FINANCIAL REVIEW 2007

FINANCIAL REVIEW 2007

FINANCIAL REVIEW 2007 TABLE OF CONTENTS MANAGEMENT DISCUSSION AND ANALYSIS...2 COMPANY PROFILE.....2 EVENTS SUBSEQUENT TO BALANCE SHEET DATE.....2 PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS...2 NON GAAP FINANCIAL MEASURES...3 INTEREST IN SUBSIDIARIES...5 2007/2006 FINANCIAL YEAR COMPARISON...6 2006/2005 FINANCIAL YEAR COMPARISON...32 CASH FLOWS AND FINANCIAL POSITION...36 ADDITIONAL INFORMATION...43 SELECTED FINANCIAL DATA...71 SELECTED QUARTERLY FINANCIAL DATA...72 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS...73 AUDITOR'S REPORT TO THE SHAREHOLDERS OF QUEBECOR INC...74 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES...75 CONSOLIDATED STATEMENTS OF INCOME...75 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)...76 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS...77 CONSOLIDATED STATEMENTS OF CASH FLOWS...78 CONSOLIDATED BALANCE SHEETS...80 SEGMENTED INFORMATION...82 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...87 GENERAL INFORMATION...151

COMPANY PROFILE Quebecor Inc. ( Quebecor or the Company ) is a holding company with interests in two companies, Quebecor Media Inc. ( Quebecor Media ) and Quebecor World Inc. ( Quebecor World ). Quebecor holds a 54.7% interest in Quebecor Media, one of Canada s largest media groups, engaged in the following lines of business: cable, residential and business telecommunications, newspapers, broadcasting, retailing of books, magazines and videos, publishing and distribution, recording and distribution of music, the Internet and new media. Quebecor Media s subsidiaries are leaders in creating, promoting and distributing news, entertainment and Internet services targeted at all demographics. Quebecor Media is pursuing a convergence strategy to capture synergies among all its media properties. Quebecor World is a commercial print media services company with operations in North America, Europe, Latin America and Asia. EVENTS SUBSEQUENT TO BALANCE SHEET DATE On January 21, 2008, Quebecor World and its U.S. subsidiaries were granted creditor protection under the Companies Creditors Arrangement Act ( CCAA ). On the same date, its U.S. subsidiaries also filed a petition under Chapter 11 of the Bankruptcy Code in the United States. These procedures will have no material impact on the operations of Quebecor Media. Quebecor does not expect to realize any future earnings on its investment in Quebecor World. Quebecor has not secured Quebecor World s commitments, including its debt and advances under its securitization programs. For additional details, see Impact of Quebecor World on the financial results of Quebecor Inc. below. As of the date of the filings under the CCAA and Chapter 11 by Quebecor World, the Company concluded that, based on Canadian generally accepted accounting principles ( GAAP ), its control over Quebecor World was lost. Accordingly, the Company s investment in Quebecor World will no longer be consolidated beginning January 21, 2008, and Quebecor s investment in Quebecor World will be valued at zero as of that date. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS Additional columns titled Quebecor Inc. and Quebecor Media Inc. and Quebecor World Inc. have been added to Quebecor Inc. s consolidated financial statements for the 2007 financial year (refer to note 1(a) to the consolidated financial statements, which are available on the Company s website). Quebecor Inc. and Quebecor Media Inc. columns The results of operations, cash flow and financial position of the Company, of Quebecor Media (on a consolidated basis), and of Quebecor World (using the equity method for recording the investment in this company), are shown in separate columns entitled Quebecor Inc. and Quebecor Media Inc. in the consolidated financial statements. These columns represent the activities of all the Company s segments with the exclusion of Quebecor World. Intercompany transactions and balances with Quebecor World have not been eliminated. 2

Quebecor World Inc. columns The results of operations, cash flow and the financial position of Quebecor World are shown in separate columns entitled Quebecor World Inc. These columns represent the Company s interest in the activities of Quebecor World. Net asset attributable to non-controlling interest is also presented in Quebecor World Inc. columns. Intercompany transactions with Quebecor Media and Quebecor have not been eliminated. NON-GAAP FINANCIAL MEASURES The Company uses certain financial measures that are not calculated in accordance with Canadian GAAP to assess its financial performance. The Company uses these non-gaap financial measures, such as operating income, cash flows from segment operations, free cash flows from operations and average revenue per user ( ARPU ), because the Company believes that they are meaningful measures of its performance. Its method of calculating these non-gaap financial measures may differ from the methods used by other companies and, as a result, the non-gaap financial measures presented in this document may not be comparable to other similarly titled measures disclosed by other companies. Operating Income In its analysis of operating results, the Company defines operating income or loss, as reconciled to net (loss) income under Canadian GAAP, as net (loss) income before amortization, financial expenses, reserve for restructuring of operations, impairment of assets and other special charges, impairment of goodwill, gain on re-measurement of exchangeable debentures and of a portfolio investment, loss on debt refinancing, loss (gain) on sales of businesses and other assets, income taxes, dividends on Preferred Shares of a subsidiary, net of income tax, non-controlling interest, and the results of discontinued operations. Operating income as defined above is not a measure of results that is consistent with Canadian GAAP. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP. Management believes that operating income is a meaningful measure of performance. The Company considers the media and printing segments as a whole and uses operating income in order to assess the performance of its investment in Quebecor Media and Quebecor World. The Company s management and Board of Directors use this measure in evaluating its consolidated results as well as the results of the Company s operating segments. This measure eliminates the significant level of non-cash depreciation of tangible assets and amortization of certain intangible assets, and is unaffected by the capital structure or investment activities of the Company and its segments. Operating income is also relevant because it is a significant component of the Company s annual incentive compensation programs. A limitation of this measure, however, is that it does not reflect the periodic costs of capitalized tangible and intangible assets used in generating revenues in the Company s segments. The Company also uses other measures that do reflect such costs, such as cash flows from segment operations and free cash flows from operations. In addition, measures like operating income are commonly used by the investment community to analyze and compare the performance of companies in the industries in which the Company is engaged. The Company s definition of operating income may not be the same as similarly titled measures reported by other companies. 3

Table 1 below provides a reconciliation of operating income with net (loss) income, as disclosed in the Company s consolidated financial statements. Table 1 Reconciliation between the operating income measure used in this report and the net (loss) income measure used in the consolidated financial statements (in millions of Canadian dollars) 2007 2006 2005 Operating income: Cable $ 642.7 $ 512.5 $ 413.3 Newspapers 225.9 207.6 222.2 Broadcasting 59.4 42.1 53.0 Leisure and Entertainment 27.0 19.3 27.0 Interactive Technologies and Communications 2.8 7.5 3.9 Internet/Portals 6.9 10.1 9.0 Head Office (15.4) (10.6) 5.7 949.3 788.5 734.1 Printing 458.7 626.0 806.5 1,408.0 1,414.5 1,540.6 Amortization (628.3) (611.9) (600.8) Financial expenses (456.4) (408.5) (463.3) Reserve for restructuring of operations, impairment of assets and other special charges (341.0) (145.9) (113.6) Impairment of goodwill (2,054.8) (180.0) (287.1) Gain on re measurement of exchangeable debentures and a portfolio investment 146.9 27.7 126.0 Loss on debt refinancing (57.1) (342.6) (60,0) Gain on sales of businesses and other assets (14.3) (0.3) (5.1) Income tax 230.4 112.2 (92.2) Dividends on Preferred Shares of a subsidiary, net of income tax (32.5) (38.8) (48.6) Non-controlling interest 827.0 79.5 80.2 Income (loss) from discontinued operations 2.9 0.2 (6.4) Net (loss) income $ (969.2) $ (93.9) $ 69.7 Cash Flows from Segment Operations The Company uses cash flows from segment operations as a measure of the liquidity generated by its segments. Cash flows from segment operations represents funds available for interest and income tax payments, expenditures related to restructuring programs, business acquisitions, the payment of dividends and the repayment of long-term debt. Cash flows from segment operations is not a measure of 4

liquidity that is consistent with Canadian GAAP. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. Cash flows from segment operations is considered to be an important indicator of the Company s liquidity and is used by its management and Board of Directors to evaluate cash flows generated by its segments operations. Cash flows from segment operations represents operating income plus amortization of contract acquisition costs, less additions to property, plant and equipment, plus proceeds from disposal of assets. When cash flows from segment operations is reported, a reconciliation with operating income is provided in the same section of the report. Free Cash Flows from Operations The Company uses free cash flows from operations as an indicator of the liquidity generated by Quebecor Media and Quebecor World. Free cash flows from operations represents Quebecor World s and Quebecor Media s available funds for business acquisitions, the payment of dividends on equity shares and the repayment of long-term debt. Free cash flows from operations is not a measure of liquidity that is consistent with Canadian GAAP. It is not intended to be regarded as an alternative to other financial operating performance measures or to the statement of cash flows as a measure of liquidity. Free cash flows from operations is considered to be an important indicator of the Company s liquidity and is used by its management and Board of Directors to evaluate cash flows generated by the operations of Quebecor Media and Quebecor World. The Company s definition of free cash flows from operations may not be identical to similarly titled measures reported by other companies. When the Company discusses free cash flows from operations, a reconciliation with the most directly comparable GAAP financial measure is provided in the same section. Average Monthly Revenue per User ARPU is an industry metric that the Company uses to measure its average cable, Internet and telephony revenues per month per basic cable customer. ARPU is not a measurement that is consistent with Canadian GAAP, and the Company s definition and calculation of ARPU may not be the same as identically titled measurements reported by other companies. The Company calculates ARPU by dividing its combined cable television, Internet access and telephony revenues by the average number of its basic cable customers during the applicable period, and then dividing the resulting amount by the number of months in the applicable period. INTEREST IN SUBSIDIARIES Quebecor has a 54.7% interest in Quebecor Media and a 35.4% interest in Quebecor World (see also Events subsequent to balance sheet date above). Table 2 shows Quebecor Media s equity interest in its own subsidiaries as of December 31, 2007. 5

Table 2 Quebecor Media Inc. s interest (direct and indirect) in its main subsidiaries as of December 31, 2007 Percentage of equity Percentage of votes Videotron Ltd. 100% 100% Sun Media Corporation 100% 100% Osprey Media Publishing Inc. 100% 100% TVA Group Inc. 45.2% 99.9% Archambault Group Inc. 100% 100% Quebecor Media Book Group Inc. 100% 100% Nurun Inc. 57.5% 57.5% Canoe Inc. 92.5% 99.9% Quebecor Media s interest in its subsidiaries has not varied significantly over the past three years, with the exception of its interest in TVA Group Inc. ( TVA Group ), which increased by 5.5 percentage points following the repurchase of 3,739,599 Class B shares for a cash consideration of $81.9 million under the Substantial Issuer Bid dated May 19, 2005. As of the date of this Management Discussion and Analysis, Quebecor Media holds a 100% interest in the equity and voting rights of Nurun Inc. ( Nurun ). Quebecor s share in the earnings of Quebecor World has not changed significantly over the past three years. 2007/2006 FINANCIAL YEAR COMPARISON Quebecor s consolidated revenues decreased by $427.4 million (-4.4%) from $9.81 billion in 2006 to $9.38 billion in 2007. Revenues increased by $367.3 million (12.2%) at Quebecor Media and decreased by $807.6 million (-11.7%) at Quebecor World. Quebecor s consolidated operating income was flat at $1.41 billion in 2007. Operating income increased by $164.3 million (20.5%) at Quebecor Media and decreased by $167.3 million (-26.7%) at Quebecor World. Quebecor recognized a consolidated net loss of $969.2 million ($15.07 per basic share) in 2007, compared with a net loss of $93.9 million ($1.46 per basic share) in 2006. The net loss in 2007 was essentially due to Quebecor s share of the $2.29 billion net loss reported by Quebecor World ($1.30 billion net of non-controlling interest, with no impact on Quebecor s liquidity, or $20.25 per basic share see note 21 to the consolidated financial statements), which was partially offset by net income of $327.1 million ($179.0 million net of non-controlling interest, or $2.78 per basic share) recorded by Quebecor Media. It should be noted that a portion of Quebecor s share of Quebecor World s net loss will be reversed upon deconsolidation on January 21, 2008. This share, in the amount of $724.5 million (net of non-controlling interest), represents Quebecor World s net asset deficiency as of December 31, 2007 (see Impact of Quebecor World on the financial results of Quebecor Inc. below). 6

Quebecor World s net loss was mainly due to the recognition in 2007 of goodwill impairment in the amount of $2.05 billion, recognition of a $329.4 million reserve for restructuring, impairment of assets and other special charges (compared with $127.0 million in 2006), the $167.3 million decrease in operating income, and a $56.1 million loss on debt refinancing. In 2006, Quebecor World recognized a net loss of $4.8 million ($2.9 million net of non-controlling interest). Quebecor Media recorded net income of $327.1 million in 2007 ($179.0 million net of non-controlling interest), compared with a net loss of $169.7 million in 2006 ($92.9 million net of non-controlling interest). The $496.8 million improvement at Quebecor Media was due primarily to the favourable impact on the comparative numbers for 2007 of the recognition in 2006 of a $342.6 million loss on debt refinancing and a $180.0 million charge for impairment of goodwill and broadcasting licences in the Broadcasting segment. The $164.3 million increase in Quebecor Media s operating income in 2007 also contributed to the improvement. Quebecor also recognized a $146.9 million unrealized gain on re-measurement of the floating rate debentures, Series 2001, in 2007 ($121.9 million after income tax) compared with $27.7 million in 2006 ($25.5 million after income tax). The $11.75 per share decrease in Quebecor World s stock price between January 1, 2007 and December 31, 2007 generated an unrealized gain of $146.9 million on re-measurement of exchangeable debentures. Consolidated financial expenses increased by $47.9 million from $408.5 million to $456.4 million due to increased indebtedness at Quebecor Media and Quebecor World, higher base interest rates and a decrease in capitalized interest. Quebecor recorded consolidated income tax credits in the amount of $230.4 million in 2007, compared with $112.2 million in 2006, a $118.2 million favourable variance. Excluding unusual items, i.e., the reserve for restructuring of operations, impairment of assets and other special charges, the unrealized gain on re-measurement of debentures and of a portfolio investment, the loss on debt refinancing, the loss (gain) on sales of businesses and other assets, and impairment of goodwill and intangible assets, all net of income tax and non-controlling interest, the income tax expense was $18.8 million in 2007 for an effective rate of 5.8%, compared with an income tax expense of $57.8 million and an effective rate of 14.7% in 2006. These rates mainly reflect a favourable mix of applicable tax rates on taxable revenues and deductible losses in different jurisdictions, and the favourable impact of tax rate reductions by the Canadian federal government, which were partially offset by an increase in the valuation allowance at Quebecor World. Excluding unusual items, i.e., the reserve for restructuring of operations, impairment of assets and other special charges, the unrealized (gain) loss on re-measurement of debentures and of a portfolio investment, the loss on debt refinancing and the loss (gain) on sales of businesses and other assets, and impairment of goodwill and intangible assets (all net of income tax and non-controlling interest), net income was $91.7 million in 2007 ($1.42 per basic share), compared with $123.2 million ($1.92 per basic share) in 2006, a decrease of $31.5 million ($0.50 per basic share). 7

2007/2006 Fourth Quarter Comparison Quebecor s consolidated revenues for the fourth quarter of 2007 totalled $2.43 billion, compared with $2.67 billion in the same period of 2006, a $234.9 million (-8.8%) decrease. Revenues increased by $120.7 million (14.3%) at Quebecor Media and decreased by $356.9 million (-19.3%) at Quebecor World. Quebecor s consolidated operating income totalled $375.7 million in the fourth quarter of 2007, compared with $411.1 million in the same period of 2006, a decrease of $35.4 million (-8.6%). Operating income increased by $48.9 million (20.5%) at Quebecor Media and decreased by $83.7 million (-46.2%) at Quebecor World. Quebecor recorded a fourth quarter 2007 net loss of $962.6 million ($14.96 per basic share), compared with a net loss of $80.8 million ($1.26 per basic share) in the same period of 2006. The unfavourable variance of $881.8 million was mainly due to the $1.88 billion net loss recognized in the fourth quarter of 2007 by Quebecor World ($1.15 billion net of non-controlling interest, with no impact on Quebecor s liquidity, or $17.93 per basic share see note 21 to the consolidated financial statements), compared with a net loss of $4.2 million in the same quarter of 2006 ($1.2 million net of non-controlling interest, or $0.02 per basic share). As noted in the discussion of the annual results, a $724.5 million portion (net of non-controlling interest) of Quebecor s share of Quebecor World s net loss will be reversed on January 21, 2008 (see Impact of Quebecor World on the financial results of Quebecor Inc. below). Quebecor World s fourth quarter 2007 loss resulted from goodwill impairment of $1.88 billion, recognition of a $120.3 million reserve for restructuring, impairment of assets and other special charges, and the $83.7 million decrease in operating income. Quebecor Media recorded net income of $112.4 million in the fourth quarter of 2007 ($61.5 million net of non-controlling interest), compared with a $97.1 million net loss in the same period of 2006 ($53.1 million net of non-controlling interest). The $209.5 million improvement was due primarily to the favourable impact on the comparative numbers for 2007 of the recognition in 2006 of a $180.0 million non-cash charge for impairment of goodwill and of broadcasting licences. The $48.9 million increase in Quebecor Media s operating income also contributed to the improvement. Quebecor recognized a $98.5 million unrealized loss on re-measurement of the floating rate debentures Series 2001 in the fourth quarter of 2007 ($82.0 million after income tax), compared with an unrealized loss of $23.2 million in the fourth quarter of 2006 ($19.0 million after income tax), a favourable variance of $121.7 million. The $7.88 per share decrease in the value of the Quebecor World shares underlying the exchangeable debentures between October 1 and December 31, 2007 generated an unrealized gain of $98.5 million on re-measurement of exchangeable debentures. Excluding unusual items, i.e., the reserve for restructuring of operations, impairment of assets and other special charges, the unrealized gain on re-measurement of debentures and of a portfolio investment, the loss on debt refinancing, the loss (gain) on sales of businesses and other assets, and impairment of goodwill and intangible assets (all net of income tax and non-controlling interest), net income was $4.3 million in the fourth quarter of 2007 ($0.07 per basic share), compared with $40.7 million ($0.63 per basic share) in the same period of 2006, a decrease of $36.4 million ($0.56 per basic share). 8

Quebecor Media Inc. Quebecor Media s subsidiaries are engaged in the following lines of business: Cable, Newspapers, Broadcasting, Leisure and Entertainment, Interactive Technologies and Communications, and Internet/Portals. Highlights since end of third quarter 2007 On April 15, 2008, Videotron Ltd. ( Videotron ) issued US$455.0 million aggregate principal amount of Senior Notes. Videotron plans to use the proceeds to repay drawings on its senior secured credit facility and for general purposes. On April 8, 2008, Videotron amended its senior secured credit facility to increase commitments under the facility to $575.0 million and extend the maturity date to April 2012. On March 31, 2008, TVA Group announced an offer to purchase for cancellation of up to 2,000,000 of its participating Class B non-voting shares for $17.00 per share. The offer expires May 14, 008. In August 2007, Quebecor Media closed the acquisition of all outstanding units of Osprey Media Publishing Inc. ( Osprey Media ) for a total cash consideration of $414.4 million, excluding assumed liabilities. Osprey Media is one of Canada s leading publishers of daily and non-daily newspapers, magazines and specialty publications. Its publications include 20 daily newspapers, 33 other newspapers, shopping guides, magazines and other publications. The addition of Osprey Media s properties makes Quebecor Media s Newspapers segment the largest newspaper publisher in Canada. On October 5, 2007, Quebecor Media completed a placement of US$700.0 million aggregate principal amount of Senior Notes due 2016. The Senior Notes were sold at a price equivalent to 93.75% of face value for net proceeds of $672.2 million (including accrued interest of $16.6 million but before financing expenses of $9.8 million). The Notes bear interest at 7 3/4% (an effective rate of 8.81%) and mature on March 15, 2016. On October 31 2007, Sun Media Corporation early redeemed its term loan B and closed out the related derivative financial instruments for a total cash consideration of $277.8 million. On the same date, Sun Media Corporation amended its revolving credit facility and its term loan C to extend the maturity date to 2012. On July 23, 2007, Quebecor Media exercised its option to pay down the Additional Amount payable to The Carlyle Group for a total cash consideration of $127.2 million. On November 28, 2007 and December 14, 2007, Industry Canada released a policy framework and a licensing framework, respectively, for the auction of spectrum licenses for Advanced Wireless Services (3G). Several of the framework elements are expressly intended to encourage new entrants into the Canadian mobile wireless industry, most notably the setting aside of 40 MHz (out of a total of 105 MHz) of spectrum nationally for new entrants, and a decision to mandate digital roaming and antenna tower and site sharing by way of new license conditions applicable to all existing and new mobile wireless licensees. These license conditions were finalized on February 29, 2008. The auction is scheduled to commence on May 27, 2008. Quebecor Media has qualified to bid as a new market entrant. Quebecor Media intends to focus in the 3G Spectrum Auction on those licences that it believes present attractive growth prospects for the service offering, based on an analysis of demographic, economic and other factors. 9

Sun Media Corporation expanded the reach of its chain of urban dailies in February 2007 with the launch of 24 HOURS TM newspapers in Calgary and Edmonton, the two largest urban centres in Alberta, bringing the number of free dailies published by Sun Media Corporation in Canada to seven. The decision was part of Quebecor Media s strategy of strengthening its presence on different platforms in order to reach consumers through multiple channels of communication. On October 11, 2007, Quebecor Media announced the creation of a new subsidiary, Quebecor MediaPages, to consolidate all its print and online directory operations. Quebecor MediaPages plans to launch a total of 30 new local directories under the MediaPages name in Québec, Ontario and Alberta in 2007 and 2008. On June 30, 2007, Canoe Inc. ( Canoe ) in the Internet/Portals segment closed the sale of the operations of its Progisia Informatique division. The sale of Progisia Informatique was consistent with Canoe s plans to refocus its operations on the Internet market. On November 28, 2007, Quebecor Media officially launched canoe.tv, Canada s first webcaster. It will carry exclusive content as well as programming from conventional sources. canoe.tv will put the canoe.ca portal and Quebecor Media as a whole at the forefront of the fast-growing online video phenomenon, which is being propelled by very strong consumer demand. On February 26, 2008, Quebecor Media completed the acquisition of all the outstanding shares of Nurun it did not already hold at a price of $4.75 per share, for a total cash consideration of $75.0 million. Following this transaction, Nurun became a wholly owned subsidiary of Quebecor Media and its shares were delisted from the Toronto Stock Exchange. Results of operations Revenues of Quebecor Media totalled $3.37 billion in 2007, compared with $3.00 billion in 2006, a $367.3 million (12.2%) increase. All of Quebecor Media s business segments without exception reported higher revenues. The Cable segment s revenues increased by $243.1 million (18.6%), primarily as a result of customer growth for all services. The Newspapers segment s revenues rose by $99.9 million (10.8%), mainly because of the impact of the acquisition of Osprey Media. Revenues also increased in the Broadcasting segment (by $22.2 million or 5.6%), Leisure and Entertainment ($14.0 million or 4.4%), Interactive Technologies and Communications ($8.1 million or 11.0%), and Internet/Portals ($6.7 million or 16.1%). Quebecor Media generated operating income of $963.9 million in 2007, compared with $799.6 million in 2006. The $164.3 million (20.5%) increase was mainly due to the significant improvement in results in the Cable segment, where operating income increased by $130.2 million (25.4%), primarily as a result of strong customer growth. Operating income also increased in Newspapers (by $18.3 million or 8.8%), primarily as a result of the acquisition of Osprey Media, in Broadcasting ($17.3 million or 41.1%) and in Leisure and Entertainment ($7.7 million or 39.9%). Operating income decreased by $4.7 million (-62.7%) in Interactive Technologies and Communications and by $3.2 million (-31.7%) in Internet/Portals. Free cash flows from continuing operating activities Free cash flows from continuing operating activities totalled $289.5 million in 2007, compared with negative $73.8 million in 2006 (see Table 3). The $363.3 million improvement was mainly due to the 10

payment in 2006 of $197.3 million in accrued interest on Senior Discount Notes as part of the refinancing carried out on January 17, 2006. The $164.3 million increase in operating income and the $54.9 million net change in non-cash balances related to operations also contributed to the improvement. These favourable factors were partially offset by a $33.2 million increase in additions to property, plant and equipment. Table 3: Quebecor Media Inc. Free cash flows from continuing operating activities (in millions of Canadian dollars) 2007 2006 2005 Cash flows from segment operations: Cable $ 314.7 $ 210.5 $ 194.7 Newspapers 116.0 91.8 149.3 Broadcasting 43.2 33.4 42.5 Leisure and Entertainment 24.2 16.1 20.1 Interactive Technologies and Communications (0.5) 5.7 2.5 Internet/Portals 2.3 8.2 8.3 Head Office and other 1.4 7.8 0.4 501.3 373.5 417.8 Cash interest expense 1 (225.3) (402.9) (211.1) Cash portion of restructuring of operations and other special charges (11.6) (18.9) 0.2 Current income taxes (11.3) (5.4) (19.0) Other 3.7 2.1 (3.1) Net change in non cash balances related to operations 32.7 (22.2) (27.4) Free cash flows from continuing operating activities $ 289.5 $ (73.8) $ 157.4 1 Interest on long-term debt and other interest, less investment income and interest capitalized to cost of property, plant and equipment (see note 2 to the consolidated financial statements). 11

Table 4: Quebecor Media Inc. Reconciliation between free cash flows from continuing operating activities and the cash flows provided by continuing operating activities measure reported in the financial statements (in millions of Canadian dollars) 2007 2006 2005 Free cash flows from continuing operating activities $ 289.5 $ (73.8) $ 157.4 Additions to property, plant and equipment 468.7 435.5 319.8 Proceeds from disposal of assets (6.1) (9.4) (5.5) Cash flows provided by continuing operating activities $ 752.1 $ 352.3 $ 471.7 Table 5: Quebecor Media Inc. Reconciliation between Quebecor Media s operating income and its cash flows from segment operations (in millions of Canadian dollars) 2007 2006 2005 Operating income $ 963.9 $ 799.6 $ 732.1 Additions to property, plant and equipment (468.7) (435.5) (319.8) Proceeds from disposal of assets 6.1 9.4 5.5 Cash flows from segment operations $ 501.3 $ 373.5 $ 417.8 Segmented analysis Cable segment In Quebecor Media s Cable segment, Videotron is the largest cable operator in Québec and the third-largest in Canada, based on number of customers. Its state-of-the-art network passes 2,497,400 homes and serves approximately 1,791,000 customers. At December 31, 2007, Videotron had 1,638,100 cable television customers, including 768,200 subscribers to its illico Digital TV service. Videotron is also involved in interactive multimedia development and is an Internet Service Provider ( ISP ), with 942,100 subscribers to its cable modem and dial-up Internet access services and 636,400 subscribers to its IP telephone service. It has 45,700 activated phones on its wireless telephone service, which was gradually rolled out in Québec beginning in August 2006. Videotron also includes Videotron Business Solutions, a full-service business telecommunications provider offering telephone, high-speed data transmission, Internet access, hosting, and cable television services, and Le SuperClub Vidéotron ltée ( Le SuperClub Vidéotron ), a DVD, video cassette and console game sales and rentals chain. The Cable segment generated revenues of $1.55 billion in 2007, compared with $1.31 billion in 2006, a $243.1 million (18.6%) increase. 12

Revenues from the residential illico Digital TV service, excluding certain related services, rose by $75.4 million (28.2%) year-over-year to $342.8 million in 2007. The performance of illico Digital TV in 2007 more than compensated for decreased revenues from analog cable television services. Combined revenues from all cable television services increased by $58.6 million (8.6%) to $735.8 million due to the impact of customer base growth, increases in some rates, revenues from the high definition (HD) package, and the favourable impact of the growth in the illico Digital TV customer Chart 1 Customer base for cable television services base on revenues from illico on Demand, pay TV and pay-per-view. illico Digital TV had 768,200 customers at the end of 2007, an increase of 144,600 (23.2%) from the end of 2006 (see Chart 1), compared with increases of 149,000 in 2006 and 140,900 in 2005. As of December 31, 2007, illico Digital TV had a household penetration rate (number of subscribers as a proportion of total homes passed by the Cable segment s network, i.e., 2,497,400 homes as of the end of 2007) of 30.8% versus 25.4% a year earlier, and a subscriber penetration rate (number of subscribers as a proportion of total subscribers to all cable television services) of 46.9% versus 39.7% a year earlier. In thousands 1,800 1,500 1,200 900 600 300 0 1,552 1,510 1,638 1,572 1,506 1,431 1,424 1,453 1,471 1,396 1,032 1,259 949 1,183 1,119 870 475 768 334 624 241 172 81 115 2000 2001 2002 2003 2004 2005 2006 2007 Digital Analog Total Cable TV The Cable segment s analog cable television service lost 78,900 customers (-8.3%) Chart 2 Customer base for cable Internet access in 2007, compared with decreases of 82,700 in 2006 and 87,400 in 2005 (see Chart 1), primarily as a result of customer migration to 933 1,000 the illico Digital TV service. The combined 900 792 customer base for all cable television 800 services increased by 65,700 (4.2%) to 638 700 1,638,100 as of December 31, 2007, 600 503 compared with increases of 66,300 in 2006 500 406 and 53,500 in 2005 (see Chart 1). As of 400 305 December 31, 2007, the Cable segment s 228 300 cable television services had a household 140 200 penetration rate of 65.6%, compared with 64.0% a year earlier. 100 0 The Cable segment s Internet access 2000 2001 2002 2003 2004 2005 2006 2007 services registered continued strong growth in 2007, posting revenues of $422.4 million, a $77.3 million (22.4%) year-over-year increase. The In thousands 13

improvement was mainly due to customer growth, as well as heavier consumption by existing customers and the impact of increases in some rates. The number of customers for cable Internet access services stood at 933,000 at the end of 2007, an increase of 141,000 (17.8%) from 2006, compared with increases of 154,000 in 2006 and 135,400 in 2005 (see Chart 2). At December 31, 2007, cable Internet access services had a household penetration rate of 37.4%, compared with 32.2% a year earlier. The strong growth in the cable telephone service continued in 2007. The service generated revenues of $195.5 million in 2007, compared with $107.4 million in 2006, an $88.1 million (82.0%) increase. As of December 31, 2007, the number of subscribers to the service stood at 636,700 (including 300 softphone subscribers), a year-over-year increase of 238,600 (60.0%), compared with increases of 234,800 in 2006 and 163,000 in 2005 (see Chart 3). At December 31, 2007, the cable telephone service had a household penetration rate of 25.5%, compared with 16.2% a year earlier. Chart 3 Customer base for cable telephone service In thousands 700 600 500 400 300 200 163 398 636 The wireless telephone service launched in 100 August 2006 generated revenues of $17.7 million in 2007, compared with 0 2005 2006 2007 $1.2 million in 2006, a $16.5 million increase. At December 31, 2007, there were 45,700 activated phones on the service, compared with 11,800 at December 31, 2006, an increase of 33,900 in 12 months. The Cable segment s monthly ARPU increased by $10.09 (16.4%) from $61.43 in 2006 to $71.52 in 2007. Le SuperClub Vidéotron recorded revenues of $59.1 million in 2007. The 5.8% increase from 2006 was mainly due to an increase in same-store sales at the Microplay TM sections, the opening of new Videotron stores and the impact of store acquisitions. The Cable segment s total operating income increased by $130.2 million (25.4%) from $512.5 million in 2006 (a margin of 39.1% as a proportion of revenues) to $642.7 million (or 41.4% of revenues) in 2007, mainly because of the growth in the customer base for all services, increases in some rates, and a $12.6 million favourable variance related to non-recognition in 2007 of current Canadian Radio-television and Telecommunications Commission ( CRTC ) Part II licence fee accruals following the notice issued on October 1, 2007 (see below). These positive factors more than offset the unfavourable impact of $20.9 million in expenses related to Quebecor Media s stock option plan, charged directly to its operating segments, to reflect participation by segment managers in the plan, as well as management fees. Excluding the stock option expense, the Cable segment s operating income increased by 28.6% in 2007, compared with 26.9% in 2006. 14

The cost of subsidies granted subscribers on equipment sales was $28.2 million in 2007 ($28.7 million in 2006 and $36.7 million in 2005). In 2007, cash flows from the Cable segment s operations amounted to $314.7 million, compared with $210.5 million in 2006 (see Table 6), a $104.2 million increase. The impact of the $130.2 million increase in operating income was partially offset by a $27.5 million increase in additions to property, plant and equipment in 2007 over 2006, primarily attributable to investments in network upgrades and to modernization by the Cable segment, as well as purchases of cable telephony equipment to be used by customers. Table 6: Cable segment Cash flows from segment operations (in millions of Canadian dollars) 2007 2006 2005 Operating income $ 642.7 $ 512.5 $ 413.3 Additions to property, plant and equipment (330.1) (302.6) (219.9) Proceeds from disposal of assets 2.1 0.6 1.3 Cash flows from segment operations $ 314.7 $ 210.5 $ 194.7 The Cable segment s telephone service has numerous competitors, including incumbent local exchange carriers ( ILECs ), competitive local exchange carriers ( CLECs ), wireless telephone service operators and other providers of telephony services, and competitors that are not facilities-based and therefore have a much lower infrastructure cost. Competition from ILECs increased in 2007 and is expected to continue in coming years, particularly in view of the federal Order in Council issued in April 2007 lifting winback restrictions and relaxing the criteria for forbearance from regulation of local exchange services. Among other things, the Order reduced the size of the relevant local telephone markets, replaced the market share loss test by a competitive facilities test, and relaxed some of the requirements for quality of service provided to competitors. Under the new rules, the main residential markets in Québec have been deregulated gradually since August 2007. A number of business markets, primarily in major centres, were also deregulated in September 2007. In 2003 and 2004, a number of companies, including Videotron and TVA Group, brought a suit against the Crown before the Federal Court, alleging that the Part II licence fees that broadcasters are required to pay annually constitute, in fact and in law, taxes, not fees. On December 14, 2006, the Federal Court decreed that these fees did indeed constitute taxes, that the CRTC was to cease collection of such fees, and ordered that the plaintiff companies would not be entitled to a reimbursement of the amounts already paid. On October 1, 2007, the CRTC issued a document, stating that it would adhere to the decision that was rendered and that it would not collect, in 2007 or in any subsequent years, the Part II licence fees payable on November 30 of each year unless a Superior Court reversed the Federal Court decision. The plaintiffs and the defendant both filed an appeal before the Federal Court of Appeal. The reduction of these fees in the Cable segment s operating expenses for the period from September 1, 2006 to December 31, 2007 represents $14.2 million. On April 29, 2008, the Federal Court of Appeal handed down its decision and overturned the December 14, 2006 decision of the Federal Court. As a result, the Company may be 15

required to pay these rights for the year 2007 and in coming years. The Company has decided that it will request a leave to appeal to the Supreme Court of Canada. The CRTC has publicly stated that it will make no attempt to collect outstanding Part ll fees until the earlier of a) the leave to appeal to the Supreme Court of Canada is denied, or b) the judgment of the Federal Court of Appeal is affirmed by the Supreme Court, or c) the matter is settled between the parties. During 2007, illico Digital TV customers ordered approximately 26 million films and television programs on illico on Demand, a 30% increase compared with 2006. In February 2008, Videotron launched two new Internet access services, Ultimate Speed Internet 30 and Ultimate Speed Internet 30, which support speeds of 30 megabits per second and 50 megabits per second. The two new very high-speed services make Videotron the first cable operator in North America to offer service of this speed on a cable network. Roll-out will begin in Laval, Québec, reaching a potential market of 112,000 households. In April 2007, Videotron reached an exclusive agreement with wireless telephone provider Sony-Ericsson to sell its W710i handset. Videotron became the only wireless service provider in Québec to offer its customers this advanced multi-purpose device. On November 28, 2007 and December 14, 2007, Industry Canada released a policy framework and a licensing framework, respectively, for the auction of spectrum licences for Advanced Wireless Services (3G). Several of the framework elements are expressly intended to encourage new entrants into the Canadian mobile wireless industry, most notably the setting aside of 40 MHz (out of a total of 105 MHz) of spectrum nationally for new entrants, and a decision to mandate digital roaming and antenna tower and site sharing by way of new licence conditions applicable to all existing and new mobile wireless licensees. These licence conditions were finalized on February 29, 2008. The auction is scheduled to commence on May 27, 2008. Quebecor Media has qualified to bid as a new market entrant. Quebecor Media intends to focus in the 3G Spectrum Auction on those areas that it believes present attractive growth prospects for its service offering, based on an analysis of demographic, economic and other factors. See also the Participation in spectrum auction for Advanced Wireless Services (3G) heading under Cash flows and financial position in the Financial Position section below. Newspapers segment Since the acquisition of Osprey Media in August 2007, Quebecor Media s Newspapers segment, which includes Sun Media Corporation and Osprey Media, has become Canada s largest newspaper chain, counting both paid and free circulation. It publishes 37 paid-circulation dailies, including newspapers in eight of the ten largest markets in the country. It ranks first or second in number of copies sold in each of those eight markets. The Newspapers segment also publishes 223 community newspapers, magazines, weekly buyers guides, farm publications and other specialty publications, including 7 free dailies, namely 24 HOURS TM in Toronto, 24 HOURS TM in Vancouver, 24 HEURES MC in Montréal, 24 HOURS TM in Ottawa, 24 HEURES MC in Ottawa-Gatineau, and, since February 2007, 24 HOURS TM in Calgary and 24 HOURS TM in Edmonton. According to corporate figures, the aggregate circulation of the Newspapers segment s paid newspapers was approximately 8.8 million copies per week as of December 31, 2007. The Newspapers segment is also engaged in the distribution of newspapers and magazines. In addition, it offers commercial printing and related services to other publishers through its national printing and production 16

platform. Through Quebecor MediaPages, launched in November 2007, it conducts a combination of print and online directory publishing operations. The Newspapers segment s revenues rose by $99.9 million (10.8%) to $1.03 billion in 2007, compared with $928.2 million in 2006. The increase was mainly due to the impact of the acquisition of Osprey Media. Excluding the impact of the acquisition, revenues increased by $4.4 million. Commercial printing and other revenues combined increased by 12.9%. Advertising revenues grew by 1.2%, while circulation revenues decreased by 5.8% in comparison with 2006. The revenues of the urban dailies decreased by 1.5% in 2007. Excluding the acquisition of Osprey Media, the revenues of the community newspapers increased by 1.1% in 2007. Within the urban dailies group, revenues of the free dailies increased by 62.7% in 2007 due to excellent results posted by the Montréal, Toronto and Vancouver dailies, and the launch of free dailies in Ottawa and Ottawa-Gatineau in November 2006, and in Calgary and Edmonton in February 2007. The Newspapers segment s operating income totalled $225.9 million in 2007, an $18.3 million (8.8%) increase from $207.6 million in 2006. The favourable impact of the acquisition of Osprey Media ($25.3 million) was partially offset by investments and one-time charges, including investments related to the launch of four new free dailies in Ottawa, Ottawa-Gatineau, Calgary and Edmonton and the launch of Quebecor MediaPages, the impact of the labour disputes at Le Journal de Montréal and Le Journal de Québec in 2006 and 2007 respectively, and variances in the charge for Quebecor Media s stock option plan. Excluding all these items, operating income was $225.2 million in 2007, compared with $214.2 million in 2006. The $11.0 million (5.1%) increase mainly reflects lower newsprint prices, the impact of restructuring initiatives and the decrease in operating losses at the free dailies, on a comparable basis (i.e., at the Montréal, Toronto and Vancouver dailies). These factors were partially offset by the cost of implementing certain projects. Operating income from the dailies in the Western Group (the newspapers published in the Western provinces of Ontario) increased by 13.8%. Osprey Media s operating income increased by 12.6% in 2007, on a comparable basis, testifying to the strategic merit of the acquisition for Quebecor Media s Newspapers segment. Excluding the launch of the four new free dailies and the impact on results of the labour disputes at Le Journal de Montréal and Le Journal de Québec, operating income increased by 5.5% at the urban dailies. Excluding the impact of the acquisition of Osprey Media, operating income increased by 6.3% at the community newspapers. Cash flows from the Newspapers segment s operations were $116.0 million in 2007, compared with $91.8 million in 2006. The $24.2 million increase (see Table 7) mainly reflects the $18.3 million increase in operating income and a $4.9 million decrease in additions to property, plant and equipment. During 2007, the Newspapers segment acquired a building from Quebecor World for a consideration of $62.5 million. The corresponding increase in additions to property, plant and equipment was more than offset by a year-over-year decrease in 2007 in instalment payments under contracts to acquire six new presses. 17

Table 7: Newspapers segment Free cash flows from continuing operations (in millions of Canadian dollars) 2007 2006 2005 Operating income $ 225.9 $ 207.6 $ 222.2 Additions to property, plant and equipment (111.4) (116.3) (74.0) Proceeds from disposal of assets 1.5 0.5 1.1 Cash flows from segment operations $ 116.0 $ 91.8 $ 149.3 In February 2007, Sun Media Corporation expanded the reach of its chain of urban dailies with the launch of 24 HOURS TM newspapers in Calgary and Edmonton, the two largest urban centres in Alberta, bringing the number of free dailies published by Sun Media Corporation in Canada to seven. The decision was part of Quebecor Media s strategy of strengthening its presence on different platforms in order to reach consumers through multiple channels of communication. Le Journal de Montréal was engaged in a labour dispute with its unionized pressroom employees between June 4, 2006 and February 20, 2007. While operating under more difficult conditions, Le Journal de Montréal took all necessary steps to prevent the dispute from affecting the daily printing and distribution of the newspaper. Le Journal de Québec has been engaged in a labour dispute with its unionized pressroom, newsroom and office employees since April 22, 2007. The outcome of this dispute cannot be foreseen at this time. A new collective bargaining agreement was signed with the newspaper s unionized sales department employees on April 2, 2007. To date, there has been no interruption in the publication of Le Journal de Québec and Sun Media Corporation intends to keep measures in place to continue offering a quality product. In August 2007, Quebecor Media closed the acquisition of all outstanding units of Osprey Media for a total cash consideration of $414.4 million, excluding assumed liabilities. Osprey Media is one of Canada s leading publishers of daily and non-daily newspapers, magazines and specialty publications. Its publications include 20 daily newspapers and 33 other newspapers, together with shopping guides, magazines and other publications. Osprey Media s daily newspapers have a combined circulation of 325,000 per day and more than 1.9 million per week. Osprey Media s leading dailies include The Kingston Whig-Standard, The Sudbury Star and The Peterborough Examiner, all published in Ontario. The acquisition of Osprey Media will enable Sun Media Corporation to more effectively address the challenges faced by the newspaper industry in the fast-changing media universe. The addition of Osprey Media s properties makes Quebecor Media s Newspapers segment the largest newspaper publisher in Canada, counting both paid-circulation and free newspapers. Restructuring initiatives were implemented in the Newspapers segment following the acquisition of Osprey Media. The residual calculation of goodwill related to this transaction could be modified following recognition of the impact of these initiatives. On October 11, 2007, Quebecor Media announced the creation of a new subsidiary, Quebecor MediaPages, to consolidate all its print and online directory operations. Quebecor MediaPages plans to 18