COGECO CABLE REVISES ITS GUIDANCE DUE TO STRONG FIRST QUARTER 2007 RESULTS
PRESS RELEASE
For immediate release
Cogeco Cable revises its guidance due to strong first quarter 2007 results
Montréal, January 11, 2007 – Today, Cogeco Cable Inc. (TSX: CCA) announced its financial results
for the first quarter ended November 30, 2006.
Growth from business acquisition
The newly acquired Portuguese operations, Cabovisão-Televisão por Cabo, S.A. (Cabovisão), is on
its way to achieving its 2007 financial projections, supported by the increase of about 21,300 revenue
generating units (RGUs
1
). “Cabovisão is progressing according to our plan”, said Mr. Louis Audet,
President and CEO of Cogeco Cable. The Portuguese operations generated revenue of $54.1 million
while operating income before amortization was $18.3 million for an operating margin of 33.9%.
Exceptional growth from the Canadian operations propels financial results
“The Canadian operation’s first quarter of fiscal 2007 was certainly one of Cogeco Cable’s best. RGU
growth increased revenue and operating income before amortization, thus exceeding our
expectations,” continued Mr. Audet. During the first quarter, the Canadian operations reported very
strong RGU increases, with more than 93,000 net additions compared to about 61,000 for the same
period last year. First quarter revenue grew by 17.1% compared to the same period last year,
reaching $167.9 million while operating income before amortization improved by 14%, reaching
$65.3 million.
Solid consolidated financial results
On a consolidated basis, revenue increased by 54.8%, operating income before amortization by 46%
and net income by 39.3% compared to the same period last year. The Corporation’s first quarter
operating margin was 37.7% compared to 40% last year due to newly acquired Cabovisão’s lower
but rising operating margin.
Improved 2007 financial projections
The first quarter’s higher than expected results from the Canadian operations lead the Corporation to
revise most of its projections upwards for the fiscal 2007. Management expects to add between
287,000 and 305,000 RGUs, consolidated revenue should reach $925 million, operating income
before amortization should reach approximately $355 million, while the operating margin should
remain at about 38%.
“For the following quarters, we will continue to provide to our customers a superior offering, through
various improvements. We look forward to the rest of fiscal 2007 with a high degree of confidence,
thanks to the commitment of dedicated teams in Canada and in Portugal,” concluded Mr. Audet.
1
Revenue generating units (RGUs) represent the sum of basic service, High Speed Internet (HSI) service, Digital Television service and Telephony
service customers.
- 2 -
FINANCIAL HIGHLIGHTS
Quarters ended November 30,
(unaudited)
($000s, except percentages and p er s hare data)
2006 2005 % Change
Revenue $
$
$
222,002 $ 143,413 54.8
Operating income before amortization
83,662
57,302
46.0
Net income 12,535 8,998 39.3
Cash flow from operations
(1)
62,060 43,389 43.0
Less:
Capital expenditures and increase in deferred charges 74,383 33,678 -
Free cash flow
(1)
(12,323) 9,711 -
Per share data
Basic net income $
$
$
0.31 $ 0.23 34.8
(1)
Cash flow from op erations and free cash flow do not have standard def initions prescribed by Canadian generally accepte d accounting principles
(GAAP) and should be treated accordingly. For more details, please consult the Non-GAAP financial measures section.
.
FORWARD-LOOKING STATEMENT
Certain statements in this press release may constitute forward-looking information within the meaning of
securities laws. Forward-looking information may relate to our future outlook and anticipated events, our
business, our operations, our financial performance, our financial condition or our results and, in some cases,
can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend";
"estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters
that are not historical facts. In particular, statements regarding our future operating results and economic
performance and our objectives and strategies are forward-looking statements. These statements are based on
certain factors and assumptions, including expected growth, results of operations, performance and business
prospects and opportunities, which we believe are reasonable as of the current date. While we consider these
assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.
Forward-looking information is also subject to certain factors, including risks and uncertainties (described in
“Uncertainties and main risk factors” of the Corporation’s 2006 annual MD&A) that could cause actual results to
differ materially from what we currently expect. These factors include technological changes, changes in
market and competition, governmental or regulatory developments, general economic conditions, the
development of new products and services, the enhancement of existing products and services, and the
introduction of competing products having technological or other advantages, many of which are beyond our
control. Therefore, future events and results may vary significantly from what we currently foresee. You should
not place undue importance on forward-looking information and should not rely upon this information as of any
other date. While we may elect to, we are under no obligation (and expressly disclaim any such obligation) and
do not undertake to update or alter this information before next quarter.
This analysis should be read in conjunction with the Corporation’s financial statements, and the notes thereto,
prepared in accordance with Canadian GAAP and the MD&A included in the Corporation’s 2006 Annual
Report. Throughout this discussion, all amounts are in Canadian dollars unles s otherwise indicated.
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MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
CORPORATE STRATEGIES AND OBJECTIVES
Cogeco Cable’s objectives are to improve profitability and create shareholder value. The strategies
for reaching those objectives are constant corporate growth through the diversification and
improvement of products and services as well as clientele and territories; effective management of
capital; and tight cost control and business processes. The Corporation measures its performance
with regard to these objectives with revenue growth, RGU
1
growth and free cash flow
2
. Below are the
recent achievements in furtherance of Cogeco Cable’s objectives.
Continuous improvement of the service offering and a larger customer base
Canadian operations
• Digital Television services:
o Significant upgrade of Cogeco Cable’s High Definition (HD) Television offering in
Québec, now with 11 HD channels;
o Addition of two new HD channels (A&E HD and HDNet) to the Ontario Digital
Television line-up;
o Addition of Anime Network On Demand, a new subscription Video on Demand (VOD)
service;
o Addition to Cogeco On Demand of “Lance et compte I, II et III” in Québec and
“Survivor: Cook Islands” in all territories served by Cogeco Cable.
• Digital Telephony service:
o Available to 72% of homes passed in Cogeco Cable’s territories, as at November 30,
2006;
o Since September 1, 2006, deployment of the Digital Telephony service in Corunna,
Bright’s Grove, Lindsay, Niagara-on-the-Lake and St. Catharines, in Ontario, as well
as St-Sauveur, Piedmont, Ste-Adèle, St-Jovite, Mont-Tremb lant, Alma, Roberval, Ste-
Agathe, Thetford Mines and Montmagny in Québec.
Portuguese operations and its integration
• Cabovisão is in the process of completing its plan to launch its Digital Television offering for
the deployment during fiscal 2007;
• The integration process advances according to plan. Customer service is a key activity on
which the Integration Committee is focusing.
Continuous improvement of networks and equipment
• During the first quarter of fiscal 2007, the Corporation has invested in its infrastructure
including head-ends and upgrade/rebuild for an amount approximating $23 million.
Tight control over costs, business processes
• First quarter of fiscal 2007 operating costs of the Canadian operations increased by 17.9%
essentially in line with revenue growth during the same period;
• The design of internal controls over financial reporting as per National Instrument 52-109 is
still underway. As discussed in the 2006 annual MD&A, the Corporation had identified certain
material weaknesses in the design of internal controls over financial reporting and there have
been no changes to the identified material weaknesses since August 31, 2006.
1
See « Customer statistics” section for detailed explanations.
2
See “ Non-GAAP financial measures “ section for explanations.
- 4 -
RGU Growth
As at November 30, 2006, the consolidated number of RGUs increased by 5.2% to reach nearly
2.3 million units. As at August 31, 2006, the Corporation had anticipated RGU growth of between 9%
and 10% for the full year, as compared to a year earlier. Following higher than anticipated HSI,
Digital Television, Digital Telephony and basic cable customer growth during the first quarter 2007,
management has revised its guidelines to 13% to 14% RGU growth by August 31, 2007. Please
consult the ‘’Fiscal 2007 financial guidelines’’ section for further details.
Revenue Growth
During the first quarter of fiscal 2007, revenue for the Canadian operations increased by 17.1% to
reach $167.9 million mainly due to stronger RGU growth. In its fiscal 2007 revised projections
announced at the end of the last quarter of fiscal 2006, the Corporation had expected to achieve
revenue growth between 10% and 12%. The Portuguese subsidiary generated revenue of
$54.1 million during the first quarter of fiscal 2007, as expected by management.
Free Cash Flow
For the first quarter, Cogeco Cable generated a negative free cash flow of $12.3 million compared to
a positive free cash flow of $9.7 million for the same period last year mainly due to higher capital
expenditures necessary to sustain RGU growth, including the acquisition of customer premise
equipment amounting to approximately $12 million to serve expected RGU growth in the coming
months. Capital expenditures and deferred charges amounted to $74.4 million of which $64.8 million
was intended to support Canadian operations and the remainder was earmarked for the Portuguese
operations. In light of the stronger than expected RGU growth in the first quarter of fiscal 2007,
capital expenditures and deferred charges are expected to reach $255 million. Fiscal 2007 revised
free cash flow should be between $10 million to $15 million. Please consult the ‘’Fiscal 2007 financial
guidelines’’ section for further details.
CUSTOMER STATISTICS
Canadian operations
Net additions % of Penetration
(1) (4)
Quarters ended
November 30,
November 30,
November 30,
2006
2006 2005 2006 2005
RGUs
(2)
1,648,951 93,015 60,770
Basic service customers
849,417 16,240 10,903
HSI service customers
(3)
372,015 28,935 22,993 47.0 39.9
Digital Television service customers 348,588 21,224 21,415 42.0 32.9
Digital Telephony service customers 78,931 26,616 5,459 12.9 2.7
(1)
As a percentage of basic service customers in areas served.
(2)
Represent the sum of basic service, HSI service, Digital Television service and Digital Telephony service customers.
(3)
Customers subscribing only to Internet services totalled 61,336 as at November 30, 2006 compared to 61,208 as at August 31, 2006.
(4)
An audit of homes pass ed in Ontari o has b een comple ted during the first quart er of fiscal 2007 and , as a res ult, the n umber of homes passed has
been reduced by 42,386.
All services generated higher growth in the first quarter compared to the same period last year,
except for the Digital Television service. During the first quarter, the growth in Digital Telephony is
mostly attributable to the launch of this service in new markets. Coverage of homes passed has now
reached 72% compared to 21% last year. The net additions of basic service customers in the first
quarter reached 16,240, which represents the highest growth in many years, compared to a gain of
- 5 -
10,903 for the same period last year. The number of net additions of HSI service stood at
28,935 compared to 22,993 for the same period last year, which is also a new high. The growth of
HSI and basic service customers compared to the same period last year is mostly due to the
enhancement of the product offering, the impact of the bundled offer of Television, HSI and Digital
Telephony services (Cogeco Complete Connexion), and promotional activities.
The net additions of Digital Television service customers stood at 21,224 about equal to 21,415 for
the same period last year. Customers continue to demonstrate strong interest in the HD technology.
Portuguese Operations
Net additions % of Penetration
(1)
November 30,
2006
Quarter ended
November 30, 2006
November 30, 2006
RGUs
(2)
650,305
21,264
_____
Basic service customers
276,947
7,253
_____
HSI service customers
144,355
8,077
52.1
Telephony service customers 229,003
5,934 82.7
(1)
As a percentage of basic service customers in areas served.
(2)
Represent the sum of basic service, HSI service and Telephony service customers.
For the first quarter, all services generated customer growth in line with the Corporation’s guidelines.
Basic service grew by 7,253 customers, HSI by 8,077 customers and Telephony by 5,934 customers.
ACCOUNTING POLICIES AND ESTIMATES
There has been no significant change in Cogeco Cable’s accounting policies and estimates since
August 31, 2006. A description of these policies and estimates can be found in the Corporation’s
2006 annual MD&A.
RELATED PARTY TRANSACTIONS
Cogeco Cable is a subsidiary of COGECO Inc., which holds 39.2% of the Corporation’s equity
shares, representing 86.6% of the Corporation’s voting shares. Under a management agreement, the
Corporation pays COGECO Inc. monthly management fees equal to 2% of its total revenue for
certain executive, administrative, legal, regulatory, strategic and financial planning, and additional
services. In 1997, management fees were capped at $7 million per year, subject to annual upward
adjustments based on increases in the Consumer Price Index in Canada. Accordingly, for fiscal
2007, management fees have been set at a maximum of $8.6 million. Management fees for the first
quarter of fiscal 2007 stood at $4.4 million compared to $2.9 million for the same period last year.
Most of the increase of $1.6 million is due to the revenue generated from the acquisition of
Cabovisão. Furthermore, Cogeco Cable granted 318,735 stock options to COGECO Inc.’s
employees during the first quarter of 2007, compared to 31,743 in the first quarter of 2006. From the
318,735 stock options granted in the first quarter of fiscal 2007, 262,400 are conditional to the
achievement of certain yearly financial objectives by the Portuguese subsidiary, Cabovisão, over a
period of three years. Details regarding the management agreement and stock options granted to
COGECO Inc.’s employees are provided in the MD&A of the Corporation’s 2006 annual report. There
were no other material related party transactions during fiscal years 2007 and 2006.
- 6 -
OPERATING RESULTS
Quarters ended November 30,
($000s, except percentages)
2006
2005
% Change
Revenue $
222,002 $ 143,413 54.8
Operating costs 133,900 83,243 60.9
Management fees - COGECO Inc.
4,440 2,868 54.8
Operating income before amortization
83,662 57,302 46.0
Operating margin 37.7 % 40.0 %
Revenue
Consolidated revenue for the first quarter increased by $78.6 million to reach $222 million.
For the first quarter, revenue for the Canadian operations rose by $24.5 million or 17.1% compared
to the same period in fiscal 2006. This growth is explained mainly by an increase in the number of
HSI, Digital Telephony, Digital Television and basic service customers as mentioned in the
“Customer Statistics” section, together with rate increases implemented in June and August of 2006.
Monthly rate increases of at most $3 per customer and averaging $2 per basic service customer took
effect on June 15, 2006 in Ontario and on August 1, 2006 in Québec.
The Portuguese subsidiary’s revenue amounted to $54.1 million for the first quarter of fiscal 2007.
Monthly rate increases of at most $3 (€2) per HSI and Telephony customer thus averaging $1 per
basic customer took effect on November 1, 2006.
Operating Costs
For the first quarter of fiscal 2007, consolidated operating costs increased by $50.7 million to reach
$133.9 million.
For the first quarter, Canadian operations’ operating costs including network fees but excluding
management fees payable to COGECO Inc. rose by $14.9 million or 17.9%. During the first quarter,
network fees increased by 16.2% compared to the same period the year before. Network fees
increase was mainly attributable to the introduction of Digital Telephony service and RGU growth.
The increase in other operating costs was related to servicing additional RGUs, including Digital
Telephony. For the first quarter, Cabovisão’s operating costs amounted to $35.7 million.
Operating Income Before Amortization
For the first quarter of fiscal 2007, consolidated operating income before amortization increased by
$26.4 million to reach $83.7 million. Cabovisão’s operating income before amortization for the first
quarter amounted to $18.3 million.
For the first quarter, operating income before amortization for the Canadian operations rose by 14%,
compared to the same period last year as the increase in revenue outpaced the rise in operating
costs. Cogeco Cable’s operating margin for the Canadian operations decreased slightly from 40% to
38.9% in the first quarter of fiscal 2007, as a result of the launch of the Digital Telephony service. The
Portuguese operations generated an operating margin of 33.9% for the first quarter. As a result,
Cogeco Cable’s first quarter 2007 operating margin declined to 37.7% from 40% for the same period
last year, as expected.
- 7 -
FIXED CHARGES
Quarters ended November 30,
($000s, except percentages)
2006
2005 % Change
Amortization $
$
$
44,309 $ 28,277 56.7
Financial expense 21,221 13,582 56.2
For the first quarter, amortization amounted to $44.3 million compared to $28.3 million for the same
period last year. Amortization for the Canadian operations amounted to $31.7 million during the
quarter compared to $28.3 million for the same period last year. The increase in amortization is due
to the higher level of capital expenditures arising from the demand for customer premise equipment,
scalable infrastructure, upgrade/rebuild, support capital and deferred charges. Amortization for the
first quarter of the Portuguese operations amounted to $12.6 million.
During the first quarter, financial expense increased by $7.6 million compared to the same period last
year. This is due to the higher level of Indebtedness (defined as bank indebtedness and long-term
debt) required to finance the acquisition of the Portuguese subsidiary, Cabovisão.
INCOME TAXES
For the first quarter of fiscal 2007, income taxes amounted $5.6 million compared to $6.4 million in
fiscal 2006. Income taxes for the Canadian operations amounted to $4.2 million for the first quarter of
fiscal 2007 compared to $6.4 million for the same period last year despite the growth in operating
income before amortization. The income tax decrease for the Canadian operations was mainly
attributable to the elimination of Canadian federal capital tax on January 1, 2006. Income tax for the
first quarter of the Portuguese operations amounted to $1.4 million and represented essentially
withholding taxes payable on financial expense of Cabovisão.
NET INCOME
Net income for first quarter of fiscal 2007 amounted to $12.5 million, or $0.31 per share, compared to
$9 million, or $0.23 per share, for the same period last year. Net income has increased essentially
due to the growth in operating income before amortization exceeding those of the fixed charges.
- 8 -
CASH FLOW AND LIQUIDITY
Quarters ended November 30,
($000s)
2006 2005
Operating Activities
Cash flow from operations
$
62,060 $ 43,389
Changes in non-cash operating items
(71,909) (42,787)
$
$
$
(9,849) $ 602
Investing Activities
(1)
$
$
$
(74,070) $ (33,678)
Financing Activities
(1)
$
$
$
29,695 $ 53,698
Net change in cash and cash equivalents $
$
$
(54,224) $
20,622
Effect of exchange rate changes on cash and cash equivalents
denominated in foreign currencies
1,616
-
Cash and cash equivalents at beginning
71,516
61
Cash and cash equivalents at end
$
18,908
$
20,683
(1)
Excludes assets acquired under capital leases.
For the first quarter of fiscal 2007, cash flow from operations reached $62 million, 43% higher than
the result achieved for the comparable period last year, primarily due to the increase in operating
income before amortization net of financial expense. Changes in non-cash operating items generated
greater cash outflows than the same period last year, mainly as a result of a decrease in accounts
payable and accrued liabilities resulting from non recurring payments made by the Portuguese
subsidiary, Cabovisão, following the terms of the acquisition.
Investing activities, including capital expenditures segmented according to the National Cable
Television Association (NCTA) standard reporting categories, are as follows:
Quarters ended November 30,
($000s)
2006
2005
Customer Premise Equipment
(1)
$
$
$
39,417 $ 15,423
Scalable Infrastructure
11,986
3,672
Line Extensions
2,551
2,552
Upgrade / Rebuild
10,856
6,974
Support Capital
2,361
1,392
Total Capital Expenditures
(2)
$
$
$
67,171
$
30,013
Deferred charges and others
7,104
3,665
Total other investing activities
$
$
$
74,275
$
33,678
(1)
Includes mainly new and replacement drops as well as home terminal devices.
(2)
Includes capital leases, which are excluded from the statements of cash flow.
During the first quarter, capital expenditures increased compared to last year mainly as a result of the
following factors:
¾ The increase in customer premise equipment expenditures for the first quarter of fiscal 2007
resulted from a greater demand for HSI and Digital Telephony services, from a rise in the
number of digital terminals rented to customers and from a greater ratio of digital terminals
per digital home. Furthermore, customer premise equipment representing approximately
$12 million was acquired by the Corporation at the end of the quarter to serve expected RGU
growth in the coming months.
- 9 -
¾ The growth in capital expenditures for scalable infrastructure was mainly attributable to the
support of the Digital Telephony rollout for the Canadian operations.
¾ The increase in capital expenditures associated with the network upgrade and rebuild
program for the Canadian operations rose due to the acceleration of the program to expand
the bandwidth to 750 MHz and 550 MHz for the Ontario and Québec networks, respectively,
and to improve network reliability. An increase in the number of households with access to the
two-way service was also a factor and the percentage of customers with access to the two-
way service rose from 90% as at November 30, 2005 to 93% as at November 30, 2006.
Capital expenditures by the Portuguese operations amounted to $9.6 million during the first quarter,
essentially to support RGU growth.
The first quarter increase in deferred charges is explained by higher reconnect costs attributable to
the significant level of RGU increase.
The Corporation incurred a deficit in free cash flow for the first quarter of fiscal 2007 in the amount of
$12.3 million compared to a surplus of $9.7 million in the preceding year. The first quarter free cash
flow decrease over the same period last year is due to a higher level of capital expenditures
(including the acquisition of customer premise equipment amounting to approximately $12 million at
the end of the quarter) and deferred charges generated by better-than-projected RGU growth and to
support the Digital Telephony service roll-out, partly offset by the growth in operating income before
amortization.
During the first quarter, the level of Indebtedness increased by $31.1 million due to a decrease of
$71.9 million in non-cash operating items explained by the repayment of certain suppliers
subsequent to the Cabovisão acquisition and a free cash flow deficit of $12.3 million, mostly offset by
a $54.2 million decrease in cash and cash equivalents. For the same period last year, Indebtedness
increased by $55.3 million mainly due to a decline in non-cash operating items of $42.8 million and a
net change in cash and cash equivalents of $20.6 million, partly offset by generated free cash flow of
$9.7 million. In addition, a dividend of $0.04 per share for subordinate and multiple voting shares,
totalling $1.6 million, was paid during the first quarter of fiscal years 2007 and 2006.
As at November 30, 2006, Cogeco Cable had a working capital deficiency of $332.7 million
compared to $314.9 million as at August 31, 2006. The greater deficiency is mainly attributable to
negative free cash flow generated and the depreciation of the Canadian dollar over the euro
currency. Cogeco Cable maintains a working capital deficiency due to a low level of accounts
receivable since the majority of the Corporation’s customers pay before their services are rendered,
contrary to accounts payable and accrued liabilities, which are paid after products or services are
rendered. In addition, the Corporation generally uses cash and cash equivalents to reduce
Indebtedness.
As at November 30, 2006 the Corporation had used $658 million of its $900 million Term Facility.
FINANCIAL POSITION
Since August 31, 2006, there have been major changes to ‘’Fixed Assets’’, ‘’Preliminary Goodwill’’,
‘’Accounts Payable and accrued liabilities’’, ‘’Indebtedness’’, ‘’Cash and cash equivalents’’ and
‘’Foreign currency translation adjustment’’.
- 10 -
The $47.2 million rise in fixed assets is mainly related to increased capital expenditures to sustain
RGU growth during the quarter as well as anticipated growth in the following months. The increase of
$28.9 million in preliminary goodwill and $11.8 million in foreign currency translation adjustment is the
result of the appreciation of the euro currency over the Canadian dollar. The $65.1 million and
$52.6 million reductions in accounts payable and accrued liabilities and cash and cash equivalents
respectively, are related to payments made with regards to the acquisition of Cabovisão.
Indebtedness increased by $63.5 million as a result of the depreciation of the Canadian dollar over
the euro currency and the factors previously discussed in the “Cash Flow and Liquidity” section.
A description of Cogeco Cable’s share data as of December 31, 2006 is presented in the table below:
Number of
shares/options
Amount
($000s)
Common Shares
Multiple voting shares
Subordinate voting shares
15,691,100
24,328,683
98,346
532,541
Options to Purchase Subordinate Voting Shares
Outstanding options
Exercisable options
1,274,647
564,186
The number of outstanding options has increased significantly during the first quarter of fiscal 2007.
With regards to the acquisition of Cabovisão - Televisão por Cabo, S.A., the Corporation granted
376,000 conditional stock options with an exercise price of $26.63. These options vest over a period
of three years beginning one year after the day such options are granted and are exercisable over
ten years. The vesting of these options is conditional to the achievement of certain yearly financial
objectives by the Portuguese subsidiary, over a period of three years
.
In the normal course of business, Cogeco Cable has incurred financial obligations, primarily in the
form of long-term debt, operating and capital leases and guarantees. Cogeco Cable’s obligations,
discussed in the 2006 annual MD&A, have not materially changed since August 31, 2006.
DIVIDEND DECLARATION
At its January 10, 2007 meeting, the Board of Directors of Cogeco Cable declared a quarterly eligible
dividend of $0.06 per share for subordinate and multiple voting shares, payable on February 7, 2007,
to shareholders of record on January 24, 2007. Continued improvement of the Corporation’s financial
results explain the increase of 50% of the dividend from $0.04 to $0.06 per share.
FOREIGN EXCHANGE MANAGEMENT
Cogeco Cable has entered into cross-currency swap agreements to set the liability for interest and
principal payments on its US$150 million Senior Secured Notes. These agreements have the effect
of converting the US interest coupon rate of 6.83% per annum to an average Canadian dollar fixed
interest rate of 7.254% per annum. The exchange rate applicable to the principal portion of the debt
has been fixed at CDN$1.5910. Amounts due under the US$150 million Senior Secured Notes
Series A increased by CDN$5.5 million during the first quarter compared to August 31, 2006 due to
the Canadian dollar’s depreciation. Since the Senior Secured Notes Series A are fully hedged, the
fluctuation is offset by a variation in deferred credit described in Note 7 of the first quarter 2007
interim financial statements. The $67.3 million deferred credit represents the difference between the
quarter-end exchange rate and the exchange rate on the cross-currency swap agreements, which
determine the liability for interest and principal payments on the Senior Secured Notes Series A.
- 11 -
As noted in the MD&A of the 2006 annual report, the Corporation’s investment in the Portuguese
subsidiary, Cabovisão, is exposed to market risk attributable to fluctuations in foreign currency
exchange rate, primarily changes in the values of the Canadian dollar versus the euro. This risk is
mitigated since the major part of the purchase price for Cabovisão was borrowed directly in euros.
This debt is designated as a hedge of net investments in self-sustaining subsidiaries and accordingly
the Corporation realized a foreign exchange gain of $11.8 million in the first quarter of fiscal 2007
which is deferred and recorded in the foreign currency translation adjustment.
FISCAL 2007 FINANCIAL GUIDELINES
Given the stronger-than-expected demand for basic cable, Digital Television, HSI and Digital
Telephony services during the first quarter and various service enhancements offered recently,
Cogeco Cable has revised upward its 2007 guideline for basic cable, Digital Television, HSI and
Digital Telephony customer additions. Subsequent to these adjustments, projected revenue and
operating income before amortization were revised upward. The operating margin should remain at
about 38% even with the continued deployment of the Digital Telephony to occur during the course of
fiscal 2007.
As a result of increased customer additions, Cogeco Cable will have to purchase more digital
terminals, cable modems and equipment. Consequently, management is raising its guidance for
capital expenditures and deferred charges from between $225 million and $230 million to
$255 million, and for amortization from $182 million to $192 million. The Corporation should generate
free cash flow of $10 million to $15 million. Projected net income should stand at about $48 million.
In furtherance of its existing line of business and external growth strategy, the Corporation may
investigate further cable system acquisition opportunities, including cable systems located outside
Canada over time.
Consolidated
($ million, except customer data)
Revised Projections
January 10, 2007
Fiscal 2007
Projections
October 16, 2006
Fiscal 2007
Financial Guidelines
Revenue 925 880 to 885
Operating income before amortization 355 335 to 338
Operating margin About 38% About 38%
Financial expense 87 85
Amortization 192 182
Net income 48 45
Capital expenditures and deferred charges 255 225 to 230
Free cash flow 10 to 15 20 to 25
Customer Addition Guidelines
Basic service 37,000 to 40,000 25,000 to 30,000
HSI service 85,000 to 90,000 55,000 to 60,000
Digital Television service 60,000 to 65,000 55,000 to 60,000
Telephony service 105,000 to 110,000 67,000 to 72,000
RGUs 287,000 to 305,000 202,000 to 222,000
- 12 -
Canadian operations
($ million, except customer data)
Revised Projections
January 10, 2007
Fiscal 2007
Projections
October 16, 2006
Fiscal 2007
Financial Guidelines
Revenue 701 665 to 670
Operating income before amortization 280 264 to 267
Operating margin About 40% About 40%
Capital expenditures and deferred charges 210 180 to 183
Customer Addition Guidelines
Basic service 12,000 to 15,000 0 to 5,000
HSI service 60,000 to 65,000 30,000 to 35,000
Digital Television service 60,000 to 65,000 55,000 to 60,000
Telephony service 80,000 to 85,000 42,000 to 47,000
RGUs 212,000 to 230,000 127,000 to 147,000
Portuguese operations
($ million, except customer data)
Revised Projections
January 10, 2007
Fiscal 2007
Projections
October 16, 2006
Fiscal 2007
Financial Guidelines
Revenue 224 215
Operating income before amortization 75 71
Operating margin About 33% About 33%
Capital expenditures and deferred charges 45 45 to 47
Customer Addition Guidelines
Basic service 25,000 25,000
HSI service 25,000 25,000
Telephony service 25,000 25,000
RGUs 75,000 75,000
Financial guidelines for the Portuguese operations were revised only to reflect the improvement of
the euro currency compared to the Canadian dollar. As a result, for guideline purposes the euro is
converted at an average rate of $1.45 while the Corporation was using an average rate of $1.40 last
October.
UNCERTAINTIES AND MAIN RISK FACTORS
There has been no significant change in the risk factors and uncertainties facing Cogeco Cable as
described in the Corporation’s MD&A of the 2006 annual report.
NON-GAAP FINANCIAL MEASURES
This section describes Non-GAAP financial measures used by Cogeco Cable throughout this MD&A.
It also provides reconciliations between these Non-GAAP measures and the most comparable GAAP
financial measures. These financial measures do not have standard definitions prescribed by
Canadian GAAP and may not be comparable with similar measures presented by other companies.
These measures include “cash flow from operations” and “free cash flow”.
- 13 -
Cash Flow from Operations
Cash flow from operations is used by Cogeco Cable’s management and investors to evaluate cash
flow generated by operating activities excluding the impact of changes in non-cash operating items.
This allows the Corporation to isolate the cash flow from operating activities from the impact of cash
management decisions. Cash flow from operations is subsequently used in calculating the Non-
GAAP measure, “free cash flow”. Cash flow from operations is calculated as follows:
($ 000)
Quarters ended November 30,
2
2006
2005
Cash flow from operating activities $ $ $ (9,849) $ 602
Changes in non-cash operating items
71,909 42,787
Cash flow from operations $ $ $ 62,060 $ 43,389
Free Cash Flow
Free cash flow is used, by Cogeco Cable’s management and investors, to measure its ability to repay
debt, distribute capital to its shareholders and finance its growth. Free cash flow is calculated as
follows:
($ 000) Quarters ended November 30,
2006 2005
Cash flow from operations $ $ 62,060 $ 43,389
Acquisition of fixed assets
(66,966) (30,013)
Increase in deferred charges
(7,212) (3,665)
Assets acquired under capital leases – as per Note 10 b)
(205) -
Free cash flow $ $ $ (12,323) $ 9,711
ADDITIONAL INFORMATION
This MD&A was prepared on January 10, 2007. Additional information relating to the Corporation,
including its Annual Information Form, is available on the SEDAR Web site at www.sedar.com.
ABOUT COGECO CABLE
Cogeco Cable (www.cogeco.ca), a telecommunications company offering a diverse range of services
to its customers in Canada and in Portugal, is the second largest cable operator in Ontario, Québec
and Portugal, in terms of the number of basic cable service customers served. The Corporation
invests in state-of-the-art broadband network facilities, delivers a wide range of services over these
facilities with great speed and reliability at attractive prices, and strives to provide both superior
customer care and growing profitability to satisfy its customers’ varied electronic communication
needs. Through its two-way broadband cable networks, Cogeco Cable provides its residential and
commercial customers with analog and digital video and audio services, high speed Internet access
as well as telephony services. The Corporation provides about 1,649,000 revenue-generating units
(RGUs) to approximately 1,439,000 homes passed in its Canadian service territory and about
650,000 RGUs to approximately 829,000 homes passed in its Portuguese service territory. Cogeco
Cable’s subordinate voting shares are listed on the Toronto Stock Exchange (CCA).
– 30 –
- 14 -
Source: Cogeco Cable Inc.
Pierre Gagné
Vice President, Finance and Chief Financial Officer
Tel.: (514) 874-2600
Information: Media
Marie Carrier
Director, Corporate Communications
Tel.: (514) 874-2600
Analyst Conference Call: Thursday, January 11, 2007 at 11:00 a.m. (EST)
Media representatives may attend as listeners only.
Please use the following dial-in number to have access to the
Conference call by dialling 10 minutes before the start of the
Conference:
Canada/USA Access Number: 1 800 967-7134
International Access Number: +1 719 457-2625
Confirmation Code: 8541008
By Internet at: www.cogeco.ca/investors
A rebroadcast of the conference call will be available until
January 16, 2007 by dialling:
Canada and USA access number: 1 888 203-1112
International access number: + 1 719 457-0820
Confirmation code: 8541008
- 15 -
Supplementary Quarterly Financial Information
Quarters ended November 30, August 31, May 31, February 28,
2006 2005 2006 2005 2006 2005 2006 2005
($000, except percentages
and per share data)
Revenue $ 222,002 $ 143,413 $ 174,875 $
140,178 $ 153,956 $ 140,071 $ 147,757 $
138,389
Operating income
before amortization
83,662
57,302 72,864 60,720 63,244 58,310 59,568
55,297
Operating margin 37.7 %
40.0 %
41.7 %
43.3 %
41.1 %
41.6 % 40.3 %
40.0 %
Amortization 44,309 28,277 34,801 29,460 29,048 31,396 28,656 31,988
Financial expense 21,221 13,582 16,374 14,004 13,634 13,954 13,776 13,840
Income taxes
(recovery)
5,597 6,445 (12,298) 6,220 8,191 4,715 6,936 3,856
Net income 12,535 8,998 33,987 11,036 12,371 8,245 10,200 5,613
Cash flow from
operations
62,060 43,389 56,714 46,509 49,696 43,562 44,940 41,675
Net income per share $ 0.31 $ 0.23 $ 0.85 $
0.28 $ 0.31 $ 0.21 $ 0.26 $
0.14
Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations.
However, the loss of basic service customers is usually greater, and the addition of HSI customers is
generally lower in the third quarter, mainly due to students leaving campuses at the end of the school
year. Cogeco Cable offers its services in several university and college towns such as Kingston,
Windsor, St.Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski. Furthermore, the third
and fourth quarters’ operating margin is usually higher as lower or no management fees are paid to
COGECO Inc. Under a Management Agreement, Cogeco Cable pays a fee equal to 2% of its total
revenue subject to a maximum amount.
COGECO CABLE INC. - 16 -
Customer Statistics
November 30, August 31,
2006 2006
Homes Passed
Ontario (1) 961,976 1,002,187
Québec 477,132 474,717
Canada 1,439,108 1,476,904
Portugal 829,152 826,369
Total 2,268,260 2,303,273
Revenue Generating Units
Ontario 1,170,287 1,104,157
Québec 478,664 451,779
Canada 1,648,951 1,555,936
Portugal 650,305 629,041
Total 2,299,256 2,184,977
Basic Service Customers
Ontario 599,376 587,289
Québec 250,041 245,888
Canada 849,417 833,177
Portugal 276,947 269,694
Total 1,126,364 1,102,871
Discretionnary Service Customers
Ontario 469,976 463,783
Québec 197,669 192,895
Canada 667,645 656,678
Portugal - -
Total 667,645 656,678
Pay TV Service Customers
Ontario 85,884 84,425
Québec 40,815 38,455
Canada 126,699 122,880
Portugal 55,689 54,089
Total 182,388 176,969
High Speed Internet Service Customers
Ontario 290,018 269,328
Québec 81,997 73,752
Canada 372,015 343,080
Portugal 144,355 136,278
Total 516,370 479,358
Digital Video Service Customers
Ontario 227,314 213,556
Québec 121,274 113,808
Canada 348,588 327,364
Portugal - -
Total 348,588 327,364
Telephony Service Customers
Ontario 53,579 33,984
Québec 25,352 18,331
Canada 78,931 52,315
Portugal 229,003 223,069
Total 307,934 275,384
(1) An audit of homes passed in Ontario has been completed during the first quarter of fiscal 2007 and, as a result,
the number of homes passed has been reduced by 42,386
- 17 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31, Three months ended November 30,
(In thousands of dollars, except per share data)
2006
2005
2006
2005
(unaudited)
(unaudited)
Revenue
Service
$
$
$ 221,114
$ 142,759
Equipment
888
654
222,002
143,413
Operating costs
133,900
83,243
Management fees – COGECO Inc.
4,440
2,868
Operating income before amortization 83,662
57,302
Amortization (note 3)
44,309
28,277
Operating income 39,353
29,025
Financial expense (note 7)
21,221
13,582
Income before income taxes 18,132
15,443
Income taxes (note 4)
5,597
6,445
Net income $
$
$ 12,535
$ 8,998
Earnings per share (no t e 5)
Basic
$
$
$0.31
$0.23
Diluted
0.31
0.22
- 18 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended November 30,
(In thousands of dollars)
2006
2005
(unaudited)
(unaudited)
Balance at beginning $ 117,760
$ 58,604
Net income
12,535
8,998
Dividends on multiple voting shares
(628)
(628)
Dividends on subordinate voting shares
(972)
(972)
Balance at end $ 128,695
$ 66,002
- 19 -
COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
November 30,
2006
August 31,
2006
(unaudited)
(audited)
Assets
Current
Cash and cash equivalents
$ 18,908
$ 71,516
Restricted cash
512
569
Accounts receivable
48,107
43,728
Income tax receivable
787
-
Prepaid expenses
6,710
6,265
75,024
122,078
Income tax receivable
892
-
Fixed assets
1,068,703
1,021,538
Deferred charges
48,847
47,327
Customer base (note 6)
989,552
989,552
Preliminary goodwill (note 6)
451,040
422,108
$ 2,634,058
$ 2,602,603
Liabilities and Shareholders’ equity
Liabilities
Current
Bank indebtedness
$ 29,322
$-
Accounts payable and accrued li abilities
217,954
283,087
Income tax liabilities
3,908
444
Deferred and prepaid income
29,654
26,652
Current portion of long-term debt (note 7)
126,863
126,851
407,701
437,034
Long-term debt (note 7)
1,224,265
1,190,126
Deferred and prepaid income
11,458
10,525
Pension plans liabiliti es and accrued employees benefits
2,366
2,091
Future income tax liabilities
219,841
217,636
1,865,631
1,857,412
Shareholders’ equity
Capital stock (note 8)
630,689
630,458
Contributed surplus – stock-based compensation
1,683
1,425
Retained earnings
128,695
117,760
Foreign currency translation adjustment (note 9)
7,360
(4,452)
768,427
745,191
$ 2,634,058
$ 2,602,603
- 20 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended August 31, Three months ended November 30,
(In thousands of dollars)
2006
2005
2006
2005
(unaudited)
(unaudited)
Cash flow from operating activities
Net income
$
$
$ 12,535
$ 8,998
Items not affecting cash and cash equivalents
Amortization (note 3)
44,309
28,277
Amortization of deferred financing costs
646
241
Future income taxes (note 4)
3,911
5,620
Other
659
253
62,060
43,389
Changes in non-cash oper ating items (note 10a))
(71,909)
(42,787)
(9,849)
602
Cash flow from investing activities
Acquisition of fixed assets (not e 10b))
(66,966)
(30,013)
Increase in deferred charges
(7,212)
(3,665)
Decrease in restricted cash
91
-
Other
17
-
(74,070)
(33,678)
Cash flow from financing activities
Increase in bank indebtednes s
29,322
15,646
Increase in long-term debt
10,000
40,000
Repayment of long-term debt
(8,255)
(348)
Issue of subordinate voting shares
228
-
Dividends on multiple voting shares
(628)
(628)
Dividends on subordinate voting shares
(972)
(972)
29,695
53,698
Net change in cash and cas h equivalents (54,224)
20,622
Effect of exchange rate changes on cash and cash equ ivalents denominated in foreign
currencies
1,616
-
Cash and cash equivalents at beginning
71,516
61
Cash and cash equivalents at end $
$
$ 18,908
$ 20,683
See supplemental cash flow information in note 10.
- 21 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in
accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present
fairly the financial position of Cogeco Cable Inc. as at November 30, 2006 and August 31, 2006 as well as its results
of operations and its cash flow for the three month periods ended November 30, 2006 and 2005.
While management believes that the disclosures presented are adequate, these unaudited interim consolidated
financial statements and notes should be read in conjunction with Cogeco Cable Inc.’s annual consolidated financial
statements. These unaudited interim consolidated financial statements follow the same accounting policies as the
most recent annual consoli dated financial statements.
2. Segmented Information
The Corporation’s activities are comprised of all cable, high-speed Internet access and telephony services. The
Corporation considers its cable distribution, high-speed Internet access and telephony activities as a single operating
segment. The Corporation’s activities are carried out in Canada an d in Portugal.
The Portugal segment include s operating results since the date of the acquisition of control on August 1, 2006.
The principal financi al information per business segment is presente d in the tables below:
Canada Portugal
Consolidated
Three months ended November 30,
(unaudited)
2006 2005 2006 2005 2006 2005
Revenue $ 167,931 $ 143,413 $ 54,071 $- $ 222,002 $ 143,413
Operating costs 98,160 83,243 35,740 - 133,900 83,243
Management fees 4,440 2,868 - - 4,440 2,868
Operating income before amortization 65,331 57,302 18,331 - 83,662 57,302
Amortization 31,704 28,277 12,605 - 44,309 28,277
Operating income 33,627 29,025 5,726 - 39,353 29,025
Financial expense 21,764 13,582 (543) - 21,221 13,582
Income taxe s 4,218 6,445 1,379 - 5,597 6,445
Net income 7,645 8,998 4,890 - 12,535 8,998
Net assets employed
(1) (2)
$ 1,714,890 $ 1,642,485 $ 641,194 $- $ 2,356,084 $ 1,642,485
Total assets
(2)
1,846,144 1,782,332 787,914 - 2,634,058 1,782,332
Fixed assets
(2)
771,954 704,590 296,749 - 1,068,703 704,590
Preliminary goodwill
(2)
- - 451,040 - 451,040 -
Acquisition of fixed assets 57,588 30,013 9,583 - 67,171 30,013
(1)
Total assets less cash and cash equivalents, accounts payable and accrued liabilities, and deferred and prepaid income.
(2)
As at November 30, 2006 and 2005.
- 22 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
3. Amortization
Three months ended August 31, Three months ended November 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Fixed assets $ 29,872 $ 23,985 $ 39,263 $ 22,949
Deferred charges 4,929 5,475 5,046 5,328
$ 34,801 $ 29,460 $ 44,309 $ 28,277
4. Income Taxes
Three months ended August 31, Three months ended November 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Current $ 1,100 $ 416 $ 1,686 $ 825
Future (13,398) 5,804 3,911 5,620
$ (12,298) $ 6,220 $ 5,597 $ 6,445
The following table provides the reconciliation between Canadian statutory federal and provincial income taxes and
the consolidated income tax expense:
Three months ended August 31, Three months ended November 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Income taxes at combined income tax rate of 35.14 % (35.09 % in 2005)
6,033
$ 6,371 $ 5,419
Loss or income subject to lower or higher tax rates (363) (204) (50) (8)
Increase in income taxes as a result of increase in substantially enacted tax rates - 162
Large corporation tax (1,815) 165 - 825
Effect of foreign income tax rate differences 1,430 - (824) -
Other 507 226 100 47
Income taxes at effective income tax rate $ (12,298) $ 6,220 $ 5,597 $ 6,445
- 23 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
5. Earnings per Share
The following table provides a reconciliation between basic and dilu ted earnings per share:
Three months ended August 31, Three months ended November 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Net income $ 33,987 $ 11,036 $ 12,535 $ 8,998
Weighted average number of multiple voting and subordinate voting shares
outstanding
39,983,975
40,002,441
39,984,586
Effect of dilutive stock options
(1)
129,091 213,087 224,302 195,214
Weighted average number of diluted multiple voting and subordinate voting
shares outstanding
40,197,062
40,226,743
40,179,800
Earnings per share
Basic $ 0.85 $ 0.28 $ 0.31 $ 0.23
Diluted 0.85 0.27 0.31 0.22
(1)
For the three months period ended November 30, 2006, 141,740 stock options (143,248 in 2005) were excluded from the calculation of diluted earnings per share
since the exercise price of the options was greater than the average share price of the subordinate voting shares.
6. Customer Base and Preliminary Goodwill
Customer
base
Preliminary
goodwill
(unaudited) (unaudited)
Balance as at August 31, 2006 $ 989,552 $ 422,108
Foreign currency translation adjustment
- 28,932
Balance as at November 30, 2006 $ 989,552 $ 451,040
As mentioned in the Corporation’s 2006 annual consolidated financial statements, management is currently carrying
out a more specific analysis and changes will be made to the allocation of the excess of consideration over net assets
acquired as the information becomes available. For example, since the measurement of the fair value of fixed assets
had not yet been completed at the time of the preliminary allocation, fixed assets have been presented at cost. The
measurement of indefinite and finite-lived intangible assets is also under way. Furthermore, in accordance with the
Portuguese Companies Income Tax Code, accumulated tax losses can not be deducted if the ownership of at least
50% of the social capital changes from the moment when the tax losses were generated, unless an authorization is
granted before such change in the ownership takes place. To this effect, a request for preservation of tax losses was
filed by Cabovisão on July 28, 2006. These losses have not been included in the preliminary purchase price
allocation. Finally, the Corporation did not complete the assessment of possible costs related to the restructuring and
integration of the activities of Cabovisão potentially giving rise to the recognition of a liability in the allocation of the
purchase price. As a result, the actual amounts allocated to the identifiable assets acquired and liabilities assumed
and the related operating results will vary according to the amounts initially recorded, and such differences could be
significant.
- 24 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
7. Long-Term Debt
Maturity Interest rate
November 30,
2006
August 31,
2006
(unaudited) (audited)
Parent company
Term Facility
Term loan 2011 5.42
(1)
$ 150,000 $ 150,000
Term loan – €17,358,700 2011 4.69
(1)
26,274 24,573
Revolving loan
Canadian currency 2011 5.46
(1)
10,000 –
Euro currency – €311,500,000 (€317,000,000 as at
August 31, 2006)
2011
4.69
(1)
471,486 448,745
Senior Secured Debentures Series 1 2009 6.75
150,000 150,000
Senior – Secured Notes
Series A – US $150 million 2008 6.83
(2)
171,330 165,795
Series B 2011 7.73
175,000 175,000
Second Secured Debentures Series A 2007 8.44
125,000 125,000
Deferred credit
(3)
2008 –
67,320 72,855
Subsidiaries
Obligations under capital leases 2010 6.42 – 8.36
4,718 5,009
1,351,128 1,316,977
Less: current portion
126,863 126,851
$ 1,224,265 $ 1,190,126
(1)
Average interest rate on debt as at November 30, 2006, including stamping fees.
(2)
Cross-currency swap agreements have resulted in an effective interest rate of 7.254% on the Canadian dollar equivalent of the U.S.
denominated debt.
(3)
The deferred credit represents the amount which would have been payable as at November 30, 2006 and August 31, 2006 under cross-
currency swaps entered into by the Corporation to hedge Senior Secured Notes Series A denominated in US dollars.
Interest on long-term debt for the three month period ended November 30, 2006 amounted to $20,246,000
($13,048,000 in 2005).
- 25 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
8. Capital Stock
Authorized, an unlimited number
Class A Preference shares, without voting rights, redeemable by the Corporation and retractable at the option of the
holder at any time at a price of $1 per share, carrying a cumulative preferential cash dividend at a rate of 11% of the
redemption price per year.
Class B Preference shares, without voting rights, could be issued in series.
Multiple voting shares, 10 votes per share.
Subordinate voting shares, 1 vote per share.
November 30,
2006
August 31,
2006
(unaudited) (audited)
Issued
15,691,100 multiple voting shares $ 98,346 $ 98,346
24,321,339 subordinate voting shares (24,308,112 as at August 31, 2006) 532,343 532,112
$ 630,689 $ 630,458
During the period, subordin ate voting share transactions were as follows:
Three months ended Twelve months ended
November 30, 2006 August 31, 2006
(unaudited) (audited)
Number of
shares
Amount
Number of
shares
Amount
Balance at beginning 24,308,112 $ 532,112 24,293,486 $ 531,874
Shares issued for cash under the Employee Stock Purchase Plan
and the Stock Option Plan
13,227
228
14,626
228
Compensation expense previously recorded in contributed
surplus for options exercised
-
3
-
10
Balance at end 24,321,339 $ 532,343 24,308,112 $ 532,112
- 26 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
8. Capital Stock (continued)
Stock-based plans
The Corporation established for the benefit of its employees and those of its subsidiaries, an Employee Stock
Purchase Plan and a Stock Option Plan for certain executives which are described in the Corporation’s annual
consolidated financial statements. During the first quarter, the Corporation granted 197,407 stock options
(123,342 in 2005) with an exercise price of $26.63 ($29.05 in 2005) of which 56,335 stock options (31,743 in 2005)
were granted to COGECO Inc.’s employees. The Corporation also granted 376,000 conditional stock options with an
exercise price of $26.63 of which 262,400 stock options were granted to COGECO Inc.’s employees. These options
vest over a period of three years beginning one year after the day such options are granted and are exercisable over
ten years. The vesting of these options is conditional to the achievement of certain yearly financial objectives by the
Portuguese subsidiary, Cabovisão-Televisão por Cabo, S.A., over a period of three years. The Corporation records
compensation expense for options granted on or after September 1, 2003. As a result, a compensation expense of
$261,000 ($163,000 in 2005) was recorded for the three months period ended November 30, 2006. If compensation
expense had been recognized using the fair value-based method at the grant date for options granted between
September 1, 2001 and August 31, 2003, the Corporation’s net income and earnings per share for the three month
period ended November 30, 2005 would have bee n reduced to the following pro forma amounts:
Three months ended August 31, Three months ended November 30,
2006 2005 2005
(unaudited)
Net income
As reported $ $ $ 8,998
Pro forma 8,978
Basic earnings per share
As reported $ $ $ 0.23
Pro forma 0.22
Diluted earnings per share
As reported $ $ $ 0.22
Pro forma 0.22
The fair value of each option granted was estimated on the grant date for purposes of determining stock-based
compensation expense us ing the Binomial option pricing model based on the following assumptions:
2006 2005
Expected dividend yield
1.27 % 1.27 %
Expected volatility
32 % 39 %
Risk-free interest rate
4.05 % 3.70 %
Expected life in years
4.0 4.0
The fair value of stock options granted for the three month period ended November 30, 2006 was $7.37 ($9.46 in
2005) per option.
As at November 30, 2006, the Corporation had outstanding stock options providing for the subscription of 1,274,647
subordinate voting shares. These stock options, which include 376,000 conditional stock options, can be exercised at
various prices ranging from $7.05 to $4 0.75 and at various dates up to October 13, 2016.
- 27 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
9. Foreign Currency Translation Adjustment
The change in the foreign currency translation adjustment included in shareholders’ equity is the result of the
fluctuation in the exchange rates on translation of net investments in self-sustaining foreign operations and foreign
exchange gains or losses related to long-term debt denominated in foreign currency used to hedge net investments.
The net change in foreign currency translation adjustment is as follows:
Three months ended Twelve months ended
November 30, 2006 August 31, 2006
(unaudited) (audited)
Effect of exchange rate variation on translation of net investments in self-sustaining
foreign subsidiaries
$
29,758
$
(12,412)
Effect of exchange rate variation on translation of long-term debt designated as hedge
of net investments in self-sustaining subsidiaries (net of income taxes of $1,703, 000
for the twelve month period ended August 31, 2006)
(22,398)
7,960
$ 7,360 $ (4,452)
10. Statements of Cash Flow
a) Changes in non-cash operating items
Three months ended August 31, Three months ended November 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Accounts receivable $ 1,023 $ 1,159 $ (3,253) $ (1,036)
Income tax receivable 178 - (1,593) (286)
Prepaid expenses 244 (1,177) (360) 568
Accounts payable and accrued liabilities 48,788 46,846 (73,915) (43,548)
Income tax liabilities 450 (501) 3,280 (678)
Deferred and prepaid income (188) (231) 3,932 2,193
$ 50,495 $ 46,096 $ (71,909) $ (42,787)
- 28 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2006
(amounts in tables are in thousands of dollars, except per share data)
10. Statements of Cash Flow (continued)
b) Other information
Three months ended August 31, Three months ended November 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Fixed asset acquisitions through capital leases $ $ $ 205 $-
Interest paid 24,132 15,957
Income taxes paid 889 1,789
11. Employee Future Benefits
The Corporation and its subsidiaries offer their employees contributory defined benefit pension plans, a defined
contribution pension plan or a collective registered retirement savings plan which are described in the Corporation’s
annual consolidated financi al statements. The total expenses related to these plans are as follows:
Three months ended August 31, Three months ended November 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Contributory defined benefit pension plans $ $ $ 230 $ 174
Defined contribution pension plan and collective registered retirement savings plan 528 383
$ $ $ 758 $ 557