are recognized as a reduction of additions to property, plant and equipment.
| 6. | LONG-TERM DEBT |
Components of long-term debt are as follows:
| June 30, 2022 |
December 31, 2021 | |||
| Total long-term debt | $ | 5,426.9 | $ | 5,408.2 |
| Change in fair value related to hedged interest rate risk | (1.8) | 8.3 | ||
| Financing costs, net of amortization | (35.6) | (36.4) | ||
| $ | 5,389.5 | $ | 5,380.1 | |
As of June 30, 2022, the carrying value of long-term debt denominated in U.S. dollars, excluding financing costs, was $2,287.0 million ($2,156.6 million as of December 31, 2021) while the net fair value of related hedging derivative instruments was in an asset position of $140.6 million ($116.3 million as of December 31, 2021).
2022
On May 20, 2022, Videotron amended its $1,500.0 million secured revolving credit facility to extend its term to July 2026 and certain terms and conditions were also amended.
8
VIDEOTRON LTD.
notes to condensed consolidated financial statements (continued)
For the three-month and six-month periods ended June 30, 2022 and 2021
(tabular amounts in millions of Canadian dollars, except for option data)
(unaudited)
| 6. | LONG-TERM DEBT (continued) |
2021
On January 22, 2021, Videotron issued $650.0 million aggregate principal amount of Senior Notes bearing interest at 3.125% and maturing on January 15, 2031, for net proceeds of $644.0 million, net of financing costs of $6.0 million.
On June 17, 2021, Videotron issued $750.0 million aggregate principal amount of Senior Notes bearing interest at 3.625% and maturing on June 15, 2028, for net proceeds of $743.2 million, net of financing costs of $6.8 million. Videotron also issued US$500.0 million aggregate principal amount of Senior Notes bearing interest at 3.625% and maturing on June 15, 2029, for net proceeds of $599.6 million, net of financing costs of $5.8 million. Videotron has fully hedged the foreign currency risk associated with the new Senior Notes denominated in U.S. dollars by using cross-currency swaps.
| 7. | CAPITAL STOCK |
| (a) | Authorized capital stock |
An unlimited number of common shares, without par value, voting and participating.
An unlimited number of preferred shares, Series B, Series C, Series D, Series E, Series F, and Series H, without par value, ranking prior to the common shares with regards to payment of dividends and repayment of capital, non-voting, non-participating, a fixed monthly non-cumulative dividend of 1%, retractable and redeemable.
An unlimited number of preferred shares, Series G, ranking prior to all other shares with regards to payment of dividends and repayment of capital, non-voting, non-participating carrying the rights and restrictions attached to the class as well as a fixed annual cumulative preferred dividend of 11.25%, retractable and redeemable.
| (b) | Issued and outstanding capital stock |
| Common Shares | ||||
| Number | Amount | |||
| Balance as of December 31, 2021 and June 30, 2022 | 10,718,327 | $ | 295.6 | |
9
VIDEOTRON LTD.
notes to condensed consolidated financial statements (continued)
For the three-month and six-month periods ended June 30, 2022 and 2021
(tabular amounts in millions of Canadian dollars, except for option data)
(unaudited)
| 8. | STOCK-BASED COMPENSATION PLANS |
The following table provides details of changes to outstanding options in the stock-based compensation plan of Quebecor in which management of the Corporation participates, for the six-month period ended June 30, 2022:
| Outstanding options | ||||
| Number | Weighted average exercise price |
|||
| Quebecor Inc. | ||||
| As of December 31, 2021 | 543,934 | $ | 30.58 | |
| Exercised | (6,666) | 26.52 | ||
| Cancelled | (53,334) | 30.92 | ||
| As of June 30, 2022 | 483,934 | 30.59 | ||
| Vested options as of June 30, 2022 | 100,196 | $ | 29.31 | |
During the three-month period ended June 30, 2021, 5,000 stock options of Quebecor Media Inc. were exercised for a cash consideration of $0.3 million. During the six-month period ended June 30, 2021, 9,000 stock options of Quebecor Media Inc. were exercised for a cash consideration of $0.4 million.
For the three-month period ended June 30, 2021, a reversal of the charge of $0.8 million was recorded related to all stock-based compensation plans. For the six-month period ended June 30, 2022, a charge of $0.4 million was recorded related to all stock-based compensation plans (a reversal of the charge of $0.1 million in 2021).
| 9. | ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO SHAREHOLDER |
| Cash flow hedges1 |
Defined benefit plans2 |
Total | ||||
| Balance as of December 31, 2020 | $ | 20.8 | $ | (126.5) | $ | (105.7) |
| Other comprehensive income | 3.1 | 72.3 | 75.4 | |||
| Balance as of June 30, 2021 | 23.9 | (54.2) | (30.3) | |||
| Other comprehensive income | 2.5 | 7.0 | 9.5 | |||
| Balance as of December 31, 2021 | 26.4 | (47.2) | (20.8) | |||
| Other comprehensive (loss) income | (4.7) | 99.0 | 94.3 | |||
| Balance as of June 30, 2022 | $ | 21.7 | $ | 51.8 | $ | 73.5 |
| 1 | No significant amount is expected to be reclassified in income over the next 12 months in connection with derivatives designated as cash flow hedges. The balance is expected to reverse over a 7-year period. |
| 2 | Re-measurement gains in the consolidated statement of comprehensive income for the three-month and six-month periods ended June 30, 2022 are mainly due to an increase in the discount rate since December 31, 2021, net of a decrease of the fair value of defined pension plan assets. |
10
VIDEOTRON LTD.
notes to condensed consolidated financial statements (continued)
For the three-month and six-month periods ended June 30, 2022 and 2021
(tabular amounts in millions of Canadian dollars, except for option data)
(unaudited)
| 10. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
In accordance with IFRS 13, Fair Value Measurement, the Corporation considers the following fair value hierarchy, which reflects the significance of the inputs used in measuring its financial instruments:
| · | Level 1: | quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| · | Level 2: | inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
| · | Level 3: | inputs that are not based on observable market data (unobservable inputs). |
The fair value of long-term debt is estimated based on quoted market prices when available or on valuation models using Level 1 and Level 2 inputs. When the Corporation uses valuation models, the fair value is estimated using discounted cash flows using year-end market yields or the market value of similar instruments with the same maturity.
The fair value of derivative financial instruments recognized on the consolidated balance sheets is estimated as per the Corporation’s valuation models. These models project future cash flows and discount the future amounts to a present value using the contractual terms of the derivative financial instrument and factors observable in external market data, such as period-end swap rates and foreign exchange rates (Level 2 inputs). An adjustment is also included to reflect non-performance risk, impacted by the financial and economic environment prevailing at the date of the valuation, in the recognized measure of the fair value of the derivative financial instruments by applying a credit default premium, estimated using a combination of observable and unobservable inputs in the market (Level 3 inputs), to the net exposure of the counterparty or the Corporation. Derivative financial instruments are classified as Level 2.
The carrying value and fair value of long-term debt and derivative financial instruments as of June 30, 2022 and December 31, 2021 are as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| Asset (liability) | Carrying value |
Fair value |
Carrying value |
Fair value | ||||
| Long-term debt1 | $ | (5,426.9) | $ | (4,798.5) | $ | (5,408.2) | $ | (5,470.2) |
| Derivative financial instruments | ||||||||
| Foreign exchange forward contracts | 2.6 | 2.6 | 0.9 | 0.9 | ||||
| Cross-currency swaps | 140.1 | 140.1 | 116.3 | 116.3 | ||||
| 1 | The carrying value of long-term debt excludes changes in the fair value of long-term debt related to hedged interest rate risk and financing costs. |
| 11. | COMMITMENTS |
On June 17, 2022, Videotron entered into an agreement with Rogers Communications Inc. (“Rogers”) and Shaw Communications Inc. (“Shaw”) to acquire Freedom Mobile Inc. (“Freedom Mobile”) for $2.85 billion on a cash-free and debt-free basis. The agreement, which is conditional on regulatory approval, provides for the acquisition of the Freedom Mobile brand’s entire wireless and Internet customer base, as well as its owned infrastructure, spectrum and retail outlets. It also includes a long-term undertaking by Shaw and Rogers to provide Videotron with transport services (including backhaul and backbone) and roaming services. This agreement will support the expansion of the Corporation’s telecommunications services in Ontario and Western Canada. The transaction is conditional, among other things, on clearance under the Competition Act and the approval of Innovation, Science and Economic Development Canada and would close substantially concurrently with closing of the acquisition of Shaw by Rogers. Videotron has secured the committed debt financing required for this transaction.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VIDEOTRON LTD.
| /s/ Jean-François Lescadres | ||
| By: | Jean-François Lescadres | |
| Vice President Finance | ||
Date: August 10, 2022
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