CONTINUED STRONG GROWTH AT COGECO CABLE
PRESS RELEASE
For immediate release
Continued strong growth at Cogeco Cable
Montréal, April 11, 2007 – Today, Cogeco Cable Inc. (TSX: CCA) announced its financial results for
the second quarter ended February 28, 2007.
Convincing results
Cogeco Cable has continued to exceed its last financial projections during the second quarter.
Revenue-generating units (RGUs) grew by 84,399, compared to 55,109 for the same period last
year. For the Canadian operations, RGUs increased by 64,133 compared to 55,109 for the same
period last year, an increase of 16%. For the Portuguese operations, with net additions of 20,266
RGUs, the total now stands at 670,571.
On a consolidated basis, revenue increased by 57%, standing at $232 million, operating income
before amortization by 45.7%, reaching $86.8 million, and net income by 51%, reaching
$15.4 million.
“We are exceeding our projections of last January. All our operating units are well positioned to
provide premium customer service together with a very competitive offering. We are very pleased
with the progression we are experiencing, thanks to our Portuguese subsidiary and the improvement
in the penetration of all our services including Digital Telephony in Canada,” said Mr. Louis Audet,
President and CEO of Cogeco Cable.
Improved 2007 projections
Considering the improved performance of the Corporation during the first six months of fiscal 2007,
management has revised upwards its projections for the fiscal year 2007. Consolidated revenue
should reach $945 million, operating income before amortization $365 million and net income should
stand at $60 million.
“The Corporation has recently implemented rate increases in Canada and in Portugal. In addition,
debt reduction from the issuance in early February of subordinate voting shares will reduce financial
expense. The combination of these factors improves Cogeco Cable revenue, operating income
before amortization and net income,” concluded Mr. Audet.
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FINANCIAL HIGHLIGHTS
Quarters ended February 28,
(unaudited)
Six months ended February 28,
(unaudited)
($000s, except percentages and per s hare data)
2007 2006 % Change
2007 2006 % Change
Revenue $ 231,952 $
147,757 57.0 $
453,954 $ 291,170 55.9
Operating income before amortization
86,791 59,568 45.7 170,453 116,870 45.8
Net income 15,407 10,200 51.0 27,942 19,198 45.5
Cash flow from operations
(1)
62,264 44,940 38.5 124,324 88,329 40.8
Less:
Capital expenditures and increase in
deferred charges
52,844 39,480 33.9 127,227 73,158 73.9
Free cash flow
(1)
9,420 5,460 72.5 (2,903) 15,171 -
Per share data
Basic net income $ 0.37 $
0.26 42.3 $
0.69 $ 0.48 43.8
(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 qua rter.
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 unle s 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 Addition to Cogeco On Demand of “Académie de hockey McDonald” in Québec;
o Signature of an agreement with Twentieth Century Fox Film Corporation for the VOD
offering;
o Addition of three HD channels to the HD offering in Ontario
• Digital Telephony service:
o Available to 74% of homes passed in Cogeco Cable’s territories, as at February 28,
2007;
o Since January 11, 2007, deployment of the Digital Telephony service in Leamington,
Kingsville and Brockville in Ontario, as well as Asbestos in Québec.
• High Speed Internet service:
o Access to F-Secure security service to Cogeco Cable business customers, free of
charge;
o Access to Wi-Fi connection for Cogeco Cable Ontario customers in Burlington,
Oakville and Hamilton.
Portuguese operations and its integration
• Cabovisão
- Televisão por Cabo, S.A. (Cabovisão) is in the process of completing its plan to
launch its Digital Television service during fiscal 2007;
• The integration process is essentially completed.
Continuous improvement of networks and equipment
• During the first six months of fiscal 2007, the Corporation has invested approximately
$49 million in its infrastructure including head-ends and upgrade/rebuild.
Effective management of capital
• On February 2, 2007, the Corporation issued 5 million subordinate voting shares at a price of
$38.50 for total net proceeds of $184.2 million which was used to reduce long-term debt;
• The Corporation reimbursed its $125 million 8.44% Second Secured Debentures due July 31,
2007, as well as a portion of its $900 million Term Facility including its bank indebtedness
from the proceeds of the subordinate voting share issue.
1
See « Customer statistics” section for detailed explanations.
2
See “ Non-GAAP financial measures “ section for explanations.
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Tight control over costs, business processes
• The first six months of fiscal 2007 operating costs, excluding management fees of the
Canadian operations, increased by 19.9% 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. The
documentation and remediation of internal controls are progressing.
RGU growth
During the first six months of fiscal 2007, the consolidated number of RGUs increased by 9% to
reach almost 2.4 million units, en route towards the achievement of the Corporation’s January 2007
revised projections of 13% to 14% for this fiscal year.
Revenue growth
In the second quarter of fiscal 2007, revenue increased by $84.2 millions to reach $232 million.
During the first six months, revenue increased by $162.8 million to reach $454 million. For fiscal
2007, the Corporation had expected to reach revenue growth of $305 million for a total of
$925 million for fiscal 2007 and now anticipates revenue growth of $325 million to reach $945 million.
Management has revised its guidelines to reflect price increases to occur in Canada and in Portugal
and the strengthening of the euro currency over the Canadian dollar. Please consult the ‘’Fiscal 2007
financial guidelines’’ section for further details.
Free cash flow
In the second quarter of fiscal 2007, Cogeco Cable generated free cash flow of $9.4 million,
compared to $5.5 million for the same period last year. For the six month period ended February 28,
2007, the Corporation generated a negative free cash flow of $2.9 million compared to a positive free
cash flow of $15.2 million for the same period the year before, mainly due to higher capital
expenditures necessary to sustain RGU growth. The increase in capital expenditures in the semester
also includes the acquisition of customer premise equipment amounting to approximately $10 million
to serve expected RGU growth in the coming months. Capital expenditures and deferred charges
amounted to $52.8 million of which $42 million was intended to support Canadian operations and the
remainder was earmarked for the Portuguese operations. Considering the strong demand for HSI
and Digital Telephony services in Canada in the first six months of fiscal 2007, the Corporation has
revised the level of capital expenditures required in its infrastructure to increase its capacity. Fiscal
2007 capital expenditures and deferred charges are now expected to reach $260 million. The revised
free cash flow for fiscal 2007 should be approximately $15 million. Please consult the ‘’Fiscal 2007
financial guidelines’’ section for further details.
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OPERATING RESULTS – CONSOLIDATED OVERVIEW
Quarters ended February 28,
Six months ended February 28,
($000s, except percentages)
2007
2006
%
Change
2007 2006
%
Change
Revenue $ 231,952 $
147,757 57.0 $
453,954 $ 291,170 55.9
Operating costs 141,033 85,232 65.5 274,933 168,475 63.2
Management fees - COGECO Inc.
4,128 2,957 39.6 8,568 5,825 47.1
Operating income before amortization
86,791 59,568 45.7 170,453 116,870 45.8
Operating margin 37.4 %
40.3 %
37.5 % 40.1 %
Revenue
In the second quarter of fiscal 2007, consolidated revenue grew by $84.2 million, or 57%, to reach
$232 million and by $162.8 million, or 55.9% to reach $454 million for the first six months of 2007.
These increases are mainly due to strong RGU growth, to the consolidation of the financial results of
the Portuguese operations acquired on August 1, 2006 and rate increases. Canadian operations
revenue, driven by an increased number of customers in basic, HSI, Digital Telephony and Digital
Television services as well as rate increases, went up by $27.2 million, or 18.4% in the second
quarter and by $51.7 million, or 17.8%, in the first six months. The Portuguese operations revenue
amounted to $57 million for the second quarter of fiscal 2007 and to $111.1 million for the first six
month of fiscal 2007.
Operating costs
For the second quarter and the first six months of fiscal 2007, operating costs excluding management
fees payable to COGECO Inc. increased by $55.8 million and $106.5 million to reach $141 million
and $274.9 million respectively, an increase of 65.5% and 63.2% compared to last year. The
increase in operating costs is mainly attributable to the inclusion of the operating costs of Cabovisão,
the increased penetration of Digital Telephony service and to servicing additional RGU in Canada.
Operating income before amortization
For the second quarter and the first six months of fiscal 2007, operating income before amortization
increased by $27.2 million, or 45.7%, to reach $86.8 million and by $53.6 million, or 45.8% to reach
$170.5 million, as a result of RGU growth, Cabovisão acquisition and rate increases outpacing
increases in operating costs. Cogeco Cable’s second quarter and first six months’ operating margins
declined from 40.3% to 37.4% and from 40.1% to 37.5% respectively as a result of the Digital
Telephony deployment in Canada and the consolidation of the Portuguese operations lower
operating margin. Considering the improved performance of the Corporation during the first six
months of fiscal 2007, management has revised upwards its projections for the fiscal year 2007.
Therefore, operating income before amortization should increase to $365 million. Please consult the
‘’Fiscal 2007 financial guidelines’’ section for further details.
RELATED PARTY TRANSACTIONS
Cogeco Cable is a subsidiary of COGECO Inc., which holds 34.7% of the Corporation’s equity
shares, representing 84.2% 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
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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, which has been reached in the
second quarter, compared to $5.8 million for the same period last year. Most of the increase of
$2.8 million is due to the revenue generated from the acquisition of Cabovisão. Furthermore, Cogeco
Cable granted 319,647 stock options to COGECO Inc.’s employees during the first half of fiscal 2007,
compared to 31,743 for the same period last year. Of these 319,647 stock options, 262,400 are
conditional on 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 the three and six month
periods ended February 28, 2007 and 2006.
FIXED CHARGES
Quarters ended February 28, Six months ended February 28,
($000s, except percentages)
2007 2006 % Change 2007
2006 % Change
Amortization $ 43,572 $ 28,656 52.1 $ 87,881 $ 56,933 54.4
Financial expense 23,551 13,776 71.0 44,772 27,358 63.7
For the second quarter and first six months of fiscal 2007, amortization amounted to $43.6 million
and to $87.9 million respectively, compared to $28.7 million and $56.9 million for the same periods
the year before. The increase in amortization expense for both periods of fiscal 2007 compared to
fiscal 2006 is due to the consolidation of the financial results of Cabovisão and to the increased
capital expenditures arising from the customer growth resulting in higher demand for customer
premise equipment, scalable infrastructure, upgrade/rebuild, support capital and deferred charges for
the Canadian operations.
During the second quarter and first six months of fiscal 2007, financial expense increased by
$9.8 million and $17.4 million respectively, compared to the same periods in fiscal 2006. 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 and a one-time charge of
$2.6 million in the second quarter related to the early repayment of the Second Secured Debentures
Series A. The Corporation has revised its guidelines to reflect the impact of the share issuance on
the financial expense. Please consult the ‘’Fiscal 2007 financial guidelines’’ section for further details.
INCOME TAXES
For the second quarter of fiscal 2007, income taxes amounted to $4.3 million compared to
$6.9 million in fiscal 2006. For the first six months of fiscal 2007, income taxes amounted to
$9.9 million compared to $13.4 million for the same period last year. The decrease in income taxes
for fiscal 2007 is mainly due to the Canadian operations and is attributable to the elimination of
Canadian federal capital tax on January 1, 2006 and to the recognition of benefits related to prior
years’ minimum income tax paid.
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NET INCOME
Net income for the second quarter amounted to $15.4 million, or $0.37 per share, compared to
$10.2 million, or $0.26 per share, for the same period last year. For the first half of fiscal 2007, net
income amounted to $27.9 million, or $0.69 per share compared to $19.2 million or $0.48 per share
for the same period in fiscal 2006. Net income increases in these periods were attributable to the
growth in operating income before amortization partly offset by the fixed charges increases.
CASH FLOW AND LIQUIDITY
Quarters ended February 28,
Six months ended February 28,
($000s)
2007 2006 2007 2006
Operating Activities
Cash flow from operations $
62,264 $
44,940 $ 124,324 $
88,329
Changes in non-cash operating items (6,607)
(2,525) (78,516)
(45,312)
$
55,657 $
42,415 $ 45,808 $
43,017
Investing Activities
(1)
$
(52,183) $
(58,363) $ (126,253) $
(92,041)
Financing Activities
(1)
$
15,485 $
(4,735) $ 45,180 $
48,963
Net change in cash and cash equivalents
$
18,959 $
(20,683)
$ (35,265) $
(61)
Effect of exchange rate changes on cash and cash
equivalents denominated in foreign currencies 1,644
- 3,260
-
Cash and cash equivalents at beginning
18,908 20,683 71,516
61
Cash and cash equivalents at end
$
39,511 $
-
$ 39,511 $
-
(1)
Excludes assets acquired under capital leases.
During the second quarter 2007, cash flow from operations reached $62.3 million, 38.5% higher than
for the comparable period last year, primarily due to the increase in operating income before
amortization partly offset by the increase in financial expense. Changes in non-cash operating items
generated greater cash outflows than for the same period last year, mainly as a result of increases in
accounts and income tax receivables, partly offset by an increase in accounts payable and accrued
liabilities.
During the first six months of fiscal year 2007, cash flow from operations reached $124.3 million, an
increase of 40.8% compared to the same period the year before, primarily due to the growth in
operating income before amortization partly offset by the increase in financial expense. Changes in
non-cash operating items generated greater cash outflows than for the same period last year, mainly
as a result of a decrease in accounts payable and accrued liabilities from non recurring payments
made by the Portuguese subsidiary in accordance with the terms of the acquisition, and increases in
accounts and income tax receivables.
On March 9, 2007, the Corporation and Cable Satisfaction International Inc. have come to an
agreement for a final adjustment of the working capital which was still outstanding since the date of
acquisition, and consequently, the preliminary goodwill has been reduced by $3.3 million. The
remaining adjustment to the purchase price is due to the re-evaluation of costs related to the
acquisition of Cabovisão.
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Investing activities, including capital expenditures segmented according to the National Cable
Television Association (NCTA) standard reporting categories, are as follows:
Quarters ended February 28,
Six months ended February 28,
($000s)
2007
2006 2007
2006
Customer Premise Equipment
(1)
$ 17,786 $
14,183 $ 57,203 $ 29,606
Scalable Infrastructure
8,774
6,943
20,760
10,615
Line Extensions
2,649
2,291
5,200
4,843
Upgrade / Rebuild
17,176
9,632
28,031
16,606
Support Capital
413
2,647
2,775
4,039
Total Capital Expenditures
(2)
$
46,798
$
35,696
$
113,969
$
65,709
Deferred charges and others
7,409
3,776
14,604
7,441
Increase (decrease) in restricted
cash
3 20,322 (88) 20,322
Total investing activities
$
54,210
$
59,794
$
128,485
$
93,472
(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 second quarter and first six months of fiscal 2007, capital expenditures increased
compared to last year mainly as a result of the integration of Cabovisão and the following factors:
¾ The increase in customer premise equipment expenditures resulted from a greater demand
for HSI and Digital Telephony services, from a rise in the number of digit al terminals rented to
customers and from a greater ratio of digital terminals per digital home. Furthermore,
customer premise equipment representing approximately $10 million was acquired by the
Corporation during the first semester to serve expected RGU growth in the coming months.
¾ The growth in capital expenditures for scalable infrastructure was mainly attributable to the
support of the Digital Telephony roll-out for the Canadian operations.
¾ The increase in capital expenditures associated with the network upgrade and rebuild
program for the Canadian operations was 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
two-way service was also a factor and the percentage of customers with access to two-way
service rose from 91% as at February 28, 2006 to 93% as at February 28, 2007.
The Portuguese operations capital expenditures amounted to $10.8 million and $20.4 million,
respectively, for the second quarter and the first six months of fiscal 2007, essentially to support RGU
growth.
The second quarter and first six months of fiscal 2007 increases in deferred charges are explained by
higher reconnect costs attributable to the significant level of RGU growth.
In the second quarter of fiscal 2007, the Corporation generated free cash flow in the amount of
$9.4 million compared to $5.5 million the preceding year. For the first six months of fiscal 2007, the
Corporation incurred a deficit in free cash flow in the amount of $2.9 million compared to a surplus of
$15.2 million for the same period the year before. The second quarter free cash flow increase over
the same period last year is due to growth in operating income before amortization, partly offset by
higher level of capital expenditures and deferred charges to serve RGU growth and to support Digital
Telephony service roll-out and by the increase in financial expense. The first six months free cash
flow decrease compared to the same period in 2006 is due to a higher level of capital expenditures
(including the acquisition of customer premise equipment amounting to approximately $10 million to
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serve RGU growth in the coming months), deferred charges generated by RGU growth and to
support the Digital Telephony service roll-out and by the increase in financial expense, partly offset
by the growth in operating income before amortization.
On February 2, 2007, the Corporation announced the completion of a public offering of 5,000,000
subordinate voting shares for gross proceeds of $192.5 million. The offering resulted in net proceeds
to Cogeco Cable of approximately $184.2 million which was used to reduce long-term indebtedness
and working capital deficiency.
During the second quarter of fiscal 2007, the level of Indebtedness decreased by $170.5 million. On
February 2, 2007, the Corporation gave a notice of redemption and offered to purchase all of its
8.44% Second Secured Debentures, Series A, in the aggregate principal amount of $125 million due
July 31, 2007 (the ‘’Notes’’). As at February 28, 2007, $89.3 million of the Notes have been repaid
and the remainder was repaid on March 5, 2007. The decrease in Indebtedness was also due to the
repayment of a portion of the Corporation’s Term Facility amounting to $51.4 million and to the
repayment of its bank indebtedness at the amount of $29.3 million. For the same period last year,
Indebtedness decreased by $3.3 million mainly due to free cash flow of $5.5 million, a net decrease
in cash and cash equivalents of $20.7 million, partly offset by a decline in non-cash operating items
of $2.5 million and an increase in restricted cash of $20.3 million. In addition, a dividend of $0.06 per
share for subordinate and multiple voting shares, totalling $2.4 million, was paid during the second
quarter of fiscal 2007 compared to a dividend of $0.04 per share or $1.6 million for the second
quarter of fiscal 2006.
During the first half of fiscal 2007, the level of Indebtedness decreased by $139.5 million mainly due
to the repayment of the Notes for $89.3 million and the repayment of $49.1 million of the
Corporation’s Term Facility. For the same period last year, Indebtedness grew by $52 million mainly
due to a decline in non-cash operating items of $45.3 million and an increase in restricted cash of
$20.3 million partly offset by generated free cash flow of $15.2 million . In addition, dividends totalling
$4 million were paid during the first six months of fiscal 2007 compared to $3.2 million for the same
period the year before.
As at February 28, 2007, the working capital deficiency was reduced by an amount of $130.4 million
mainly as a result of the $125 million portion of the net proceeds of the share issuance being used to
reimburse $89.3 million of the Senior Secured debentures Series A on February 12, 2007. The
remaining portion of $35.7 million, presented as cash and cash equivalents as at February 28, 2007,
was used to reimburse the remainder of these debentures, on March 5, 2007. 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 February 28, 2007, the Corporation had used $617.2 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’’, “Accounts receivable”, ‘’Indebtedness’’, ‘’Cash and cash
equivalents’’, “Capital Stock” and ‘’Foreign currency translation adjustment’’.
The $63.4 million rise in fixed assets is mainly related to increased capital expenditures to sustain
RGU growth during the first six months as well as anticipated growth in the coming months. The
increase of $32.8 million in preliminary goodwill is mainly the result of the appreciation of the euro
currency over the Canadian dollar partly offset by adjustments of $6 million to the purchase price
following the resolution of the working capital adjustments and the reevaluation of costs related to the
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acquisition of Cabovisão. The $14.1 million increase in accounts receivable is essentially due to an
increase in the general level of receivables in line with the revenue growth, the resolution of the
working capital adjustments and to the euro currency appreciation over the Canadian dollar. The
$58.5 million and $32 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. The $15.9 million increase in foreign currency translation adjustment is the result of the
appreciation of the euro currency over the Canadian dollar. Indebtedness decreased by $94.2 million
as a result of the factors previously discussed in the “Cash Flow and Liquidity” section. Finally, capital
stock increased by $197.5 million mostly due to the completion of a public offering of 5,000,000
subordinate voting shares for gross proceeds of $192.5 million.
A description of Cogeco Cable’s share data as of March 31, 2007 is presented in the table below:
Number of
shares/options
Amount
($000s)
Common Shares
Multiple voting shares
Subordinate voting shares
15,691,100
29,547,444
98,346
729,651
Options to Purchase Subordinate Voting Shares
Outstanding options
Exercisable options
1,058,144
359,994
The number of outstanding options has increased significantly during the first six months 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 except for
the repayment of the $125 million Second Secured Debentures Series A and the partial repayment of
$49.1 million of the $900 million Term Facility discussed in the Cash Flow and Liquidity section.
Furthermore, during the second quarter of fiscal 2007, the Corporation has guaranteed the payment
by Cabovisão of certain taxes for municipal rights of way assessed by the Municipality of Seixal in
Portugal for the years 2004 and 2005 totalling €5.7 million (the «Tax Amounts»), which are currently
being challenged by Cabovisão. Trustworthy financial guarantees were required under applicable
Portuguese law in order for Cabovisão to challenge the Tax Amounts and withhold payment thereof
until a final judgment no longer subject to appeal is rendered by the Portuguese courts having
jurisdiction in this matter. As a result, the Corporation may be required to pay, upon written demand
by the Municipality of Seixal, the required amounts following final judgment up to a maximum
aggregate amount of €5.7 million, should Cabovisão fail to pay such required amounts.
DIVIDEND DECLARATION
At its April 11, 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 May 9, 2007, to
shareholders of record on April 25, 2007.
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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$9.7 million at the end of the second 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 second
quarter 2007 interim financial statements. The CDN$63.2 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.
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 foreign subsidiaries and
accordingly the Corporation realized a foreign exchange gain of CDN$15.9 million in the first six
months of fiscal 2007 which is deferred and recorded in the foreign currency translation adjustment.
The exchange rate used to convert the euro currency into Canadian dollar for the balance sheet
accounts as at February 28, 2007 was $1.5479 per euro compared to $1.4156 per euro as at August
31, 2006. The average exchange rate used to convert the operating results of the Portuguese
operations for the second quarter and the first six months of fiscal 2007 were $1.5146 per euro and
$1.4818 per euro, respectively.
CANADIAN OPERATIONS
CUSTOMER STATISTICS
Net additions % of Penetration
(1) (4)
Quarters ended
February 28,
Six months ended
February 28,
February 28,
February 28,
2007
2007 2006 2007 2006 2007 2006
RGUs
(2)
1,713,084 64,133 55,109 157,148 115,879
Basic service customers
854,694 5,277 3,505 21,517 14,408
HSI service customers
(3)
392,443 20,428 17,460 49,363 40,453 49.3 41.9
Digital Television service customers
362,549 13,961 24,547 35,185 45,962 43.3 35.8
Digital Telephony service customers
103,398 24,467 9,597 51,083 15,056 16.2 5.7
(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 63,884 as at February 28, 2007 compared to 59,292 as at February 28, 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 second quarter of 2007 compared to the same period last
year, except for the Digital Television service. During the second quarter, Digital Telephony
customers grew by 24,467 to reach 103,398 compared to a growth of 9,597 for the same period last
year. This growth is mostly attributable to the launch of the service in new markets. Coverage of
homes passed has now reached 74% compared to 34% last year. The net additions of basic service
customers in the second quarter reached 5,277, compared to 3,505 for the same period last year.
The number of net additions of HSI service stood at 20,428 compared to 17,460 for the same period
last year. The growth of HSI and basic service customers compared to the same period last year is
- 12 -
mostly due to the enhancement of the product offering, the impact of the bundled offer of Television,
HSI and Digital Telephony services (Cogeco Complete Connection), and promotional activities.
The net additions of Digital Television service customers stood at 13,961 compared to 24,547 for the
same period last year. The decrease in net additions this quarter compared to the same quarter last
year reflects a maturing of the digital TV segment following a period of robust growth, especially in
the second quarter of fiscal 2006. Nevertheless, customers continue to demonstrate strong interest in
HD technology. Secondly, the Corporation adjusted the service offering and price gap differential
between analog TV services and Digital Television services in the second half of fiscal 2006 which
has also contributed to a moderation of the strong growth experienced in the first half of fiscal 2006.
OPERATING RESULTS
Quarters ended February 28,
Six months ended February 28,
($000s, except percentages)
2007
2006
%
Change
2007
2006
%
Change
Revenue $ 174,926 $
147,757 18.4 $
342,857 $ 291,170 17.8
Operating costs 103,795 85,232 21.8 201,955 168,475 19.9
Management fees - COGECO Inc.
4,128 2,957 39.6 8,568 5,825 47.1
Operating income before amortization
67,003 59,568 12.5 132,334 116,870 13.2
Operating margin 38.3 %
40.3 %
38.6 % 40.1 %
Revenue
For the second quarter and the first six months, revenue rose by $27.2 million and $51.7 million to
reach $174.9 million and $342.9 million respectively, an increase of 18.4% and 17.8% compared to
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.
Operating costs
For the second quarter and the first six months, operating costs, excluding management fees
payable to COGECO Inc., increased by $18.6 million and $33.5 million to reach $103.8 million and
$202 million respectively, an increase of 21.8% and 19.9% compared to last year. The increase in
operating costs is mainly attributable to the increased penetration of Digital Telephony service and to
servicing additional RGUs.
Operating income before amortization
For the second quarter and the first six months of fiscal 2007, operating income before amortization
rose from $59.6 million to $67 million and from $116.9 million to $132.3 million respectively,
representing increases of 12.5% and 13.2%, compared to the same periods last year. The rise in
operating income before amortization is the result of increased revenue outpacing the rise in
operating costs. Cogeco Cable’s operating margin for the Canadian operations decreased from
40.3% to 38.3% in the second quarter of fiscal 2007 and from 40.1% to 38.6% in the first six months
of fiscal 2007, mainly as a result of the deployment of the Digital Telephony service.
- 13 -
PORTUGUESE OPERATIONS
CUSTOMER STATISTICS
Net additions % of Penetration
(1)
February 28,
2007
Quarter ended
February 28,
2007
Six months ended
February 28,
2007
February 28,
2007
RGUs
(2)
670,571 20,266
41,530
Basic service customers
283,553 6,606
13,859
HSI service customers
151,663 7,308
15,385
53.5
Telephony service customers
235,355 6,352
12,286
83.0
(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 second quarter, all services generated customer growth in line with the Corporation’s
guidelines. Basic service grew by 6,606 customers, HSI by 7,308 customers and Telephony by 6,352
customers.
OPERATING RESULTS
Quarter ended February 28,
Six months ended February 28,
($000s, except percentages)
2007
2007
Revenue $
57,026 $ 111,097
Operating costs 37,238 72,978
Operating income before amortization 19,788 38,119
Operating margin 34.7 %
34.3 %
Revenue
Revenue for the second quarter and the first six months of fiscal 2007 amounted to $57 million and
$111.1 million respectively, which is slightly higher than management’s expectations, even when
excluding the impact of the average exchange rate of the euro compared to the Canadian dollar. The
average exchange rate used to convert the operating results of the foreign subsidiaries was $1.5146
per euro for the second quarter of fiscal 2007 and $1.4818 per euro for the first six month period
compared to $1.45 per euro as per management’s revised projections last January. Monthly rate
increases of at most $3 (€2) per HSI and Telephony customer, averaging $1 per basic customer,
took effect on November 1, 2006.
Operating costs
For the second quarter and the first six months, operating costs amounted to $37.2 million and to
$73 million, which is lower than management’s expectations.
- 14 -
Operating income before amortization
For the second quarter and the first six months of fiscal 2007, operating income before amortization
stood at $19.8 million and $38.1 million respectively, which is better-than-projected, even when
excluding the favourable impact of the average exchange rate. The operating margin for the
Portuguese operations stood at 34.7% in the second quarter of fiscal 2007, which is an improvement
compared to 33.9% in the first quarter of the same fiscal year. The operating margin for the first six
months stood at 34.3%.
FISCAL 2007 FINANCIAL GUIDELINES
Given the improved performance of the Corporation during the first six months of fiscal 2007,
management has revised upward its guidelines for the fiscal year 2007 to reflect rate increases in
Canada and in Portugal, the strengthening of the euro currency over the Canadian dollar, the impact
of the share issuance, the repayment of long-term debt and the reduction of financial expense.
Subsequent to these adjustments, projected revenue, operating income before amortization and net
income were revised upward, operating margin should increase to about 39% and financial expense
should decrease following the repayment of long-term debt. The increase in projected revenue
should come essentially from the Canadian operations mainly due to the strong RGU growth during
the first six months of fiscal 2007 as well as rate increases of $3 per Digital Television customer,
representing approximately $1 per basic service customer, effective in March 2007 in Ontario and in
April 2007 in Quebec. Furthermore, Analog Value Pack rate will also increase by $1.50 per customer
in April 2007 in Ontario. For the Portuguese operations, rate increases of approximately
€0.65 (CDN$1) per basic service customer were implemented effective in March 2007. These rate
increases should generate approximately $6.8 million of additional revenue during the current fiscal
year. The revised guidelines reflect the improvement of the euro currency compared to the Canadian
dollar and as a result, for guideline purposes, the euro is converted at an average rate of $1.50 per
euro while the Corporation was using an average rate of $1.45 per euro last January.
Management is also raising its guidance for capital expenditures and deferred charges from
$255 million to $260 million to increase the capacity of its infrastructure to sustain growth. The
Corporation should generate free cash flow of $15 million and projected net income should stand at
about $60 million.
In furtherance of its existing line of business and external growth strategy, the Corporation may
investigate further cable system acquisition opportunities, including cable systems located outside
Canada over time.
- 15 -
Consolidated
($ million, except customer data)
Revised Projections
April 11, 2007
Fiscal 2007
Revised Projections
January 10, 2007
Fiscal 2007
Financial Guidelines
Revenue 945 925
Operating income before amortization 365 355
Operating margin About 39% About 38%
Financial expense 85 87
Amortization 192 192
Net income 60 48
Capital expenditures and deferred charges 260 255
Free cash flow 15 10 to 15
Customer Addition Guidelines
Basic service 37,000 to 40,000 37,000 to 40,000
HSI service 85,000 to 90,000 85,000 to 90,000
Digital Television service 60,000 to 65,000 60,000 to 65,000
Telephony service 105,000 to 110,000 105,000 to 110,000
RGUs 287,000 to 305,000 287,000 to 305,000
Canadian operations
($ million, except customer data)
Revised Projections
April 11, 2007
Fiscal 2007
Revised Projections
January 10, 2007
Fiscal 2007
Financial Guidelines
Revenue 713 701
Operating income before amortization 286 280
Operating margin About 40% About 40%
Capital expenditures and deferred charges 215 210
Customer Addition Guidelines
Basic service 12,000 to 15,000 12,000 to 15,000
HSI service 60,000 to 65,000 60,000 to 65,000
Digital Television service 60,000 to 65,000 60,000 to 65,000
Telephony service 80,000 to 85,000 80,000 to 85,000
RGUs 212,000 to 230,000 212,000 to 230,000
Portuguese operations
($ million, except customer data)
Revised Projections
April 11, 2007
Fiscal 2007
Revised Projections
January 10, 2007
Fiscal 2007
Financial Guidelines
Revenue 232 224
Operating income before amortization 79 75
Operating margin About 34% About 33%
Capital expenditures and deferred charges 45 45
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
The exchange rate used for April 2007 projections is $1.50 per euro compared to $1.45 per euro for
January 2007 projections.
- 16 -
UNCERTAINTIES AND MAIN RISK FACTORS
There has been no significant change in the risk factors and uncertainties facing Cogeco Cable as
described in the Corporation’s MD&A of the 2006 annual report.
ACCOUNTING POLICIES AND ESTIMATES
There has been no significant change in Cogeco Cable’s accounting policies and estimates and
future accounting pronouncements since August 31, 2006. A description of these policies and
estimates can be found in the Corporation’s 2006 annual MD&A.
NON-GAAP FINANCIAL MEASURES
This section describes Non-GAAP financial measures used by Cogeco Cable throughout this MD&A.
It also provides reconciliations between these Non-GAAP measures and the most comparable GAAP
financial measures. These financial measures do not have standard definitions prescribed by
Canadian GAAP and may not be comparable with similar measures presented by other companies.
These measures include “cash flow from operations” and “free cash flow”.
Cash flow from operations
Cash flow from operations is used by Cogeco Cable’s management and investors to evaluate cash
flow generated by operating activities excluding the impact of changes in non-cash operating items.
This allows the Corporation to isolate the cash flow from operating activities from the impact of cash
management decisions. Cash flow from operations is subsequently used in calculating the Non-
GAAP measure, “free cash flow”. Cash flow from operations is calculated as follows:
($ 000)
Quarters ended February 28, Six months ended February 28,
2007
2006
2007
2006
Cash flow from operating activities $ 55,657 $ 42,415 $ 45,808 $ 43,017
Changes in non-cash operating items
6,607
2,525
78,516 45,312
Cash flow from operations $ 62,264 $ 44,940 $ 124,324 $ 88,329
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 February 28, Six months ended February 28,
2007 2006 2007 2006
Cash flow from operations
$
62,264 $
44,940 $
124,324 $ 88,329
Acquisition of fixed assets
(44,771)
(34,265)
(111,737) (64,278)
Increase in deferred charges
(6,046)
(3,784)
(13,258) (7,449)
Assets acquired under capital leases – as per
Note 10 b) (2,027)
(1,431)
(2,232) (1,431)
Free cash flow
$
9,420 $
5,460 $
(2,903) $ 15,171
- 17 -
ADDITIONAL INFORMATION
This MD&A was prepared on April 11, 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 1,713,000 revenue-generating units
(RGUs) to approximately 1,448,000 homes passed in its Canadian service territory and about
671,000 RGUs to approximately 835,000 homes passed in its Portuguese service territory. Cogeco
Cable’s subordinate voting shares are listed on the Toronto Stock Exchange (CCA).
– 30 –
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, April 12, 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
877 704-5381
International Access Number: +1
913 312-1295
Confirmation Code:
4397487
By Internet at: www.cogeco.ca/investors
A rebroadcast of the conference call will be available until April 26, 2007
by dialling:
Canada and USA access number: 1 888 203-1112
International access number: + 1 719 457-0820
Confirmation code:
4397487
- 18 -
Supplementary Quarterly Financial Information
Quarters ended February 28, November 30, August 31, May 31,
2007
(1)
2006 2006
(1)
2005 2006
(1)
2005 2006 2005
($000, except percentages
and per share data)
Revenue $ 231,952 $ 147,757 $ 222,002 $
143,413 $ 174,875 $ 140,178 $ 153,956 $ 140,071
Operating income before
amortization
86,791
59,568 83,662 57,302 72,864 60,720 63,244
58,310
Operating margin 37.4 %
40.3 %
37.7 %
40.0 %
41.7 %
43.3 % 41.1 %
41.6 %
Amortization 43,572 28,656 44,309 28,277 34,801 29,460 29,048 31,396
Financial expense 23,551 13,776 21,221 13,582 16,374 14,004 13,634 13,954
Income taxes 4,261 6,936 5,597 6,445 (12,298) 6,220 8,191 4,715
Net income 15,407 10,200 12,535 8,998 33,987 11,036 12,371 8,245
Cash flow from operations 62,264 44,940 62,060 43,389 56,714 46,509 49,696 43,562
Net income per share $ 0.37 $ 0.26 $ 0.31 $
0.23 $ 0.85 $ 0.28 $ 0.31 $ 0.21
(1) Include operating results of Cabovisão since the date of acquisition of control on August 1, 2006.
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. - 19 -
Customer Statistics
February 28, August 31,
2007 2006
Homes Passe
d
Ontario (1) 968 45
5
1 002 187
Québec 479 818 474 717
Canada 1 448 273 1 476 904
Portugal 835 461 826 369
Total 2 283 73
4
2 303 273
Revenue Generating Unit
s
Ontario 1 212 79
6
1 104 157
Québec 500 288 451 779
Canada 1 713 08
4
1 555 936
Portugal 670 571 629 041
Total 2 383 65
5
2 184 977
Basic Service Customer
s
Ontario 603 077 587 289
Québec 251 617 245 888
Canada 854 69
4
833 177
Portugal 283 553 269 694
Total 1 138 247 1 102 871
Discretionnary Service Customer
s
Ontario 473 010 463 783
Québec 200 537 192 895
Canada 673 547 656 678
Portugal - -
Total 673 547 656 678
Pay TV Service Customer
s
Ontario 88 756 84 425
Québec 42 241 38 455
Canada 130 997 122 880
Portugal 53 926 54 089
Total 184 923 176 969
High Speed Internet Service Customer
s
Ontario 303 471 269 328
Québec 88 972 73 752
Canada 392 443 343 080
Portugal 151 663 136 278
Total 544 106 479 358
Digital Video Service Customers
Ontario 235 424 213 556
Québec 127 125 113 808
Canada 362 549 327 364
Portugal - -
Total 362 549 327 364
Telephony Service Customer
s
Ontario 70 82
4
33 984
Québec 32 57
4
18 331
Canada 103 398 52 315
Portugal 235 35
5
223 069
Total 338 753 275 384
(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
- 20 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended February 28, Six months ended February 28,
(In thousands of dollars, except per share data)
2007
2006
2007
2006
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Revenue
Service
$ 230,870
$ 147,172
$ 451,984
$ 289,931
Equipment
1,082
585
1,970
1,239
231,952
147,757
453,954
291,170
Operating costs
141,033
85,232
274,933
168,475
Management fees – COGECO Inc.
4,128
2,957
8,568
5,825
Operating income before amo rtizatio n 86,791
59,568
170,453
116,870
Amortization (note 3)
43,572
28,656
87,881
56,933
Operating income 43,219
30,912
82,572
59,937
Financial expense (note 7)
23,551
13,776
44,772
27,358
Income before income taxes 19,668
17,136
37,800
32,579
Income taxes (note 4)
4,261
6,936
9,858
13,381
Net income $ 15,407
$ 10,200
$ 27,942
$ 19,198
Earnings per share (no t e 5)
Basic
$0.37
$0.26
$ 0.69
$0.48
Diluted
0.37
0.25
0.68
0.48
- 21 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Six months ended February 28,
(In thousands of dollars)
2007
2006
(unaudited)
(unaudited)
Balance at beginning $ 117,760
$ 58,604
Net income
27,942
19,198
Subordinate voting shares issue costs, net of related income taxes of $2,553
(5,713)
-
Dividends on multiple voting shares
(1,569)
(1,256)
Dividends on subordinate voting shares
(2,434)
(1,944)
Balance at end $ 135,986
$ 74,602
- 22 -
COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
February 28,
2007
August 31,
2006
(unaudited)
(audited)
Assets
Current
Cash and cash equivalents
$ 39,511
$ 71,516
Restricted cash
526
569
Accounts receivable
57,830
43,728
Income tax receivable
3,092
-
Prepaid expenses
5,957
6,265
106,916
122,078
Income tax receivable
1,277
-
Fixed assets
1,084,918
1,021,538
Deferred charges
49,281
47,327
Customer base (note 6)
989,552
989,552
Preliminary goodwill (note 6)
454,884
422,108
$ 2,686,828
$ 2,602,603
Liabilities and Shareholders’ equity
Liabilities
Current
Accounts payable and accrued li abilities
$ 224,575
$ 283,087
Income tax liabilities
850
444
Deferred and prepaid income
28,032
26,652
Current portion of long-term debt (note 7)
38,031
126,851
291,488
437,034
Long-term debt (note 7)
1,184,745
1,190,126
Deferred and prepaid income
11,713
10,525
Pension plan liabilities and accrued employees ben efits
2,709
2,091
Future income tax liabilities
219,046
217,636
1,709,701
1,857,412
Shareholders’ equity
Capital stock (note 8)
827,997
630,458
Contributed surplus – stock-based compensation
1,708
1,425
Retained earnings
135,986
117,760
Foreign currency translation adjustment (note 9)
11,436
(4,452)
977,127
745,191
$ 2,686,828
$ 2,602,603
- 23 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended February 28, Six months ended February 28,
(In thousands of dollars)
2007
2006
2007
2006
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Cash flow from operating activities
Net income
$ 15,407
$ 10,200
$ 27,942
$ 19,198
Items not affecting cash and cash equivalents
Amortization (note 3)
43,572
28,656
87,881
56,933
Amortization of deferred financing costs
535
240
1,181
481
Future income taxes (note 4)
1,763
5,523
5,674
11,143
Other
987
321
1,646
574
62,264
44,940
124,324
88,329
Changes in non-cash oper ating items (note 10a))
(6,607)
(2,525)
(78,516)
(45,312)
55,657
42,415
45,808
43,017
Cash flow from investing activities
Acquisition of fixed assets (not e 10b))
(44,771)
(34,265)
(111,737)
(64,278)
Increase in deferred charges
(6,046)
(3,784)
(13,258)
(7,449)
Decrease (increase) in restricted cash
(3)
(20,322)
88
(20,322)
Costs related to business acquisition
(1,385)
-
(1,385)
-
Other
22
8
39
8
(52,183)
(58,363)
(126,253)
(92,041)
Cash flow from financing activities
Increase (decrease) in bank i ndebtedness
(29,322)
7,128
-
22,774
Increase in long-term debt
-
-
-
30,000
Repayment of long-term debt
(141,217)
(10,429)
(139,472)
(777)
Issue of subordinate voting shares
196,693
166
196,921
166
Subordinate voting shares issue costs
(8,266)
-
(8,266)
-
Dividends on multiple voting shares
(941)
(628)
(1,569)
(1,256)
Dividends on subordinate voting shares
(1,462)
(972)
(2,434)
(1,944)
15,485
(4,735)
45,180
48,963
Net change in cash and cas h equivalents 18,959
(20,683)
(35,265)
(61)
Effect of exchange rate changes on cash and cash
equivalents denominated i n foreign currencies
1,644
-
3,260
-
Cash and cash equivalents at beginning
18,908
20,683
71,516
61
Cash and cash equivalents at end $ 39,511
$-
$ 39,511
$-
See supplemental cash flow information in note 10.
- 24 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(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 February 28, 2007 and August 31, 2006 as well as its results of
operations and its cash flow for the three and the six month periods ended Feb r uary 28, 2007 and 2006.
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 for the year ended August 31, 2006. These unaudited interim consolidated financial statements follow the
same accounting policies as the most recent annual consolidated financial statements.
2. Segmented Information
The Corporation’s activities are comprised of 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 and 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 pre sente d in the tables below:
Canada Portugal Consolidated
Three months ended February 28,
(unaudited)
2007 2006 2007 2006 2007 2006
Revenue $ 174,926 $ 147,757 $ 57,026 $- $ 231,952 $ 147,757
Operating costs 103,795 85,232 37,238 - 141,033 85,232
Management fees 4,128 2,957 - - 4,128 2,957
Operating income before amortization 67,003 59,568 19,788 - 86,791 59,568
Amortization 31,063 28,656 12,509 - 43,572 28,656
Operating income 35,940 30,912 7,279 - 43,219 30,912
Financial expense 23,301 13,776 250 - 23,551 13,776
Income taxes 3,239 6,936 1,022 - 4,261 6,936
Net income 9,400 10,200 6,007 - 15,407 10,200
Net assets employed
(1) (2)
$ 1,730,822 $ 1,649,631 $ 652,175 $ 561,192 $ 2,382,997 $ 2,210,823
Total assets
(2)
1,871,921 1,842,312 814,907 760,291 2,686,828 2,602,603
Fixed assets
(2)
781,958 741,024 302,960 280,514 1,084,918 1,021,538
Preliminary goodwill
(2)
- - 454,884 422,108 454,884 422,108
Acquisition of fixed assets 35,990 35,696 10,808 - 46,798 35,696
(1)
Total assets less cash and cash equivalents, accounts payable and accrued liabilities, and deferred and prepaid income.
(2)
As at February 28, 2007 and August 31, 2006.
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)
2. Segmented Information (continued)
Canada Portugal Consolidated
Six months ended February 28,
(unaudited)
2007 2006 2007 2006 2007 2006
Revenue $ 342,857 $ 291,170 $ 111,097 $- $ 453,954 $ 291,170
Operating costs 201,955 168,475 72,978 - 274,933 168,475
Management fees 8,568 5,825 - - 8,568 5,825
Operating income before amortization 132,334 116,870 38,119 - 170,453 116,870
Amortization 62,767 56,933 25,114 - 87,881 56,933
Operating income 69,567 59,937 13,005 - 82,572 59,937
Financial expense 45,065 27,358 (293) - 44,772 27,358
Income taxes 7,457 13,381 2,401 - 9,858 13,381
Net income 17,045 19,198 10,897 - 27,942 19,198
Net assets employed
(1) (2)
$ 1,730,822 $ 1,649,631 $ 652,175 $ 561,192 $ 2,382,997 $ 2,210,823
Total assets
(2)
1,871,921 1,842,312 814,907 760,291 2,686,828 2,602,603
Fixed assets
(2)
781,958 741,024 302,960 280,514 1,084,918 1,021,538
Preliminary goodwill
(2)
- - 454,884 422,108 454,884 422,108
Acquisition of fixed assets 93,578 65,709 20,391 - 113,969 65,709
(1)
Total assets less cash and cash equivalents, accounts payable and accrued liabilities, and deferred and prepaid income.
(2)
As at February 28, 2007 and August 31, 2006.
3. Amortization
Three months ended February 28, Six months ended February 28,
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
Fixed assets $ 38,495 $ 23,479 $ 77,758 $ 46,428
Deferred charges 5,077 5,177 10,123 10,505
$ 43,572 $ 28,656 $ 87,881 $ 56,933
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)
4. Income Taxes
Three months ended February 28, Six months ended February 28,
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
Current $ 2,498 $ 1,413 $ 4,184 $ 2,238
Future 1,763 5,523 5,674 11,143
$ 4,261 $ 6,936 $ 9,858 $ 13,381
The following table provides the reconciliation between Canadian statutory federal and provincial income taxes and
the consolidated income tax expense:
Three months ended February 28, Six months ended February 28,
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
Income before income taxes $ 19,668 $ 17,136 $ 37,800 $ 32,579
Combined income tax rate 34.80 % 35.09 % 34.96 % 35.09 %
Income taxes at combined income tax rate $ 6,844 $ 6,013 $ 13,215 $ 11,432
Loss or income subject to lower or higher tax rates 284 100 234 92
Increase in income taxes as a result of increase in
substantially enacted tax rates
-
-
-
162
Large corporation tax - 795 - 1,620
Effect of foreign income tax rate differences (1,425) - (2,249) -
Benefit related to prior years’ minimum income tax paid (1,475) - (1,475) -
Other 33 28 133 75
Income taxes at effective income tax rate $ 4,261 $ 6,936 $ 9,858 $ 13,381
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)
5. Earnings per Share
The following table provides a recon ciliation between basic and dilu ted earnings per share:
Three months ended February 28, Six months ended February 28,
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 15,407 $ 10,200 $ 27,942 $ 19,198
Weighted average number of multiple voting and
subordinate voting shares outstanding
41,562,381
39,989,807
40,778,102
39,987,182
Effect of dilutive stock options
(1)
342,020 162,319 283,161 178,767
Weighted average number of diluted multiple voting and
subordinate voting shares outstanding
41,904,401
40,152,126
41,061,263
40,165,949
Earnings per share
Basic $ 0.37 $ 0.26 $ 0.69 $0.48
Diluted 0.37 0.25 0.68 0.48
(1)
For the three and six month periods ended February 28, 2007, 1,082 and 71,411 stock options (143,248 in 2006) 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.
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)
6. Customer Base and Preliminary Goodwill
Customer
base
Preliminary
goodwill
(unaudited) (unaudited)
Balance as at August 31, 2006 $ 989,552 $ 422,108
Adjustment to the purchase price
- (5,955)
Foreign currency translation adjustment
- 38,731
Balance as at February 28, 2007 $ 989,552 $ 454,884
On March 9, 2007, the Corporation and Cable Satisfaction International Inc. came to an agreement for a final
adjustment to the working capital which was outstanding since the date of acquisition. According to the agreement,
the Corporation has recorded an account receivable of an amount of €2,194,000 which was received on March 16,
2007 and as a result, the purchase price was reduced accordingly. The remaining adjustment to the purchase price is
due to the reevaluation of costs related to the acquisition of Cabovisão–Telev isão por Cabo, S.A. (“Cabovisão”).
In addition, 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 cannot 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. 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.
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)
7. Long-Term Debt
Maturity Interest rate
February 28,
2007
August 31,
2006
(unaudited) (audited)
Parent company
Term Facility
Term loan 2011 5.46
(1)
$ 150,000 $ 150,000
Term loan – €17,358,700 2011 4.94
(1)
26,869 24,573
Revolving loan
Euro currency – €284,500,000 (€317,000,000 as at
August 31, 2006)
2011
4.94
(1)
440,378 448,745
Senior Secured Debentures Series 1 2009 6.75
150,000 150,000
Senior – Secured Notes
Series A – US $150 million 2008 6.83
(2)
175,470 165,795
Series B 2011 7.73
175,000 175,000
Second Secured Debentures Series A 2007
(3)
8.44
35,743 125,000
Deferred credit
(4)
2008 –
63,180 72,855
Subsidiaries
Obligations under capital leases 2010 6.32 – 8.18
6,136 5,009
1,222,776 1,316,977
Less: current portion
38,031 126,851
$ 1,184,745 $ 1,190,126
(1)
Average interest rate on debt as at February 28, 2007, 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)
On Febru ary 2, 2 007, the Cor poration gave a n otice of redemption t o purchase on March 5, 2 007 all of its 8.44% Second Secured Debentures
Series A (the “Notes”) in the aggregate principal amount of $125,000,000. Concurrently, the Corporation also made an offer to purchase for
cancellation on February 12, 2007, all of the validly issued and hel d Notes upon receipt by the Trustee of a written notice of acceptance by the
holders of Notes. As a result, a total of $89,257,000 of Notes were redeemed on February 12, 2007, for a total cash consideration of
$91,038,000. The remaining Notes of $35,743,000 were redeemed on March 5, 2007, for a total cash consideration of $36,550,000. The
excess of the redemption price over the aggregate principal amount was recorded as financial expense.
(4)
The deferred credit represents the amount which would have been payable as at February 28, 2007 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 and six month periods ended February 28, 2007 amounted to $22,333,000 and
$42,579,000 ($13,253,000 and $26,301,000 in 2006).
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(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.
February 28,
2007
August 31,
2006
(unaudited) (audited)
Issued
15,691,100 multiple voting shares $ 98,346 $ 98,346
29,547,444 subordinate voting shares (24,308,112 as at August 31, 2006) 729,651 532,112
$ 827,997 $ 630,458
During the period, subordinate voting share transactions were as follows:
Six months ended Twelve months ended
February 28, 2007 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 issue for cash consideration 5,000,000 192,500 - -
Shares issued for cash under the Employee Stock Purchase Plan
and the Stock Option Plan
239,332
4,421
14,626
228
Compensation expense previously recorded in contributed
surplus for options exercised
-
618
-
10
Balance at end 29,547,444 $ 729,651 24,308,112 $ 532,112
On February 2, 2007, the Corporation issued 5,000,000 subordinate voting shares for a total consideration of
$192,500,000. Proceeds of this offering, net of issue costs, amounted to $184,234,000.
- 31 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(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 six months, the Corporation granted 200,874 stock options
(126,059 in 2006) with an exercise price of $26.63 to $33.12 ($25.12 to $29.05 in 2006) of which 57,247 stock options
(31,743 in 2006) 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 $640,000 and $901,000 ($203,000 and $366,000 in 2006) was recorded for the three and
six month periods ended February 28, 2007. 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 and six month periods ended February 28, 2006 would
have been reduced to the following pro forma amounts:
Three months ended Six months ended
February 28, 2006 February 28, 2006
(unaudited) (unaudited)
Net income
As reported $ 10,200 $ 19,198
Pro forma 10,180 19,158
Basic earnings per share
As reported $ 0.26 $ 0.48
Pro forma 0.25 0.48
Diluted earnings per share
As reported $ 0.25 $ 0.48
Pro forma 0.25 0.48
The fair value of stock options granted for the six month period ended February 28, 2007 was $7.38 ($9.44 in 2006)
per option. The fair value of each option granted was estimated at the grant date for purposes of determining stock-
based compensation expense using the Binomial option pricing model based on the following assumptions:
2007 2006
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
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)
8. Capital Stock (continued)
As at February 28, 2007, the Corporation had outstanding stock options providing for the subscription of 1,058,144
subordinate voting shares. These stock options, which include 376,000 conditional stock options, can be exercised at
various prices ranging from $7.05 to $40.75 and at various dates up to January 10, 2017.
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:
Six months ended Twelve months ended
February 28, 2007 August 31, 2006
(unaudited) (audited)
Effect of exchange rate variation on translation of net investments in self-
sustaining foreign subsidiaries
$
44,646
$
(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)
(33,210)
7,960
$ 11,436 $ (4,452)
10. Statements of Cash Flow
a) Changes in non-cash operating items
Three months ended February 28, Six months ended Februar y 28,
2007 2006 2007 2006
(unaudited) (unaudited) (un audited) (unaudited)
Accounts receivable $ (5,786) $ (1,264) $ (9,039) $ (2,300)
Income tax receivable (2,672) (221) (4,265) (507)
Prepaid expenses 767 (1,137) 407 (569)
Accounts payable and accrued liabilities 5,409 365 (68,506) (43,183)
Income tax liabilities (2,933) - 347 (678)
Deferred and prepaid income (1,392) (268) 2,540 1,925
$ (6,607) $ (2,525) $ (78,516) $ (45,312)
- 33 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)
10. Statements of Cash Flow (continued)
b) Other information
Three months ended February 28, Six months ended Februar y 28,
2007 2006 2007 2006
(unaudited) (unaudited) (unaudited) (unaudited)
Fixed asset acquisitions through capital leases $ 2,027 $ 1,431 $ 2,232 $ 1,431
Interest paid 19,852 11,308 43,984 27,265
Income taxes paid 6,775 1,634 7,664 3,423
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 pla ns are as follows:
Three months ended February 28, Six months ended Februar y 28,
2007 2006 2007 2006
(unaudited) (unaudited) (un audited) (unaudited)
Contributory defined benefit pension plans $ 230 $ 222 $ 460 $ 396
Defined contribution pension plan and collective
registered retirement savings plan
497
376
1,025
759
$ 727 $ 598 $ 1,485 $ 1,155
12. Guarantees
During the second quarter, the Corporation has guaranteed the payment by Cabovisão of certain taxes for municipal
rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005 totalling €5.7 million (the
“Tax Amounts”), which are currently being challenged by Cabovisão. Trustworthy financial guarantees were required
under applicable Portuguese law in order for Cabovisão to challenge the Tax Amounts and withhold payment thereof
until a final judgment no longer subject to appeal is rendered by the Portuguese courts having jurisdiction in this
matter. As a result, the Corporation may be required to pay, upon written demand by the Municipality of Seixal, the
required amounts following final judgment up to a maximum aggregate amount of €5.7 million, should Cabovisão fail
to pay such required amounts.