COGECO posts strong year-end results thanks to organic and external growth
PRESS RELEASE
For immediate release
COGECO posts strong year-end results thanks to organic and external growth
Montréal, October 26, 2011 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Corporation”) announced its financial
results for the fourth quarter and 2011 fiscal year ended August 31, 2011.
For the fourth quarter and fiscal 2011:
• Fiscal 2011 fourth-quarter consolid ated rev enue incre ased b y $41.7 millio n, or 12.5%, to reach $375.4 million, when
compared to the corresponding period of the prior year. Revenue in the cable subsidiary, Cogeco Cable Inc.
(“Cogeco Cable”) went up by $25.8 mill ion, or 8%. Rev enue from the radio activities increased by $15.9 million. For
the 2011 fiscal year, consolid ated revenue gr ew by 9.2% to reach $1,443.8 million;
• Fiscal 2011 fourth-quarter operating income before amortization
(1)
increased by $21 million, or 15.3%, to reach
$158.8 million. The cable sector contributed to the increase by $19.9 million as a result of the revenue increase
described above. For fiscal 2011, consolidated operating income before amortization grew by 11.6% to reach
$579.6 million;
• Operating margin
(1)
increased to 42.3% for the fourth quarter compared to 41.3%
in the corresponding p eriod of the
prior year, and to 40.1% during fiscal 2011 from 39.3% the year before;
• Fourth quarter of 2011 consolidated net income amounted to $21.1 million, or $1.26 per share compared to
$12.3 million, or $0.73 per sha re for the correspon ding period of the prior year;
• Fiscal 2011 net loss amounted to $9 million, or $0.54 per s ha re. Fiscal 2011 net loss includes an imp airment loss of
$225.9 million recorded on Cogeco Cable’s investment in its subsidiary Cabovisão-Televisão por Cabo, S.A.
(“Cabovisão”). Net of non-controlling interest, the impairment loss reduced net income by $72.7 million in
fiscal 2011. Fiscal 2010 net income of $56.3 million, or $3.36 per share, included a favourable income tax
adjustment of $29.8 million related to the reduction of Ontario provincial corporate income tax rates for the
Canadian operations of the cable sector. This adjustment, net of non-controlling interest, amounts to $9.6 million.
Excluding the effect of these items for both fiscal ye ars, adjusted net income for fiscal 2011 would hav e amounted
to $63.7 million, or $3.81 per share
compared to $46.6 million, or $2.79 per share for the previous year,
representing increases of 36.6% respectively;
• Free cash flow
(1)
reached $23 million for the fourth quarter, representing an increase of 22.8% over the prior year.
The increase in free cash flow is the result of an increase in cash flow from operations
(1)
outpacing the increase in
capital expenditures. Free cash flow stands at $110.5 million for fiscal 2011 or 39.1% lower than free cash flow of
$181.3 million in fiscal 2010. The decline in free cash flow when compared to fiscal 2010 is due to an increase of
$105.5 million in current income tax expense stemming primarily from the fiscal 2010 modifications to Cogeco
Cable’s corporate structure, t he increase in financial expe nse and the incr ease in capital expenditures, which offset
the increase in operating income before amortization in the current fiscal year;
• On April 30, 2010, COGECO concluded, via its radio subsidiary, Cogeco Diffusion Inc (“CDI”), an agreement with
Corus Entertainment Inc (“Corus”) to acquire its Québec radio stations (“Québec Radio Stations Acquisition”) for
$80 million, subject to customary closing adjustments and conditions, including approval by the Canadian Radio-
television Telecommunicatio ns Commission (“CRTC”). On June 30, 2010, the Corpor ation submitted its applicatio n
for approval of the Québec Radio Stations Acquisition to the CRTC. On December 17, 2010, the CRTC approved
the transaction essentially as proposed. On January 11, 2011, the Corporation was served with an application by
Astral to the Court for leave to appeal the CRTC decision approving the transaction, and a related application by
Astral for a stay of execution of that decision until final judgement of the Court. On February 21, 2011 the Court has
rejected applications filed by Astral in the matter of the Québec Radio Stations Acquisition. The transaction with
Corus was concluded on February 1, 2011;
• On June 27, 2011, Cogeco Cable concluded an agreement to acquire all of the shares of Quiettouch Inc.
(“Quiettouch”), a leading independent provider of outsourced managed information technology and infrastructure
services to mid-market and larger e nterprises in Cana da. Quiettouch offers a full suite of differentiated ser vices that
allow customers to outsource their mission-critical information technology infrastructure and application
requirements, including managed infrastructure and hosting, virtualization, firewall services, data backup with end-
to-end monitoring a nd reporting, and enhanc ed and traditional co-loc ation services. Quiettouch operates three data
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centres in Toronto and Vanc ouver, as well as a fibre network within key business areas of do wntown Toronto. The
transaction was completed on August 2, 2011;
• On August 31, 2011, Cogeco Cable concluded and completed an agreement to acquire all the shares of MTO
Telecom Inc. (“MTO”). With over 1,500 kilom etres of network, MTO, the largest pr ivate tel ecommunicati o ns provid er
in the Greater Montréal Area and th e Prov ince of Qué bec , offers high-p erformance Ether net bro adban d connectivity
services to carrier, enterprise and pub lic sector customers;
• In the cable sector, Revenue-Generating Units (“RGU”)
(1)
grew by 38,344 and 228,111 net additions in the quarter
and fiscal year, respectively, for a total of 3,407,460 RGU at August 31, 2011.
“COGECO posted strong results for fiscal 2011, a year marked by both organic and external growth. In 2011, we welcomed
Corus’ Québec radio stations, Quiettouch and MTO into the COGECO family. Canada’s cable sector, to keep pace with
customer needs, continued to enhance its product offering by further implementing DOCSIS 3.0 technology to utilize
bandwidth more efficiently and starting to migrate analogue packages to digital. In Portugal, the economic crisis facing the
country and the governm ent’s economic ref orms resulted i n net custom er loss es for Cab ovisã o, lead ing Co geco Cabl e to write
off its net investment in the subsidiary during the fiscal year. Cabovisão is working to hold its own until conditions return to
normal. Cogeco Diffusion Inc, our radio subsidiary, was very successful i n consolidating its strong positi on as a radio industry
leader while carefully integrating its new radio stations.
For fiscal 2012, we expect growth in most of our performance indicators. Our primary focus will be to integrate our new
acquisitions, strengthen our competitive positioning and continuously improve our processes and practices to create more
value for our customers, announcers, listeners, shareholders and employees,’’ declared Louis Audet, President and CEO of
COGECO.
Fiscal 2012 Financial Guidelines
The preliminary financial guidelines for COGECO, as issued on July 6, 2011, have been updated to reflect the fiscal 2011
business acquisitions in the cabl e sector. The Corporation no w expects revenu e of appro ximatel y $1,567 million and o perating
income before amortization of approximately $615 million. Free cash flow should genera te approximately $110 million and net
income of approximately $80 million should be earned as a result of growth in operati ng income before amortizati on outpacing
fixed charges. Pleas e consu lt the “Fiscal 2012 financi al gu idelin es” section of the Corporat ion’s 2011 Annual Report for f urther
details.
(1)
Represents the sum of Basic Cable, High Speed Internet (“HSI”), Digital Television and Telephony service customers.
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FINANCIAL HIGHLIGHTS
Quarters ended August 31, Years ended August 31,
2011 2010 Change 2011 2010 Change
($000, except percentages, RGU growth and per share
data)
$ $ % $ $%
(unaudited) (unaudited) (audited) (audited)
Operations
Revenue 375,402 333,671 12.5 1,443,769 1,321,694 9.2
Operating income before amortization
(1)
158,800 137,785 15.3 579,590 519,339 11.6
Operating margin
(1)
42.3% 41.3% – 40.1% 39.3% –
Operating income 104,626 73,942 41.5 330,578 259,882 27.2
Impairment of goodwill and fixed assets – – – 225,873 – –
Net income (loss) 21,073 12,265 71.8 (8,979) 56,264 –
A
djusted net income
(1)
21,073 12,265 71.8 63,700 46,644 36.6
Cash Flow
Cash flow from operating activities 225,647 198,492 13.7 527,127 425,336 23.9
Cash flow from operations
(1)
153,681 127,230 20.8 452,016 502,219 (10.0)
Capital expenditures and increase in deferred charges 130,693 108,515 20.4 341,541 320,962 6.4
Free cash flow
(1)
22,988 18,715 22.8 110,475 181,257 (39.1)
Financial Condition
Total assets – – – 2,897,254 2,744,656 5.6
Indebtedness
(2)
– – – 1,056,214 961,354 9.9
Shareholders’ equity – – – 365,401 381,635 (4.3)
RGU growth 38,344 64,303 (40.4) 228,111 287,111 (20.5)
Per Share Data
(3)
Earnings (loss) per share
Basic 1.26 0.73 72.6 (0.54) 3.36 –
Diluted 1.26 0.73 72.6 (0.54) 3.35 –
A
djusted earnings per share
(1)
Basic 1.26 0.73 72.6 3.81 2.79 36.6
Diluted 1.25 0.73 71.2 3.78 2.78 36.0
(1) The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented
by other companies. For more details, please consult the “Non-GAAP financial measures” section of the Results overview.
(2) Indebtedness is defined as the total of bank indebtedness, principal on long-term debt, promissory note payable, balance due on a business acquisition and
obligations under derivative financial instruments.
(3) Per multiple and subordinate voting shares.
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FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute forward-looking information within the meaning of securities laws. Forwar d-looking
information may relate to COGECO’s future outloo k and anticipated events, business, operations, financial performance, financial condition
or 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 ot her similar expressions concerning matters that are not historical facts. In
particular, statements regarding the Corporation’s future operating results and economic performance and its 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 COGECO believes are reason able as of the current date. While management
considers these assumptions to be reasonable based on information currently available to the Corporation, they may prove to be incorrect.
The Corporation cautions the reader that the current economic uncertainties make forward-looking information and the underlying
assumptions subject to greater uncertainty and that, consequently, they may not materialize, or the results may significantly differ from the
Corporation’s expectations. It is impossible for COGECO to predict with certainty the impact that this economic environment may have on
future results. Forward-looking information is also subject to certain factors, including risks and unc ertainties (described in the “Uncertainties
and main risk factors” section of the Corporation’s 2011 annual Management’s discussion and analysis (MD&A)) that could cause actual
results to differ materially from what COGECO currently expects. 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 the Corporation’s control. Therefore, future events and results may vary significantly from what management currently
foresees. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any
other date. While management may elect to, the Corporation is under no obligation (and expressly disclaims any such obligation), and does
not undertake to update or alter this information before the next quarter, except as required by Law.
This press release should be read in conjunction with the Corporation’s consolidated financial statements, and the notes thereto, prepared in
accordance with Canadian GAAP and the MD&A included in the Corporation’s 2011 Annual Report. Throughout this discussion, all amounts
are in Canadian dollars unless otherwise indicated.
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RESULTS OVERVIEW
This analysis should be read in conjunction with the Corporation’s 2011 Annual Report available on SEDAR at www.sedar.com. Please refer
to the Corporation’s 2011 Annual Report for more details on annual results.
CABLE SECTOR CUSTOMER ST ATISTICS
Net additions (losses)
August 31, 2011 Quarters ended August 31, 2011
Canada Europe Consolidated Canada Europe Consolidated
RGU 2,575,795 831,665 3,407,460 49,204 (10,860) 38,344
Basic Cable service customers 877,985 255,777 1,133,762 (1,369) (2,350) (3,719)
HSI service customers 601,214 162,436 763,650 7,746 (2,556) 5,190
Digital television service customers 678,326 164,580 842,906 29,464 (5,182) 24,282
Telephony service customers 418,270 248,872 667,142 13,363 (772) 12,591
Net additions
August 31, 2010 Quarters ended August 31, 2010
Canada Europe Consolidated Canada Europe Consolidated
RGU 2,350,577 828,772 3,179,349 43,707 20,596 64,303
Basic Cable service customers 874,505 260,267 1,134,772 433 1,591 2,024
HSI service custom ers 559,057 163,187 722,244 8,904 2,778 11,682
Digital television service customers 559,418 159,852 719,270 17,472 12,017 29,489
Telephony service customers 357,597 245,466 603,063 16,898 4,210 21,108
In Canada, fiscal 2011 fourth-quarter RGU net additions were higher than in the comparable periods of the prior year, and the Canadian
operations continue to generate RGU growth despite higher penetration rates, category maturity and aggressive competition. Basic Cable
service customer net losses stood at 1,369 for the quarter, compared to net additions of 433 in the fourth quarter of the prior year. Fourth
quarter Basic Cable service customer losses are usual and due to the end of the school year for college and university students. In the
quarter, Telephony service customers grew by 13,363 compared to 16,898 for th e same period last year, and the number of net additions to
the HSI service stood at 7,746 customers compared to 8,904 customers in the fourth quarter of the prior year. HSI and Telephony net
additions continue to stem from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection) of
Television, HSI and Telephony services, and promotional activities. For the three-mo nth period ende d August 31, 2011 , additions to the Digital
Television service stood at 29,464 customers, compared to 17,472 for the comparable period of the prior year. Digital Television service net
additions are due to targeted marketing initiatives to improve penetration, the launch of new HD channels, the continuing interest for HD
television service and the deployment of the Digital Terminal Adapter (“DTA”) technology in most of Cogeco Cable’s markets.
Economic conditions in Portugal continued to be difficult. During the second half of fiscal 2011, and as part of the negotiated financial
assistance package, the Portuguese government has committed to financial reforms which include increases in sales and income taxes
combined with reductions in government spending on social programs. Please consult the “Impairment of goodwill and fixed assets” section
for further details. These measures are expected to put further downwards pressure on consumer spending. The rate of growth for our
services has diminished in this environment, with net customer losses across all of the Corporation’ s services in the European operations in
the fourth quarter of fiscal 2011. The number of Basic Cable service customers decreased by 2,350 in the fourth quarter, compared to an
increase of 1,591 customers in the comparable period of the prior year. HSI service customers decreased by 2,556 for the quarter compar ed
to an increase of 2,778 in the fourth quarter of the prior year. The number of Digital Television service customers decreased by 5,182
customers in the fourth quarter of fiscal 2011, compared to a growth of 12,017 customers in the same quarter of fiscal 2010. The number of
Telephony service customers fell by 772 in the three months ende d August 31, 2011, compared to a growth of 4,21 0 customers in the same
period of the prior year.
OPERATING RESULTS – CONSOLIDATED OVERVIEW
Quarters ended August 31, Years ended August 31,
2011 2010 Change 2011 2010 Change
($000, except percentages)
$ $ % $$%
(unaudited) (unaudited) (audited) (audited)
Revenue 375,402 333,671 12.5 1,443,769 1,321,694 9.2
Operating costs 216,602 195,886 10.6 864,179 802,355 7.7
Operating income before amortization
(1)
158,800 137,785 15.3 579,590 519,339 11.6
Operating margin
(1)
42.3% 41.3% 40.1% 39.3%
(1) The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented
by other companies. For more details, please consult the “Non-GAAP financial measures” section.
Consolidated revenue for the fourth quarte r rose by $41.7 million, or 12.5% compared to the corresponding period l ast year. Cable revenue,
driven by RGU growth combined with an increase in rentals of home terminal devices stemming from the strong growth in Digital Television
services and rate increases in the Canadian operations, increased by $25.8 million, or 8%. Revenue from the radio activities increased by
$15.9 million in the fourth quarter of 2011 due to the Québec Radio Stations Acquisition.
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For fiscal 2011, the Corporation’s revenue totalled $1,443.8 million, an increase of $122.1 million, or 9.2% compared to the prior year. Cable
sector revenue increased by $79.8 million, or 6.2%, for fiscal 2011, primarily due to strong RGU growth in the Canadian operations which
offset the decline in Basic Cable service customers in the European operations and the depreciation of the Euro in relation to the Canadian
dollar. Revenue from the radio activities increased by $42.3 million, mainly due to the Québec Radio Stations Acquisition.
Operating costs increased by $20.7 million, or 10.6%, at $216.6 million compared to the fourth quarter of fiscal 2010 mainly due to the Québec
Radio Stations Acquisition. The operating cost increase in the cable sector, resulting from servicing additional RGU, the launch of new HD
channels, additional marketing initiatives in the Canadian operations and the higher value of the Euro in relation to the Canadian dollar also
contributed to the consolidated increase.
Fiscal 2011 operating costs amounted to $864.2 million compared to $802.4 million in fiscal 2010, an increase of $61.8 million, or 7.7%. The
increase in operating costs was mainly due to servicing additional RGU, the launch of new H D channels and additional marketing initiatives in
the Canadian operations of the cable sector, and by the Québec Radio Stations Acquisition. The increase in operating costs was partly offset
by the lower value of the Euro in relation to the Canadian dollar combined with the lower cost of servicing fewer Basic Cable service
customers in the European operations.
Operating income before amortization increased by $21 million, or 15.3%, at $158.8 million in the fourth quarter of fiscal 2011, compared to
$137.8 million for the corresponding period last year. As a result, the Corporation’s fourth-quarter operating margin increased to 42.3% from
41.3%
for the corresponding period of the prior year. The operating margin increased year over year as a result of rate increases and RGU
growth in the Canadian operations of the cable sector which offset the decline in the operating margin of the European operations.
As a result of the increase in revenue which surpassed the increase in operating costs, operating income before amortization increased to
$579.6 million in fiscal 2011 from $519.3 million in 2010, an increase of $60.3 million, or 11.6%. The cable sector contributed $55.9 million to
the consolidated increase.
IMPAIRMENT OF GOODWILL AND FIXED ASSETS
During the third quarter of fiscal 2011, the economic environment in Portugal continued to deteriorate, with the Country ultimately requiring
financial assistance from the International Monetary Fund and the European Central Bank. As part of the negotiated financial assistance
package, the Portuguese government has committed to financial reforms which include increases in sales and income taxes combined with
reductions in government spending on social programs. These measures are expected to put further downwards pressure on consumer
spending capacity. The rate of growth for Cogeco Cable’s services has diminished in this environment, with net customer losses and service
downgrades by customers in the European operations in the third quarter of fiscal 2011. In accordance with current accounting standards,
Cogeco Cable’s management considered that this situation combined with net customer losses in the third quarter, which were significantly
more important and persistent than expected, will continue to negati vely impact the fi nancial results of the European o perations and indicate a
decrease in the value of Cogeco Cable’s investment in its Portuguese subsidiary. As a result, Cogeco Cable tested goodwill and all long-lived
assets for impairment at May 31, 2011.
Goodwill is tested for impairment using a two step approach. The first step consists of determining whether the fair value of the reporting unit
to which goodwill is assigned exceeds the net carrying amount of that reporting unit, including goodwill. In the event that the net carrying
amount exceeds the fair value, a second step is performed in order to determine the amount of the impairment loss. The impairment loss is
measured as the amount by which the carrying amount of the reporting unit’s goodwill exceeds its fair value. Cogeco Cable completed its
impairment test on goodwill and concluded that goodwill was impaired at May 31, 2011. As a result, a non-cash impairment loss of
$29.3 million was recorded in the third quarter of the 2011 fiscal year. Fair value of the reporting unit was determined using the discounted
cash flow method. Future cash flows were based on internal forecasts and consequently, considerable management judgement was
necessary to estimate future cash flows.
Long-lived assets with finite useful lives, such as fixed assets, are tested for impairment by comparing the carrying amount of the asset or
group of assets to the expected future undiscounted cash flows to be generated by the asset or group of assets. The impairment loss is
measured as the amount by which the asset’s carrying amount exceeds its fair value. Accordingly, Cogeco Cable completed its impairment
test on the fixed assets of the Portuguese subsidiary at May 31, 2011, and determined that the carrying value of these assets exceeded the
expected future undiscounted cash flows to be generated by these assets. As a result, a non-cash impairment loss of $196.5 million was
recognized in the third quarter of the 2011 fiscal year.
The impairment of goodwill and fixed assets (the “impairment loss”), of Cogeco Cable’s net investment in Cabovisão affected the
Corporation’s financial results as follows for the third quarter and 2011 fiscal year:
($000)
Impairment of goodwill 29,344
Impairment of fixed assets 196,529
Impairment loss
225,873
Income taxe s –
Non-controlling interest (153,194)
Impairment loss net of income taxes and non-controlling interest 72,679
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CASH FLOW ANALYSIS
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000)
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Operating activities
Cash flow from operations
(1)
153,681 127,230 452,016 502,219
Changes in non-cash operating items 71,966 71,262 75,111 (76,883)
225,647 198,492 527,127 425,336
Investing activities
(2)
(263,029) (108,492) (549,544) (320,653)
Financing activities
(2)
1,714 (75,671) 41,203 (106,955)
Effect of exchange rate changes on cash and cash equivalents denominated in a
foreign currency 150 402 588 (1,344)
Net change in cash and cash equivalents (35,518) 14,731 19,374 (3,616)
Cash and cash equivalents, beginning of period 90,734 21,111 35,842 39,458
Cash and cash equivalents, end of period 55,216 35,842 55,216 35,842
(1) The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented
by other companies. For more details, please consult the “Non-GAAP financial measures” section.
(2) Excludes assets acquired under capital leases.
During the fourth quarter of 2011, cash flow from operations reached $153.7 million, 20.8% higher than the comparable period last year,
primarily due to the growth in operating income before amortization and the increase in current income tax recovery stemming fr om the fiscal
2010 modifications to Cogeco Cable’s corporate structure which reduced the future income tax expense accordingly. Changes in non-cash
operating items generated cash inflows of $72 million, mainly as a result of increases in accounts payable and accrued liabilities, partly offset
by a decrease in income tax liabilities. In the fourth quarter of the prior year, cash inflows of $71.3 million mainly stemmed from an increase in
accounts payable and accrued liabilities.
For the fiscal 2011, cash flow from operations amounted to $452 million, $50.2 million, or 10%, lower than the comparable period last year.
This reduction is primarily due to the recognition of current income tax expense relating to the modifications of Cogeco Cable’s corporate
structure which reduced the future income tax expense accordingly and to the payment of a make-whole premium amounting to
$8.8 million on the early repayment of the Senior Secured Notes Series B, partly offset by the increase in operating income before
amortization. Changes in non-cash operating items generated cash inflows of $75.1 million, mainly as a result of increases in income tax
liabilities and accounts payable and accrued liabilities and a decrease in income taxes receivable, partly offset by an increase in accounts
receivable. The cash outflows of $76.9 million in the prior year were mainly due to a decrease in income tax liabilities combined with increases
in income taxes receivable and accounts receivable, partly offset by an increase in deferred and prepaid revenue and other liabilities.
Investing activities in the fourth quarter of 2011 amounted to $263 million compared to $108.5 million for the same period the year before. F or
fiscal 2011, investing activities amounted to $549.5 million compared to $320.7 million the year before. Fourth-quarter fiscal 2011 investing
activities include the acquisitions, by Cogeco Cable, of Quiettouch and MTO for a total amount of $132.3 million. Fiscal 2011 investing
activities also include the Québec Radio Stations Acquisition for an amount of $75.9 million described below.
On April 30, 2010, COGECO concluded an agreement with Corus to acquire its Québec radio stations for $80 million, subject to customary
closing adjustments and conditions, including approval by the CRTC. On June 30, 2010, the Corporation submitted its application for approval
of the Québec Radio Stations Acquisition to the CRTC. On December 17, 20 10, the CRTC approved the transaction essentially as proposed.
On January 11, 2011, the Corpor ation was served with an application by Astral to the Court for leave to appeal the CRTC decision approving
the transaction, and a related application by Astral for a stay of execution of that decision until final judgement of the Court. On February 21,
2011 the Court has rejected applications filed by Astral in the matter of the Québec Radio Stations Acquisition. The transaction with Corus was
concluded on February 1, 2011.
Pursuant to this acquisition, and as part of the CRTC’s decision on the Corpor ation’s transfer application, the Corporation has put up for sale
two radio stations acquired in the transaction, CF EL-FM in the Québec City market and CJTS-FM in the Sherb rooke market. Accordingly, the
assets and liabilities of the two acquired radio stations put up for sale have been classified as held for sale in the preliminary purchase price
allocation presented below. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the Corpor ation has
put up for sale radio station CJEC-FM, which it owned prior to the Québec Radio Stations Acquisition, in the Québec City market. Radio
stations for which divestiture has been required by the CRTC, and the sale process, are managed by a trustee approved by the CR
TC
pursuant to a voting trust agreement.
On June 27, 2011, Cogeco Cable concluded an agreement to acquire all of the shares of Quiettouch, a leading independent provider of
outsourced managed information technology and infrastructure services to mid-market and larger enterprises in Canada. Quiettouch offers a
full suite of differentiated services that allow customers to outsource their mission-critical information technolog y infrastructure and ap plication
requirements, including managed infrastructure and hosting, virtualization, firewall services, data backup with end-to-end monitoring and
reporting, and enhanced and traditional co-location services. Quiettouch operates three data centres in Toronto and Vancouver, as well as a
fibre network within key business areas of downtown Toronto. The transaction was completed on August 2, 2011.
On August 31, 2011, Cogeco Cable concluded and completed an agreement to acquire all the s hares of MTO. With over 1,500 kilometres of
network, MTO, the largest private telecommunications provider in the Greater Montréal Area and the Province of Québec, offers high-
performance Ethernet broadband connectivity services to carrier, enterprise and public sector customers.
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These acquisitions were accounted for using the purchase method. The results have been consolidated as of the acquisition dates. The
preliminary allocation of the purchase price of these acquisitions, pending the completion of the valuation of the net assets acquired, is as
follows:
(In thousands of dollars)
$ $ $
Québec radio
stations
Othe
r
Total
Consideration
Paid
Purchase of shares 75,000 133,600 208,600
Preliminary working capital adjustment – (1,034) (1,034)
Acquisition costs 1,723 1,111 2,834
76,723 133,677 210,400
Promissory note payable
(1)
5,000
–
5,000
Balance due on a business acquisition
( 2)
– 11,400 11,400
Investment previously accounted for 200
–
200
Working capital adjustment payable 4,000
–
4,000
Preliminary working capital adjustment payable – 1,429 1,429
A
cquisition costs payable – 713 713
A
cquisition costs previously recorded as deferred charges 436
–
436
86,359 147,219 233,578
Net assets acquired
Cash and cash equivalents 647 1,409 2,056
A
ccounts receivable 14,103 4,619 18,722
Income taxes re ceivable 189
–
189
Prepaid expenses and other 760 1,036 1,796
Current future income tax assets 1,303
–
1,303
Fixed assets 11,497 27,195 38,692
Deferred charges and other 13 615 628
Customer relationships – 34,305 34,305
Broadcasting licenses 48,893
–
48,893
Goodwill 28,678 94,743 123,421
Future income tax assets 678
–
678
Long-term assets held for sale 5,506
–
5,506
A
ccounts payable and accrued liabilities assumed (9,942) (3,626) (13,568)
Current deferred and prepaid revenue (379)
–
(379)
Current liabilities related to assets held for sale (498)
–
(498)
Long-term deferred and prepaid revenue and other liabilities (4,467) (1,538) (6,005)
Long-term future income tax liabilities (10,132) (11,539) (21,671)
Long-term liabilities related to assets held for sale (490)
–
(490)
86,359 147,219 233,578
(1) Non-interest bearing and due on February 1, 2012.
(2) Bearing interest at bank prime rate plus 1% and payable in February 2013.
Other investing activities, including mainly capital expenditures, increased by $22.1 million in the fourth quarter and by $20.5 million in
fiscal 2011, mainly due to the following factors:
• An increase in support capital spending stemming from the construction of new facilities and the acquisition of new service vehicles
in the Canadian operations;
• An increase in customer premise equipment spending mainly due to the timing of equipment purcha ses to support RGU growth in
the Canadian operations. This increase was partly offset b y the decrease in customer premise equipment spending reflecting lower
RGU growth in the European operations.
In the fourth quarter of 2011, the Corporation generated free cash flows of $23 million compared to $18.7 million in the prior year. The
increase in free cash flow is the result of an increase in cash flow from operations outpacing the increase in capital expenditures. For fiscal
2011, free cash flow of $110.5 million was generated, $70.8 million, or 39.1%, lower than in fiscal 2010. The decline in free cash flow when
compared to fiscal 2010 is due to an increase of $105.5 million in current income tax expense stemming primarily from the fiscal 2010
modifications to Cogeco Cable’s corporate structure, the increase in financial expense, and the incre ase in capital expenditures, which offset
the increase in operating income before amortization in the current fiscal year.
In the fourth quarter of 2011, Indebtedness affecting cash increased by $11.2 million, mainly due to the business acquisitions by Cogeco
Cable for a total amount of $132.3 million and the total dividend payment of $8.9 million described below, partly offset by the cash inflows of
$72 million from the changes in non-cash operating items, the decrease in cash and cash equivalents of $35.5 million and the free cash flow of
- 9 -
$23 million. Indebtedness was reduced mainly through net repayments on Cogeco Cable’s Term Revolving Facility of $11.2 million. In the
fourth quarter of 2010, Indebtedn ess affecting cash decreased by $63.8 million mainly due to the inflows generated by changes in non-cash
operating items of $71.3 million and the free cash flow of $18.7 million, partly offset by the increase in cash and cash equivalents of
$14.7 million and the payment of dividends totalling $6.3 million described below and an increase in deferred transaction costs of $5.8 million.
Indebtedness mainly reduced through a decrease of $52.2 million in bank indebtedness and net repayments on Cogeco Cable’s term and
revolving loans of $7.6 million.
During fiscal 2011, the level of Indebtedness affecting cash increased by $71.7 million, mainly due to the business acquisitions for a total of
$208.3 million, the dividend payments of $31.7 million described below and the increase in cash and cash equivalents of $19.4 million, offset
by the free cash flow of $110.5 million and the cash inflows of $75.1 million from the changes in non-cash operating items. Indebtedness
mainly increased through the issuance on November 16, 2010, in the cable sector, of Senior Secured Debentures Series 2 (“Fiscal 2011
debentures”) for net proceeds of $198.3 million, combined with a net increase of $53.5 million on the Corporation’s Term Revolving Facilities.
The proceeds of issuance from the Fiscal 2011 debentures were used to repay on December 22, 2010, the $175 million Senior Secured Notes
Series B due on October 31, 2011 and the related make-whole premium on early repayment. In fiscal 2010, Indebtedness affecting cash
decreased by $73.8 million, mainly due to the free cash flow of $181.3 million, partly offset by the outflows related to non-cash operating items
of $76.9 million, the payment of dividends totalling $25.1 million described below and an increase in deferred transaction costs of $5.8 million.
Indebtedness mainly decreased through net repayments on the cable subsidiary’s term and revolving loans of $62.4 million and the
Corporation’s revolving loans of $9.5 million.
During the fourth quarter of fiscal 2011, the Corporation paid a dividend of $0.14 per share to the holders of subordinate and multiple voting
shares totalling $2.3 million, compared to a quarterly dividend of $0.10 per share totalling $1.7 million in fiscal 2010. Dividends paid by a
subsidiary to non-controlling interests amounted to $6.6 million during the fourth quarter of fiscal 2011 compared to $4.6 million in the fourth
quarter of fiscal 2010, bringing the consolidated dividend payments to $8.9 million in the current year compared to $6.3 million in the prior
year.
Total dividends of $0.50 per share, comprised of quarterly dividends of $0.12 per share in the first three quarters of the year and a dividend of
$0.14 per share in the last quarter, were paid during fiscal 2011, for a total of $8.4 million. In fiscal 2010, quarterly dividends of $0.10 per
share, totalling $0.40 per share were paid, for an amount of $6.7 million. Dividends paid by a subsidiary to non-controlling interests were
$23.4 million during fiscal 2011 compared to $18.4 million in fiscal 2010, bringing the consolidated dividend payments to $31.7 million for the
current year compared to $25.1 million in the prior year.
NON-GAAP FINANCIAL MEASURES
This section describes non-GAAP financial measures used by COGECO throughout this Press release. 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 therefore, may not be comparable to similar measures presented by other companies. These
measures include “cash flow from operations”, “free cash flow”, “operating income before amortization”, “operating margin”, “adjusted net
income”, and “adjusted earnings per share”.
CASH FLOW FROM OPERATIONS AND FREE C ASH FLOW
Cash flow from operations is used by COGECO’s management and investors to evaluate cash flows generated by operating activities
excluding the impact of changes in non-cash operating items. This allows the Corporation to isolate the cash flow from operatin
g activities
from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating the non-GAAP measure “free
cash flow”. Free cash flow is used by COGECO’s management and investors to measure COGECO’s ability to repay debt, distribute capital to
its shareholders and finance its growth.
The most comparable Canadian GAAP financial measure is cash flow from operating activities. Cash flow from operations is calculated as
follows:
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000)
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Cash flow from operating activities 225,647 198,492 527,127 425,336
Changes in non-cash operating items (71,966) (71,262) (75,111) 76,883
Cash flow from operations 153,681 127,230 452,016 502,219
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Free cash flow is calculated as follows:
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000)
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Cash flow from operations 153,681 127,230 452,016 502,219
A
cquisition of fixed assets (128,356) (105,513) (330,669) (309,752)
Increase in deferred charges (2,337) (3,002) (10,872) (11,069)
A
ssets acquired under capital leases – – – (141)
Free cash flow 22,988 18,715 110,475 181,257
OPERATING INCOME BEFORE AMORTIZATION AND OPERATING MARGIN
Operating income before amortization is used by COGECO’s management and investors to assess the Corporation’s ability to seize growth
opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income before amortization is a
proxy for cash flows from operations excluding the impact of the capital structure chosen, and is one of the key metrics used by the financial
community to value the business and its financial strength. Operating margin is a measure of the proportion of the Corporation's revenue
which is left over, before income taxes, to pay for i ts fixed costs, such as interest on Indebtedness. Oper ating margin is calculated by dividing
operating income before amortization by revenue.
The most comparable Canadian GAAP financial measure is operating income. Operating income before amortization and operating margin
are calculated as follows:
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000, except percentages)
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Operating income 104,626 73,942 330,578 259,882
A
mortization 54,174 63,843 249,012 259,457
Operating income before amortization 158,800 137,785 579,590 519,339
Revenue 375,402 333,671 1,443,769 1,321,694
Operating margin 42.3% 41.3% 40.1% 39.3%
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
Adjusted net income and adjusted earnings per share a re used by COGEC O’s management and investors to evaluate what would have b een
the net income and earnings per share from ongoing operations without the impact of certain adjustments, net of income taxes and non-
controlling interest, which could affect the comparability of the Corporation’s financial results. The exclusion of these adjustments does not
indicate that they are non-recurring.
The most comparable Canadian GAAP financial measures are net income and earnings per share. These above-mentioned non-GAAP
financial measures are calculated as follows:
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
(in thousands of dollars, except the number of shares and per share data)
$ $ $ $
Net income (loss) 21,073 12,265 (8,979) 56,264
A
djustments:
Impairment of goodwill and fixed assets net of non-controlling interest – – 72,679 –
Reduction of the Ontario provincial income tax rates, net of non-controlling interest – – – (9,620)
Adjusted net income 21,073 12,265 63,700 46,644
Weighted average number of multiple voting and subordinate voting shares outstanding 16,736,465 16,730,336 16,728,863 16,726,135
Effect of dilutive stock options – 9,299 5,966 10,681
Effect of dilutive subordinate voting shares held in trust under the Incentive Share Unit Plan 121,077 71,862 123,199 67,837
Weighted average number of diluted multiple voting and subordinate voting shares
outstanding 16,857,542 16,811,497 16,858,028 16,804,653
Adjusted earnings per share
Basic 1.26 0.73 3.81 2.79
Diluted 1.25 0.73 3.78 2.78
- 11 -
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
Fiscal 2011 Fiscal 2010
Quarters ended
(1)
Nov. 30 Feb. 28 May 31 Aug. 31 Nov. 30 Feb. 28 May 31 Aug. 31
($000, except percentages and per share data)
$ $ $ $ $ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Revenue 342,766 350,644 374,957 375,402 328,003 329,087 330,933 333,671
Operating income before amortization
(2)
137,031 135,952 147,807 158,800 129,263 124,363 127,928 137,785
Operating margin
(2)
40.0% 38.8% 39.4% 42.3% 39.4% 37.8% 38.7% 41.3%
Operating income 73,892 70,525 81,535 104,626 63,562 58,370 64,008 73,942
Impairment of goodwill and fixed assets – – 225,873 – –– –
–
Net income (loss) 15,975 10,645 (56,672) 21,073 22,748 10,511 10,740 12,265
A
djusted net income
(2)
15,975 10,645 16,007 21,073 13,128 10,511 10,740 12,265
Cash flow from operating activities 57,572 96,664 147,244 225,647 (1,410) 117,498 110,756 198,492
Cash flow from operations
(2)
42,499 120,675 135,161 153,681 135,518 120,331 119,140 127,230
Capital expenditures and increase in deferred charges 66,799 72,462 71,587 130,693 68,387 74,549 69,511 108,515
Free cash flow
(2)
(24,300) 48,213 63,574 22,988 67,131 45,782 49,629 18,715
Earnings (loss) per share
(3)
Basic 0.95 0.64 (3.39) 1.26 1.36 0.63 0.64 0.73
Diluted 0.95 0.63 (3.39) 1.26 1.35 0.63 0.64 0.73
A
djusted earnings per share
(2) (3)
Basic 0.95 0.64 0.96 1.26 0.79 0.63 0.64 0.73
Diluted 0.95 0.63 0.95 1.26 0.78 0.63 0.64 0.73
(1) The addition of quarterly information may not correspond to the annual total due to rounding.
(2) The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented
by other companies. For more details, please consult the “Non-GAAP financial measures” section of the Results overview.
(3) Per multiple and subordinate voting share.
SEASONAL VARIATIONS
Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations. However, the customer growth in the Basic Cable
and HSI service are generally lower in the second half of the fiscal year as a result of a decrease in economic activity due to the beginning of
the vacation period, the end of the television seasons, and students leaving their 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 in Canada, and Aveiro, Covilhã, Evora, Guarda and Coimbra in Portugal.
Furthermore, the third and fourth quarter operating margins of the cable subsidiary are usually higher as no management fees are paid to
COGECO Inc. Under the manage ment Agreement, Cogeco Cable pays a fee equal to 2% of its total revenue subject to a maximum amount.
As the maximum amount has been reached in the second quarters of fiscal 2011 and fiscal 2010, Cogeco Cable did not pay management
fees in the second halves of either year.
ADDITIONAL INFORMATION
Additional information relating to the Corporation, including its 2011 Annual Report and Annual Information Form, is available on the SEDAR
website at www.sedar.com.
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ABOUT COGECO
COGECO (www.cogeco.ca) is a diversified communications corporation. Through its Cogeco Cable subsidiary, COGECO provides its
residential customers with Audio, Analogue and Digital Television, as well as HSI and Telepho ny services using its two-way broadband cable
networks. Cogeco Cable also provides, to its commercial customers, through its subsidiary Cogeco Data Services, data networking, e-
business applications, video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, data storage, data security, co-location
services, managed IT services, cloud services and other advanced communication solutions. Through its Cogeco Diffusion Inc. subsidiary
(“CDI”), COGECO wholly-o wns and operat es 13 r adio stations across most of Québec with complementar y radio fo rmats serving a wid e range
of audiences, as well as Cogeco News, its news agency broadcast in close to 30 independent and community radio stations across Québec.
COGECO’s subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CGO). The subordinate voting shares of Cogeco Cable
are also listed on the Toronto Stock Exchange (TSX: CCA).
– 30 –
Source: COGECO Inc.
Pierre Gagné
Senior Vice President and Chief Financial Officer
Tel.: 514-764-4700
Information: Media
René Guimond
Vice President, Public Affairs and Communications
Tel.: 514-764-4746
Analyst Conference Call: Thursday, October 27, 2011 at 11:00 A.M. (EDT)
Media representatives may attend as listeners only.
Please use the following dial-in number to have access to the conference call by dialling five
minutes before the start of the conference:
Canada and US access number: 1 866-322-8032
International access number: + 1 416-640-3406
Confirmation code: 6470562
A rebroadcast of the conference call will be available until November 3 , by dialing:
Canada and US access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 6470562
- 13 -
CABLE SECTOR CUSTOMER ST ATISTICS
(unaudited)
2011 2010
Homes passed
Canada 1,622,420 1,593,743
Portugal
(1)
905,742 905,359
Total 2,528,162 2,499,102
Homes connected
(2)
Canada 992,990 979,590
Portugal 264,223 269,194
Total 1,257,213 1,248,784
Revenue-generating units
Canada 2,575,795 2,350,577
Portugal 831,665 828,772
Total 3,407,460 3,179,349
Basic Cable service customers
Canada 877,985 874,505
Penetration as a percentage of homes passed 54.1% 54.9%
Portugal 255,777 260,267
Penetration as a percentage of homes passed 28.2% 28.7%
Total 1,133,762 1,134,772
HSI service customers
Canada 601,214 559,057
Penetration as a percentage of Basic Cable
(3)
70.6% 66.2%
Portugal 162,436 163,187
Penetration as a percentage of Basic Cable
(3)
63.5% 62.7%
Total 763,650 722,244
Digital Television service customers
Canada 678,326 559,418
Penetration as a percentage of Basic Cable
(3)
78.2% 64.8%
Portugal 164,580 159,852
Penetration as a percentage of Basic Cable
(3)
64.3% 61.4%
Total 842,906 719,270
Telephony service customers
Canada 418,270 357,597
Penetration as percentage of Basic Cable
(3)
51.3% 44.4%
Portugal 248,872 245,466
Penetration as percentage of Basic Cable
(3)
97.3% 94.3%
Total 667,142 603,063
(1) The Corporation is cu rrently a ssessin g the numb e r of homes passed.
(2) Represents the sum of Basic Cable service customers and HSI and Telephony service customers who do not subscribe to the Basi c Cable service.
(3) Cal culated on the basis of th e systems where th e s e rvice is offered.