PRESS RELEASE
For immediate release
STRONG FIRST QUARTER RESULTS FOR COGECO CABLE
Montréal, January 9, 2008 – Today, Cogeco Cable Inc. (TSX: CCA) announced its financial results
for the first quarter ended November 30, 2007.
First quarter 2008 consolidated results show sustained growth:
• Revenue increased by 13.4% to $251.8 million;
• Operating income before amortization grew by 17.5% to reach $98.3 million;
• Net income amounted to $20.4 million up by 62.4%;
• Free cash flow
(1)
reached $21.6 million;
• Operating margin grew from 37.7% to 39%;
• Revenue-generating units (RGUs)
(2)
reached 2,568,689 with 83,024 net additions.
“Cogeco Cable is in an excellent position to achieve superior growth in 2008. Cogeco Cable
continues to enhance the features of its services, to attract new customers and to sell additional
services to existing customers, thanks to its versatile delivery system,” said Louis Audet, President
and CEO of Cogeco Cable.
1
Free cash flow does not have standa rd definitions prescribed by Canadian generally accepted accounting principles (GAAP) and should be treated
accordingly. For more details, please consult the “non-GAAP financial measures” section.
2
Represent the sum of Basic Cable, High Speed internet (HSI), Digital Television and Telephony service customers.
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FINANCIAL HIGHLIGHTS
Quarters ended November 30,
(unaudited)
($000s, except percentages and per share data)
2007 2006
%
Change
Revenue $
251,833 $ 222,002 13.4
Operating income before amortization
98,337 83,662 17.5
Net income 20,363 12,535 62.4
Cash flow from operations
(1)
79,753 62,060 28.5
Less:
Capital expenditures and increase in deferred charges 58,144 74,383 (21.8)
Free cash flow
(1)
21,609 (12,323) -
Per share data
Basic net income $
0.42 $ 0.31 35.5
(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 2007 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 2007 Annual
Report. Throughout this discussion, all amounts are in Canadian dollars unle ss 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 the
improvement of products and services as well as clientele and territories; the continuous
improvement of networks and equipment; and tight cost control over business processes. The
Corporation measures its performance, with regard to these objectives, by monitoring 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 expansion of the customer base
Canadian operations
• Digital Television services:
o September 4, launch of the Setanta International Sports Pak in Ontario, a new
premium digital service;
o October 2, launch of RDS HD in Québec, a speciality channel transmitting in High
Definition (“HD”) various sports events, including all Montreal Canadians hockey
games;
o October 11, launch of Leafs TV HD, a Canadian digital specialty sports channel in HD
transmitting all Toronto Maple Leafs hockey team games;
o October 31, launch of Mpix On Demand in Ontario;
o December 5, launch of the Motorola DCT3080, a new digital video recorder (DVR)
model in Quebec.
• Telephony service:
o September 25, new International calling service with a supplier of choice in Québec
and Ontario;
• HSI services:
ο November 7, launch of Wi-Fi into Kingston and Windsor.
Portuguese operations
• Cabovisão
- Televisão por Cabo, S.A. (Cabovisão) continued its Digital Television service
deployment;
• New image and communication concept: Cabovisão, infinite possibilities.
Continuous improvement of networks and equipment
• During the first quarter of 2008, the Corporation has invested approximately $21.7 million in
its infrastructure including headends and network upgrade / rebuild.
Tight control over costs, business processes
• On September 5
th
, a new management structure was implemented that will enable Canadian
operations to develop better synergies and therefore have a positive impact on the way
Cogeco Cable delivers its services.
• For the first quarter 2008, operating costs, excluding management fees, increased by 10.9%,
compared to a revenue growth of 13.4% during this period;
1
See the “Customer statistics” section for detailed explanations.
2
See the “non-GAAP financial measures” section for explanations.
- 4 -
• The design of internal controls over financial reporting as per National Instrument 52-109 is
still underway. As discussed in the 2007 annual MD&A, the Corporation had identified certain
material weaknesses in the design of internal controls over financial reporting and there have
been improvements in the design of internal controls on some significant processes during
the quarter. The documentation and remediation of internal controls weaknesses are
progressing normally.
RGU growth
During the first quarter 2008, the consolidated number of RGUs increased by 3.3% to reach over
2.5 million units. The Corporation is expecting an annual RGU growth of approximately 10% and is
maintaining its guidelines.
Revenue growth
During the first quarter 2008, revenue increased by $29.8 million, or 13.4%, to reach $251.8 million,
mainly due to RGU growth and rate increases implemented in Canada in fiscal 2007. In its 2008
financial guidelines, the Corporation has anticipated a revenue growth of approximately 12% and is
on the way to achieving its objectives.
Free cash flow
In the first quarter of fiscal 2008, Cogeco Cable generated free cash flow of $21.6 million, compared
to a negative free cash flow of $12.3 million for the same period last year. This increase results from
several factors: an increase in operating income before amortization, a decrease in capital
expenditures and deferred charges and a reduction in financial expense. The Corporation reduced its
capital expenditures compared to last year by $16.5 million from $67.2 million to $50.7 million, mainly
due to a $12 million expenditure in the first quarter of fiscal 2007 for the purchase of home terminal
devices for the Canadian operations to build an inventory to sustain last year RGU growth.
OPERATING RESULTS – CONSOLIDATED OVERVIEW
Quarters ended November 30,
(unaudited)
($000s, except percentages)
2007
2006
%
Change
Revenue $
251,833 $
222,002 13.4
Operating costs 148,461 133,900 10.9
Management fees - COGECO Inc.
5,035
4,440
13.4
Operating income before amortization
98,337
83,662
17.5
Operating margin 39.0 %
37.7 %
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Revenue
In the first quarter of fiscal 2008, consolidated revenue grew by $29.8 million, or 13.4%, to reach
$251.8 million. Canadian operations revenue, driven by an increased number of RGUs combined
with rate increases, went up by $28.3 million, or 16.9%, in the first quarter 2008. Portuguese
operations revenue amounted to $55.6 million, an increase of $1.5 million, or 2.8% compared to the
same period last year due to RGU growth and rate increases which was partly offset by the streng th
of the Canadian dollar against the euro.
Operating costs
In the first quarter of fiscal 2008, operating costs excluding management fees payable to COGECO
Inc., increased by $14.6 million, or 10.9%, to reach $148.5 million. The increase in operating costs for
the first quarter 2008 was mainly attributable to servicing additional RGUs in Canada, including the
increased penetration of Telephony service, and in Portugal, to the timing of certain marketing
initiatives, including a major campaign to increase brand awareness, to costs to better service
additional RGUs and to costs related to the design of internal controls and review of business
processes to comply with National Instrument 52-109.
Operating income before amortization
First quarter 2008 operating income before amortization increased by $14.7 million, or 17.5%, to
reach $98.3 million, due to RGU growth and various rate increases outpacing operating cost
increases. As a result, first quarter 2008 operating margin increased to 39% from 37.7%.
RELATED PARTY TRANSACTIONS
Cogeco Cable is a subsidiary of COGECO Inc., which holds 32.4% of the Corporation’s equity
shares, representing 82.7% of the votes attached to the Corporation’s voting shares. Under a
management agreement, the Corporation pays COGECO Inc. monthly management fees equal to
2% of its total revenue for certain executive, administrative, legal, regulatory, strategic and financial
planning, and additional services. In 1997, management fees were capped at $7 million per year,
subject to annual upward adjustments based on increases in the Consumer Price Index in Canada.
Accordingly, for fiscal 2008, management fees have been set at a maximum of $8.7 million.
Management fees for the first quarter of fiscal 2008 stood at $5 million compared to $4.4 million for
the same period last year. Furthermore, Cogeco Cable granted 22,683 stock options to COGECO’s
employees during the first quarter 2008, compared to 318,735 for the same period last year. Of t hese
318,735 stock options granted in the first quarter of fiscal 2007, 262,400 were conditional on the
achievement of certain yearly financial objectives by the Portuguese subsidiary over a period of three
years. During the first quarter of fiscal 2008, Cogeco Cable charged COGECO Inc. an amount of
$0.1 million with regards to Cogeco Cable’s options granted to COGECO’s employees. Details
regarding the management agreement and stock options granted to COGECO Inc.’s employees are
provided in the MD&A of the Corporation’s 2007 Annual Report. There were no other material related
party transactions during the first quarter 2008.
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FIXED CHARGES
Quarters ended November 30,
(unaudited)
($000s, except percentages)
2007
2006 %
Change
Amortization $
52,687 $
44,309 18.9
Financial expense 16,912 21,221 (20.3)
First quarter 2008 amortization expense amounted to $52.7 million, compared to $44.3 million for the
same period last year. The increase in amortization expense is mainly due to the completion in the
fourth quarter of fiscal 2007 of the purchase price allocation of the Cabovisão acquisition, which
includes the valuation of tangible and intangible assets for an additional amortization expense of
approximately $4.4 million and from additional capital expenditures arising from the required
customer premise equipment to sustain RGU growth.
First quarter 2008 financial expense decreased by $4.3 million, compared to the same period last
year. The Corporation reduced its level of Indebtedness (defined as bank indebtedness and long-
term debt) from the net proceeds of subordinate voting shares issued during fiscal 2007.
INCOME TAXES
First quarter 2008 income tax expense amounted to $8.4 million compared to $5.6 million for the
same period last year. The increase is mainly due to higher operating income before amortization
and lower financial expense that have outpaced the increase in amortization expense.
On October 16, 2007, the Canadian federal government announced in its Economic Statement
reduction in corporate income tax rates. According to the new legislation, corporate income tax rates
will be further reduced from 20.5% to 19.5% effective January 1, 2008, from 20% to 19% effective
January 1, 2009, from 19% to 18% effective January 1, 2010, from 18.5% to 16.5% effective January
1, 2011, and to 15% effective January 1, 2012. These corporate income tax rates were considered
substantively enacted on December 14, 2007. The reduction of these corporate income tax rates will
reduce future income tax expense by approximately $23 million in the second quarter of fiscal 2008.
NET INCOME
First quarter 2008 net income amounted to $20.4 million, or $0.42 per share, compared to
$12.5 million, or $0.31 per share, for the same period last year. Net income progression has been
essentially the result of the growth in operating income before amortization exceeding those of the
fixed charges.
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CASH FLOW AND LIQUIDITY
Quarters ended November 30,
(unaudited)
($000s)
2007
2006
Operating Activities
Cash flow from operations $
79,753 $ 62,060
Changes in non-cash operating items (34,408) (71,909)
$
45,345 $ (9,849)
Investing Activities
(1)
$
(58,070) $ (74,070)
Financing Activities
(1)
$
(34,401) $ 29,695
Net change in cash and cash equivalents $
(47,126) $ (54,224)
Effect of exchange rate changes on cash and cash equivalents
denominated in foreign currencies
(153) 1,616
Cash and cash equivalents at beginning
64,208 71,516
Cash and cash equivalents at end
$
16,929 $
18,908
(1)
Excludes assets acquired under capital leases.
First quarter 2008 cash flow from operations reached $79.8 million, 28.5% higher than for the
comparable period last year, primarily due to the increase in operating income before amortization
and to a reduction in financial expense. Changes in non-cash operating items generated lower cash
outflows compared to the same period last year, mainly as a result of certain non-recurring payments
executed by the Portuguese subsidiary in accordance with the terms of the acquisition in the first
quarter of fiscal 2007.
Investing activities, including capital expenditures are segmented according to the National Cable
Television Association (NCTA) standard reporting categories as follows:
Quarters ended November 30,
(unaudited)
($000s)
2007
2006
Customer Premise Equipment
(1)
$ 23,796 $ 39,417
Scalable Infrastructure
9,823
11,986
Line Extensions
2,589
2,551
Upgrade / Rebuild
11,862
10,856
Support Capital
2,657
2,361
Total Capital Expenditures
(2)
$
50,727
$
67,171
Deferred charges and other
7,416
7,195
Decrease (increase) in restricted
cash
- (91)
Total other investing activities
$
58,143
$
74,275
(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.
- 8 -
First quarter 2008 capital expenditures decreased compared to the same period last year mainly due
to lower RGU growth and to the timing of customer premise equipment acquired in the first quarter of
fiscal 2007 to build an inventory for the Canadian operations. The Portuguese operations’ capital
expenditures increased compared to the same period last year as a result of the Digital Television
deployment and the network extensions to serve additional homes passed.
First quarter 2008 deferred charges remained essentially the same and are mainly attributable to
reconnect costs.
First quarter 2008 free cash flow amounted to $21.6 million compared to a deficit of $12.3 million for
the same period of the preceding year. The first quarter free cash flow increase over the same period
last year is due to the following factors: a growth in operating income before amortization, a lower
level of capital expenditures required to serve RGU growth and to support Telephony growth, a build-
up of home terminal devices for an amount of $12 million during the first quarter of fiscal 2007 and a
reduction in financial expense.
During the first quarter of fiscal 2008, debt repayment amounted to $32.6 million. This repayment
came from the following factors: the generated free cash flow of $21.6 million, the reduction of
$47.1 million in cash and cash equivalents partly used to offset the $34.4 million reduction in changes
in non-cash operating items and, the increase of $3.1 million in capital stock from the exercise of
stock options. These factors have been partly offset by a dividend payment of $4.8 million described
below. For the same period last year, the increase in long-term debt and bank indebtedness
amounted to $31.1 million due to a decrease of $71.9 million in non-cash operating items explained
by the repayment of certain suppliers subsequent to the Cabovisão acquisition and by the free cash
flow deficit of $12.3 million, partly offset by a $54.2 million decrease in cash and cash equivalents. In
addition, a dividend of $0.10 per share for subordinate and multiple voting shares, totalling
$4.8 million, was paid during the first quarter of fiscal 2008 compared to a dividend of $0.04 per
share or $1.6 million for the first quarter of fiscal 2007.
As at November 30, 2007, the Corporation had a working capital deficiency of $378.7 million
compared to $120.7 million as at August 31, 2007. The greater deficiency is mainly attributable to the
US$150 million Senior Secured Notes Series A and the related derivative financial instruments due in
October 2008. Cogeco Cable maintains a working capital deficiency due to a low level of accounts
receivable since the majority of the Corporation’s customers pay before their services are rendered,
contrary to accounts payable and accrued liabilities, which are paid after products or services are
rendered. In addition, the Corporation generally uses cash and cash equivalents to reduce
Indebtedness.
As at November 30, 2007, the Corporation had used $432.9 million of its $900 million Term Facility.
FINANCIAL POSITION
Since August 31, 2007, there have been major changes to “Fixed assets”, “Cash and cash
equivalents”, “Accounts payable and accrued liabilities”, “Derivative financial instruments and
“Indebtedness”.
The $10.6 million rise in fixed assets is mainly related to increased capital expenditures to sustain
RGU growth and by the appreciation of the euro currency over the Canadian dollar. The $47.3 million
and $37.8 million reductions in cash and cash equivalents and accounts payable and accrued
liabilities respectively, are related to suppliers’ payments. Finally, derivative financial instruments
have increased by $91.3 million and Indebtedness has decreased by $117.6 million as a result of
accounting changes and factors previously discussed in the “Cash Flow and Liquidity” section.
Please consult “Accounting policies and estimates” section for further details.
- 9 -
A description of Cogeco Cable’s share data as of December 31, 2007 is presented in the table below:
Number of
shares/options
Amount
($ 000s)
Common Shares
Multiple voting shares
Subordinate voting shares
15,691,100
32,809,659
98,346
890,125
Options to Purchase Subordinate Voting Shares
Outstanding options
Exercisable options
851,949
348,804
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 2007 annual MD&A, have not materially changed since August 31,
2007, except that on January 8, 2008, the Corporation and the Solidarity Fund QFL entered into
an agreement to issue senior unsecured debenture with par value of $100 million by way of
private placement, subject to usual market conditions. The debenture which must be issued by no
later than May 9, 2008, will bear interest at a fixed rate determined at the then prevailing rate of
the ten-year Government of Canada bond plus a spread of 220 basis points, and will mature ten
years after issuance. The debenture will be callable under certain conditions.
DIVIDEND DECLARATION
At its January 9, 2008 meeting, the Board of Directors of Cogeco Cable declared a quarterly eligible
dividend of $0.10 per share for subordinate and multiple voting shares, payable on February 6, 2008,
to shareholders of record on January 23, 2008.
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 U.S. interest coupon rate of 6.83% per annum to an average Can adian dollar fixed
interest rate of 7.254% per annum. The exchange rate applicable to the principal portion of the debt
has been fixed at CAN$1.5910. Amounts due under the US$150 million Senior Secured Notes
Series A decreased by CAN$8.4 million at the end of the first quarter compared to August 31, 2007
due to the Canadian dollar’s appreciation. The fair value of cross-currency swaps increased by
$7.8 million of which $8.4 million offset the foreign exchange gain on the $US debt. The difference of
$0.6 million was recorded as a reduction of comprehensive income.
As noted in the MD&A of the 2007 Annual Report, the Corporation’s investment in the Portuguese
subsidiary, Cabovisão, is exposed to market risk attributable to fluctuations in foreign currency
exchange rates, 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 CAN$4 million in the first quarter
2008, which is presented in other comprehensive income. The exchange rate used to convert the
euro currency into Canadian dollars for the balance sheet accounts as at November 30, 2007 was
$1.4630 per euro compared to $1.4390 per euro as at August 31, 2007. The average exchange rate
prevailing during the first quarter 2008 used to convert the operating results of the Portuguese
operations was $1.4119 per euro compared to $1.4363 per euro for the same period last year.
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CANADIAN OPERATIONS
CUSTOMER STATISTICS
Net additions % of Penetration
(1)(4)
Quarters ended
November 30,
November 30,
November 30,
2007
2007 2006 2007 2006
RGUs
(2)
1,861,334 72,826 93,015
Basic Cable service customers
857,221 8,064 16,240
HSI service customers
(3)
441,130 25,294 28,935 54.8 47.0
Digital Television service customers
396,132 16,253 21,224 47.3 42.0
Telephony service customers
166,851 23,215 26,616 24.9 12.9
(1)
As a percentage of Basic Cable service customers in areas served.
(2)
Represent the sum of Basic Cable, HSI, Digital Television and Telephony service customers.
(3)
Customers subscribing only to HSI or Telephony totalled 83,267 as at November 30, 2007 compared to 61,336 as at November 30, 2006.
(4)
An audit of homes passed in Ontario was completed during the first quarter of fiscal 2007 and, as a result, the number of homes passed was
reduced by 42,386.
In the first quarter of 2008, RGUs’ net additions were lower than for the same period last year and
reflect early sign of maturation in most services. The number of net additions in Basic Cable stood at
8,064 customers compared to a growth of 16,240 customers for the same period last year due to the
expiration of certain promotional offers. Telephony customers grew by 23,215 to reach 166,851
compared to a growth of 26,616 for the same period last year. This growth is mostly attributable to
the launch of the service in new markets and increased penetration in areas where the service is
already offered. Coverage of homes passed has now reached 78% compared to 72% last year.
The number of net additions to HSI service stood at 25,294 customers compared to 28,935
customers for the same period last year. During the first quarter 2008, the HSI customer net additions
is mostly due to the enhancement of the product offering, the impact of the bundled offer of
Television, HSI and Telephony services (Cogeco Complete Connection), and promotional activities.
The net additions of Digital Television service stood at 16,253 customers compared to 21,224
customers for the same period last year. The decrease in net additions this quarter compared to the
same quarter last year reflects greater maturity of the digital TV segment following a period of robust
growth, especially in fiscal 2006. Since then, the Corporation also adjusted the service offering and
price gap differential between Analogue Television services and Digital Television, which has also
contributed to a moderation of the strong growth experienced in the past years. Nevertheless,
customers continue to demonstrate strong interest in HD technology.
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OPERATING RESULTS
Quarters ended November 30,
(unaudited)
($000s, except percentages)
2007 2006
%
Change
Revenue $
196,241 $
167,931 16.9
Operating costs 110,425 98,160 12.5
Management fees - COGECO Inc.
5,035 4,440 13.4
Operating income before amortization
80,781 65,331 23.6
Operating margin 41.2 %
38.9 %
Revenue
First quarter 2008 revenue grew by $28.3 million to reach $196.2 million, an increase of 16.9%
compared to the same period last year. This growth is explained mainly by an increase in the number
of Basic Cable, HSI, Telephony and Digital Television service customers as mentioned in the
“Customer Statistics” section, combined with the following rate increases implemented in the second
half of fiscal 2007: a monthly rate increase of $3 per Digital Television customer effective in March
2007 in Ontario and in April 2007 in Québec and a rate increase of $1.50 per Analogue Value Pak
customer effective in April 2007 in Ontario. These rate increases represent approximately $1.25 per
Basic Cable service customer.
Operating costs
First quarter 2008 operating costs, excluding management fees payable to COGECO Inc., increased
by $12.3 million to reach $110.4 million, an increase of 12.5% compared to the same period last
year. The increase in operating costs is mainly attributable to the increased penetration of Telephony
service and to servicing additional RGUs.
Operating income before amortization
First quarter 2008 operating income before amortization rose from $65.3 million to $80.8 million,
representing an increase of 23.6%, compared to the same period last year. The rise in operating
income before amortization is the result of increased revenue outpacing the rise in operating costs. In
addition, Cogeco Cable’s operating margin for the Canadian operations increased from 38.9% to
41.2% in the first quarter of fiscal 2008 due to new rate increases implemented during the second
half of fiscal 2007.
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PORTUGUESE OPERATIONS
CUSTOMER STATISTICS
Net additions % of Penetration
(1)
Quarters ended
November 30,
November 30,
November 30,
2007 2007
2006 2007 2006
RGUs
(2)
707,355
10,198
21,264
Basic Cable service customers
298,936
4,933
7,253
HSI service customers
163,829
3,806
8,077
54.8 52.1
Telephony service customers 244,590 1,459 5,934 81.8 82.7
(1) As a percentage of Basic Cable service customers in areas served.
(2) Represent the sum of Basic Cable, HSI and Telephony service customers.
The first quarter 2008 was driven by fierce price competition in the Portuguese market and as a result
all services generated lower customer growth compared to the same period last year. Basic Cable
service grew by 4,933 customers compared to 7,253 customers, HSI service customers increased by
3,806 compared to 8,077 in 2007 and Telephony service grew by 1,459 customers compared to
5,934 customers for the same period of the preceding year. RGU’s grew at a slower pace since
competition offered deep discounts to attract customers during the first half of the quarter. Cabovisão
did not match the competition high discounting offering. However, since then, pricing has become
more rational. The performance of Cabovisão since its acquisition by Cogeco Cable has been well
above management’s original expectations and growth prospects for the future remain excellent.
OPERATING RESULTS
Quarters ended November 30,
(unaudited)
($000s, except percentages)
2007 2006
%
Change
Revenue $
55,592 $
54,071 2.8
Operating costs 38,036 35,740 6.4
Operating income before amortization
17,556 18,331 (4.2)
Operating margin 31.6 %
33.9 %
Revenue
First quarter 2008 revenue reached $55.6 million, an increase of $1.5 million, or 2.8% compared to
the same period last year. This increase is mainly due to the growth of Basic Cable, HSI and
Telephony service customers together with a monthly rate increase of $1 (€0.65) per Basic Cable
service customer effective in March 2007. First quarter 2008 average exchange rates to convert the
operating results was $1.4119 per euro compared to $1.4363 per euro for the same period last year,
thus adversely impacting revenue growth year over year.
- 13 -
Operating costs
First quarter 2008 operating costs increased by $2.3 million to reach $38 million, an increase of 6.4%
compared to last year. The increase in operating costs is mainly attributable to servicing additional
RGUs, to timing of certain marketing initiatives, including a major campaign to increase brand
awareness, and to costs related to the design of internal controls and review of business processes
to comply with National Instrument 52-109.
Operating income before amortization
For the first quarter of 2008, operating income before amortization decreased from $18.3 million to
$17.6 million, or 4.2%, compared to the same period last year. The decrease in operating income
before amortization is the result of increased operating costs outpacing the rise in revenue and
foreign exchange rate fluctuation.
FISCAL 2008 FINANCIAL GUIDELINES
The Corporation is maintaining its consolidated guidelines for the 2008 fiscal year, except for the
reduction of income tax rates announced by the Canadian federal government on October 16, 2007
that will have a favourable impact of approximately $23 million on net income in the second quarter of
fiscal 2008.
Consolidated
(in millions of $, except customer data)
Projections
Fiscal 2008
Financial Guidelines
Revenue
1,050
Operating income before amortization
425
Operating margin
40% to 41%
Financial expense
72
Amortization
215
Net income
118
Capital expenditures and deferred charges
260
Free cash flow
65
Customer Addition Guidelines
Basic Cable service
30,000
HSI services
75,000
Digital Television service
54,000
Telephony service
100,000
RGUs
259,000
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 2007 annual report, except for the Part II Licence Fees
payable to the Canadian Radio-television and Telecommunications Commission (CRTC). On
December 14, 2006, the Federal Court of Canada ruled that the Part II Licence Fees payable to the
CRTC are an unlawful tax. Both the Plaintiffs (the members of the Canadian Association of
Broadcasters, Videotron Ltee and CF Cable TV Inc.) and the Defendant (the Crown) have appealed
this decision to the Federal Court of Appeal. The Defendant is seeking to reverse the Court decision
that Part II Licence Fees are unlawful and the Plaintiffs are seeking a Court order requiring a refund
- 14 -
of past fees paid. The Appeal hearing was held on December 4
th
and 5
th
in Ottawa. During the
hearing, questions were raised by the hearing panel concerning the appropriateness of considering
Part II Licence Fees as a tax rather than a fee under the relevant portion of the Broadcasting Act.
The decision of the Federal Court of Appeal is not expected before several months. The Corporation
believes that there is a reasonable likelihood that the Federal Court’s decision will be reversed.
Cogeco Cable has accrued $7.8 million with respect to these fees for fiscal year 2007 and the first
quarter of fiscal 2008. In the unlikely event that the Federal Court of Appeal or the Supreme Court of
Canada, should this case be appealed to that level, maintains the decision from the Federal Court,
this would have a beneficial impact on the future financial results of the Corporation.
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, 2007, except as described below. A description
of the Corporation’s policies and estimates can be found in the 2007 annual MD&A.
Financial instruments
Effective September 1, 2007, the Corporation adopted the Canadian Institute of Chartered
Accountants (“CICA”) Handbook Section 1530, Comprehensive Income, Section 3855, Financial
Instruments – Recognition and Measurement, Section 3861, Financial Instruments – Disclosure and
Presentation and Section 3865, Hedges.
Statement of Comprehensive Income
A new statement entitled consolidated statements of comprehensive income was added to the
Corporation’s consolidated financial statements and includes net income as well as other
comprehensive income. Other comprehensive income represents changes in shareholders’ equity
arising from transactions and events from non-owner sources, such as changes in foreign currency
translation adjustments of net investments in self-sustaining foreign subsidiaries and long-term debt
designated as hedge of net investments in self-sustaining foreign subsidiaries and changes in the fair
value of effective cash flow hedging instruments.
Recognition and Measurement of Financial Instruments
Under these new standards, all financial assets, including derivatives, must be classified as available
for sale, held for trading, held to maturity, or loans and receivables. All financial liabilities, including
derivatives, must be classified as held for trading or other liabilities. All financial instruments classified
as available for sale or held for trading are recognized at fair value on the consolidated balance sheet
while financial instruments classified as loans and receivables or other liabilities will continue to be
measured at amortized cost using the effective interest rate method. The standards allow the
Corporation to designate certain financial instruments, on initial recognition, as held for trading.
- 15 -
All of the Corporation's financial assets are classified as held for trading or loans and receivables.
The Corporation has classified its cash and cash equivalents as held for trading. Accounts receivable
have been classified as loans and receivables. All of the Corporation financial liabilities were
classified as other liabilities, except for the cross-currency swaps which were classified as held for
trading. Held for trading assets and liabilities are carried at fair value on the balance sheet, with
changes in fair value recorded in the consolidated statements of income, except for the changes in
fair value of the cross-currency swaps which are designated as cash flow hedges of the Senior
Secured Notes Series A and are recorded in other comprehensive income. Loans and receivables
and all financial liabilities are carried at amortized cost using the effective interest method. Upon
adoption, the Corporation determined that none of its financial assets are classified as available for
sale or held to maturity. Except for the treatment of transaction costs and derivative financial
instruments mentioned below, the provisions of the new accounting standards had no impact on the
consolidated financial statement on September 1, 2007 and November 30, 2007.
Transaction costs
Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as
a reduction of the related financing, except for transaction costs on the revolving loan and the
swingline line facility which are presented as deferred charges. These costs are amortized over the
term of the related financing using the effective interest rate method, except for transaction costs on
the revolving loan and the swingline facility which are amortized over the term of the related financing
on a straight-line basis. Previously, all transaction costs were capitalized and amortized on a straight-
line basis over the term of the related financing, over a period not exceeding five years. The impact of
these adjustments reduced deferred charges by $1.2 million, reduced long-term debt by $3.1 million,
increased future income tax liabilities by $0.6 million and increased retained earnings by $1.3 million.
Cash flow hedge
All derivatives are measured at fair value with changes in fair value recorded in the consolidated
statements of income unless they are effective cash flow hedging instruments. The changes in fair
value of cash flow hedging derivatives are recorded in other comprehensive income, to the extent
effective, until the variability of cash flows relating to the hedged asset or liability is recognized in the
consolidated statements of income. Any hedge ineffectiveness is recognized in the consolidated
statements of income immediately. Accordingly, the Corporation’s cross-currency swaps must be
measured at fair value in the consolidated financial statements. Since these cross-currency swaps
are used to hedge cash flows on Senior Secured Notes Series A denominated in U.S. dollars, the
changes in fair value are recorded in other comprehensive income. The impact of measuring the
cross-currency swaps at fair value on the interim consolidated financial statements on September 1,
2007, increased derivative financial instrument liabilities by $83.5 million, decreased deferred credit
presented in long-term debt by $80.2 million, decreased future income tax liabilities by $1.1 million
and decreased opening accumulated other comprehensive income by $2.2 million. The impact of
measuring the cross-currency swaps at fair value on the interim consolidated financial statements for
the three month period ended November 30, 2007 increased derivative financial instruments liabilities
by $7.8 million, increased future income tax liabilities by $0.2 million and increased accumulated
other comprehensive income by $0.4 million.
- 16 -
Net investment hedge
Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at
the balance sheet date for asset and liability items, and using the average exchange rates during the
period for revenue and expenses. Adjustments arising from this translation are deferred and recorded
as foreign currency translation adjustment in accumulated other comprehensive income and are
included in income only when a reduction in the investment in these foreign subsidiaries is realized.
Unrealized foreign exchange gains and losses on long-term debt denominated in foreign currency,
that is designated as a hedge of net investments in self-sustaining foreign subsidiaries are recorded
as foreign currency translation adjustment in accumulated other comprehensive income, net of
income taxes. As a result, an amount of $3.1 million was reclassified as at August 31, 2007 from the
foreign currency translation adjustment to the accumulated other comprehensive income and the
Corporation’s comparative financial statements were restated in accordance with transitional
provisions.
Embedded derivatives
All embedded derivatives that are not closely related to the host contracts, are measured at fair
value, with changes in fair value recorded in the consolidated statements of income. On September
1, 2007, and at November 30, 2007, there are no significant embedded derivatives or non-financial
derivatives that require separate fair value recognition on the consolidated balance sheet. In
accordance with the new standards, the Corporation selected September 1, 2002, as its transition
date for adopting the standard related to embedded derivatives.
Upcoming standards
In 2006, the CICA issued Handbook Section 3862, Financial Instruments – Disclosures, and Section
3863, Financial Instruments – Presentation. These Sections are to be applied to interim and annual
financial statements relating to fiscal years beginning on or after October 1, 2007. The Corporation is
currently evaluating the impact of these new standards.
Accounting changes
In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of
the previous standard. A reporting entity may not change its accounting method unless required by
primary source of GAAP or to provide a more reliable and relevant presentation of the financial
statements. In addition, changes in accounting methods must be applied retroactively and additional
information must be disclosed. This section applies to interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2007. During the first quarter, the Corporation
adopted this new standard and concluded that it had no significant impact on these consolidated
financial statements.
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”.
- 17 -
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:
Quarters ended November 30,
(unaudited)
($ 000)
2007
2006
Cash flow from operating activities $ 45,345 $ (9,849)
Changes in non-cash operating items
34,408 71,909
Cash flow from operations $ 79,753 $ 62,060
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:
Quarters ended November 30,
(unaudited)
($ 000)
2007 2006
Cash flow from operations
$
79,753 $ 62,060
Acquisition of fixed assets
(50,654) (66,966)
Increase in deferred charges
(7,417) (7,212)
Assets acquired under capital leases – as per
Note 11 b)
(73) (205)
Free cash flow
$
21,609 $ (12,323)
ADDITIONAL INFORMATION
This MD&A was prepared on January 9, 2008. 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. Through its two-way
broadband cable networks, Cogeco Cable provides its residential and commercial customers with
Analogue and Digital Television, High Speed Internet and Telephony services. The Corporation
provides approximately 2,569,000 revenue-generating units (RGUs) to 2,365,000 homes passed in
its Canadian and Portuguese service territories. Cogeco Cable’s subordinate voting shares are listed
on the Toronto Stock Exchange (TSX: CCA).
- 30 -
- 18 -
Source: Cogeco Cable Inc.
Pierre Gagné
Vice President, Finance and Chief Financial Officer
Tel.: 514 874-2600
Information: Media
Marie Carrier
Director, Corporate Communications
Tel.: 514 874-2600
Analyst Conference Call: Thursday, January 10, 2008 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 dialing 5 minutes before the start of the conference:
Canada/USA Access Number: 1 866 321-8231
International Access Number: + 1 416 642-5213
Confirmation Code: 3458791
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until January 16,
by dialing:
Canada and USA access number: 1 888 203-1112
International access number: + 1 647 436-0148
Confirmation code: 3458791
- 19 -
Supplementary Quarterly Financial Information
(unaudited)
Quarters ended November 30, August 31, May 31, February 28,
2007
(1)
2006
(1)
2007
(1)
2006
(1)
2007
(1)
2006 2007
(1)
2006
($000, except
percentages and per
share data)
Revenue $ 251,833 $ 222,002 $ 244,314 $
174,875 $ 240,612 $ 153,956 $ 231,952 $
147,757
Operating income
before amortization
98,337
83,662 102,426 72,864 97,874 63,244 86,791
59,568
Operating margin 39.0 %
37.7 %
41.9 %
41.7 %
40.7 %
41.1 % 37.4 %
40.3
%
Amortization 52,687 44,309 54,164 34,801 47,278 29,048 43,572 28,656
Financial expense 16,912 21,221 18,524 16,374 21,273 13,634 23,551 13,776
Income taxes
(recovery)
8,375 5,597 (6,630) (12,298) 8,942 8,191 4,261 6,936
Net income 20,363 12,535 36,368 33,987 20,381 12,371 15,407 10,200
Cash flow from
operations
79,753 62,060 83,825 56,714 76,416 49,696 62,264 44,940
Net income per share $ 0.42 $ 0.31 $ 0.79 $
0.85 $ 0.45 $ 0.31 $ 0.37 $
0.26
(1)
Include operating results of the cable subsidiary, 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 service
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 in Canada.
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. For more details, please refer to
the ‘’Related Party Transactions’’ section.
COGECO CABLE INC. - 20 -
Customer Statistics
November 30, August 31,
2007 2007
Homes Passe
d
Ontario
(1)
1,002,971 997,498
Québec 491,788 486,592
Canada 1,494,759 1,484,090
Portugal 869,940 859,376
Total 2,364,699 2,343,466
Revenue Generating Unit
s
Ontario 1,306,163 1,256,244
Québec 555,171 532,264
Canada 1,861,33
4 1,788,508
Portugal 707,35
5 697,157
Total 2,568,689 2,485,66
5
Basic Cable Service Customer
s
Ontario 599,733 594,889
Québec 257,488 254,268
Canada 857,221 849,157
Portugal 298,936 294,003
Total 1,156,157 1,143,160
Discretionnary Service Customer
s
Ontario 484,611 468,764
Québec 208,976 204,585
Canada 693,587 673,349
Portugal - -
Total 693,587 673,349
Pay TV Service Customer
s
Ontario 92,036 88,835
Québec 44,355 42,180
Canada 136,391 131,015
Portugal 55,867 54,723
Total 192,258 185,738
High Speed Internet Service Customer
s
Ontario 335,152 316,363
Québec 105,978 99,473
Canada 441,130 415,836
Portugal 163,829 160,023
Total 604,959 575,859
Digital Television Service Customers
Ontario 255,919 246,267
Québec 140,213 133,612
Canada 396,132 379,879
Portugal - -
Total 396,132 379,879
Telephony Service Customer
s
Ontario 115,359 98,725
Québec 51,492 44,911
Canada 166,851 143,636
Portugal 244,590 243,131
Total 411,441 386,767
(1) An audit of homes passed in Ontario was completed during the first quarter of fiscal 2007 and, as a result,
the number of homes passed was reduced by 42,386
- 21 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31, Three months ended November 30,
(In thousands of dollars, except per share data)
2006
2005
2007
2006
(unaudited)
(unaudited)
Revenue
Service
$
$
$ 250,406
$ 221,114
Equipment
1,427
888
251,833
222,002
Operating costs
148,461
133,900
Management fees – COGECO Inc.
5,035
4,440
Operating income before amortization 98,337
83,662
Amortization (note 3)
52,687
44,309
Operating income 45,650
39,353
Financial expense (note 4)
16,912
21,221
Income before income taxes 28,738
18,132
Income taxes (note 5)
8,375
5,597
Net income $
$
$ 20,363
$ 12,535
Earnings per share (no t e 6)
Basic
$
$
$0.42
$0.31
Diluted
0.42
0.31
- 22 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended November 30,
(In thousands of dollars)
2007
2006
(unaudited)
(unaudited)
Net income $ 20,363
$ 12,535
Other comprehensive income
Unrealized gains and losses on derivative financial instruments designated as cash flow
hedges, net of income taxes of $1,143,000
(6,653)
–
Reclassification of realized g ains a nd losses to net income on derivative financial
instruments designated as cash flow hedges, net of income taxes of $1,345,000
7,085
–
Unrealized gain on translation of net investments in self-sustaining foreign subsidiaries
10,340
42,170
Unrealized loss on translati on of long-term debt designated as hedge of net investments in
self-sustaining foreign subsidiaries (net of income taxes of $1,703,000 in 2006)
(6,376)
(30,358)
4,396
11,812
Comprehensive income $ 24,759
$ 24,347
- 23 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended November 30,
(In thousands of dollars)
2007
2006
(unaudited)
(unaudited)
Balance at beginning, as reported $ 181,952
$ 117,760
Changes in accounting p olicy (note 1)
1,307
–
Balance at beginning, as restated 183,259
117,760
Net income
20,363
12,535
Dividends on multiple voting shares
(1,569)
(628)
Dividends on subordinate voting shares
(3,272)
(972)
Balance at end $ 198,781
$ 128,695
- 24 -
COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
November 30,
2007
August 31,
2007
(unaudited)
(audited)
Assets
Current
Cash and cash equivalents
$ 16,929
$ 64,208
Accounts receivable
47,634
46,945
Income tax receivable
1,020
1,112
Prepaid expenses
6,283
7,606
Future income tax assets
14,157
17,986
86,023
137,857
Income tax receivable
1,368
1,345
Fixed assets
1,130,081
1,119,498
Deferred charges
55,087
54,645
Intangible assets (note 7)
1,057,027
1,058,410
Goodwill (note 7)
348,298
342,584
$ 2,677,884
$ 2,714,339
Liabilities and Shareholders’ equity
Liabilities
Current
Accounts payable and accrued li abilities
$ 172,722
$ 210,496
Income tax liabilities
3,540
953
Deferred and prepaid income
30,370
29,837
Derivative financial instruments
91,294
–
Current portion of long-term debt (note 8)
166,821
17,292
464,747
258,578
Long-term debt (note 8)
743,480
1,010,634
Deferred and prepaid income
11,939
11,501
Pension plans liabiliti es
2,135
1,918
Future income tax liabilities
267,547
266,042
1,489,848
1,548,673
Shareholders’ equity
Capital stock (note 9)
988,250
984,405
Contributed surplus – stock-based compensation
1,950
2,419
Retained earnings
198,781
181,952
Accumulated other comprehensive income (loss) (note 10)
(945)
(3,110)
1,188,036
1,165,666
$ 2,677,884
$ 2,714,339
- 25 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended August 31, Three months ended November 30,
(In thousands of dollars)
2006
2005
2007
2006
(unaudited)
(unaudited)
Cash flow from operating activities
Net income
$
$
$ 20,363
$ 12,535
Adjustments for:
Amortization (note 3)
52,687
44,309
Amortization of deferred financing costs
722
646
Future income taxes (note 5)
5,186
3,911
Stock-based compensation
236
365
Loss (gain) on disposal of fixed assets
342
(17)
Other
217
311
79,753
62,060
Changes in non-cash oper ating items (note 11a))
(34,408)
(71,909)
45,345
(9,849)
Cash flow from investing activities
Acquisition of fixed assets (not e 11b))
(50,654)
(66,966)
Increase in deferred charges
(7,417)
(7,212)
Decrease in restricted cash
–
91
Other
1
17
(58,070)
(74,070)
Cash flow from financing activities
Increase in bank indebtednes s
–
29,322
Increase in long-term debt
–
10,000
Repayment of long-term debt
(32,616)
(8,255)
Issue of subordinate voting shares
3,056
228
Dividends on multiple voting shares
(1,569)
(628)
Dividends on subordinate voting shares
(3,272)
(972)
(34,401)
29,695
Net change in cash and cas h equivalents (47,126)
(54,224)
Effect of exchange rate changes on cash and cash equ ivalents denominated in foreign
currencies
(153)
1,616
Cash and cash equivalents at beginning
64,208
71,516
Cash and cash equivalents at end $
$
$ 16,929
$ 18,908
See supplemental cash flow information in note 11.
- 26 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 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 (“GAAP”), contain all adjustments necessary to
present fairly the financial position of Cogeco Cable Inc. as at November 30, 2007 and August 31, 2007 as well as its
results of operations and its ca sh flow for the three month periods ended November 30, 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, 2007. These unaudited interim consolidated financial statements follow the
same accounting policies as the most recent annual consolidated financial statements, except for the adoption of new
accounting policy on financial instrum ents described below.
Financial instruments
Effective September 1, 2007, the Corporation adopted the Canadian Institute of Chartered Accountants (“CICA”)
Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments – Recognition and
Measurement, Section 3861, Financial Instruments – Disclosure and Presentation and Section 3865, Hedges.
Statement of Compreh ensive Income
A new statement entitled consolidated statements of comprehensive income was added to the Corporation’s
consolidated financial statements and includes net income as well as other comprehensive income. Other
comprehensive income represents changes in shareholders’ equity arising from transactions and events from non-
owner sources, such as changes in foreign currency translation adjustments of net investments in self-sustaining
foreign subsidiaries and long-term debt designated as hedge of net investments in self-sustaining foreign subsidiaries
and changes in the fair value of effective cash flow hedging instruments.
Recognition and Measurement of Financial Instruments
Under these new standards, all financial assets, including derivatives, must be classified as available for sale, held for
trading, held to maturity, or loans and receivables. All financial liabilities, including derivatives, must be classified as
held for trading or other liabilities. All financial instruments classified as available for sale or held for trading are
recognized at fair value on the consolidated balance sheet while financial instruments classified as loans and
receivables or other liabilities will continue to be measured at amortized cost using the effective interest rate method.
The standards allow the Corporation to designate certain financial instruments, on initial recognition, as held for
trading.
All of the Corporation's financial assets are classified as held for trading or loans and receivables. The Corporation
has classified its cash and cash equivalents as held for trading. Accounts receivable have been classified as loans
and receivables. All of the Corporation financial liabilities were classified as other liabilities, except for the cross-
currency swaps which were classified as held for trading. Held for trading assets and liabilities are carried at fair value
on the balance sheet, with changes in fair value recorded in the consolidated statements of income, except for the
changes in fair value of the cross-currency swaps which are designated as cash flow hedges of the Senior Secured
Notes Series A and are recorded in other comprehensive income. Loans and receivables and all financial liabilities
are carried at amortized cost using the effective interest method. Upon adoption, the Corporation determined that
none of its financial assets are classified as available for sale or held to maturity. Except for the treatment of
transaction costs and derivative financial instruments mentioned below, the provisions of the new accounting
standards had no impact on the con soli dated financial statement on September 1, 2007 and November 30, 2007.
- 27 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
1. Basis of Presentation (continued)
Transaction costs
Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a reduction of
the related financing, except for transaction costs on the revolving loan and the swingline facility which are presented
as deferred charges. These costs are amortized over the term of the related financing using the effective interest rate
method, except for transaction costs on the revolving loan and the swingline facility which are amortized over the term
of the related financing on a straight-line basis. Previously, all transaction costs were capitalized and amortized on a
straight-line basis over the term of the related financing, over a period not exceeding five years. The impact of these
adjustments reduced deferred charges by $1.2 million, reduced long-term debt by $3.1 million, increased future
income tax liabilities by $0.6 million and increased retained earnings by $1.3 million.
Cash flow hedge
All derivatives are measured at fair value with changes in fair value recorded in the consolid ated statements of income
unless they are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives
are recorded in other comprehensive income, to the extent effective, until the variability of cash flows relating to the
hedged asset or liability is recognized in the consolidated statements of income. Any hedge ineffectiveness is
recognized in the consolidated statements of income immediately. Accordingly, the Corporation’s cross-currency
swaps must be measured at fair value in the consolidated financial statements. Since these cross-currency swaps are
used to hedge cash flows on Senior Secured Notes Series A denominated in U.S. dollars, the changes in fair value
are recorded in other comprehensive income. The impact of measuring the cross-currency swaps at fair value on the
interim consolidated financial statements on September 1, 2007, increased derivative financial instrument liabilities by
$83.5 million, decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax
liabilities by $1.1 million and decreased opening accumulated other comprehensive income by $2.2 million. The
impact of measuring the cross-currency swaps at fair value on the interim consolidated financial statements for the
three month period ended November 30, 2007 increased derivative financial instrument liabilities by $7.8 million,
increased future income tax liabilities by $0.2 million and increased accumulated other comprehensive income by $0.4
million.
Net investment hedge
Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet
date for asset and liability items, and using the average exchange rates during the period for revenue and expenses.
Adjustments arising from this translation are deferred and recorded as foreign currency translation adjustment in
accumulated other comprehensive income and are included in income only when a reduction in the investment in
these foreign subsidiaries is realized. Unrealized foreign exchange gains and losses on long-term debt denominated
in foreign currency, that is designated as a hedge of net investments in self-sustaining foreign subsidiaries are
recorded as foreign currency translation adjustment in accumulated other comprehensive income, net of income
taxes. As a result, an amount of $3.1 million was reclassified as at August 31, 2007 from the foreign currency
translation adjustment to the accumulated other comprehensive income and the Corporation’s comparative financial
statements were restated in accordance with transitional provisions.
Embedded derivatives
All embedded derivatives that are not closely related to the host contracts, are measured at fair value, with changes in
fair value recorded in the consolidated statements of income. On September 1, 2007, and at November 30, 2007,
there are no significant embedded derivatives or non-financial derivatives that require separate fair value recognition
on the consolidated balance sheet. In accordance with the new standards, the Corporation selected
September 1, 2002, as its transition date for adopting the standard related to embedded derivat ives.
Upcoming standards
In 2006, the CICA issued Handbook Section 3862, Financial Instruments – Disclosures, and Section 3863,
Financial
Instruments – Presentation. These Sections are to be applied to interim and annual financial statements relating to
- 28 -
fiscal years beginning on or after October 1, 2007. The Corporation is currently evaluating the impact of these
new standards.
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
1. Basis of Presentation (continued)
Accounting changes
In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous
standard. A reporting entity may not change its accounting method unless required by primary source of GAAP or to
provide a more reliable and relevant presentation of the financial statements. In addition, changes in accounting
methods must be applied retroactively and additional information must be disclosed. This section applies to interim
and annual financial statements relating to fiscal years beginning on or after January 1, 2007. During the first quarter,
the Corporation adopted this new standard and concluded that it had no significant impact on these consolidated
financial statements.
2. Segmented Information
The Corporation’s activities are comprised of Cable Television, High Speed Internet and Telephony services. The
Corporation considers its Cable Television, High Speed Internet and Telephony activities as a single operating
segment. The Corporation’s activities are carried out in Canada and in Europe.
The principal financi al information per business segment is presented in the tables below:
Canada Europe
Consolidated
Three months ended November 30,
(unaudited)
2007 2006 2007 2006 2007 2006
Revenue $ 196,241 $ 167,931 $ 55,592 $ 54,071 $ 251,833 $ 222,002
Operating costs 110,425 98,160 38,036 35,740 148,461 133,900
Management fees – COGECO Inc. 5,035 4,440 – – 5,035 4,440
Operating income before amortization 80,781 65,331 17,556 18,331 98,337 83,662
Amortization 35,879 31,704 16,808 12,605 52,687 44,309
Operating income 44,902 33,627 748 5,726 45,650 39,353
Financial expense 16,821 21,764 91 (543) 16,912 21,221
Income taxe s 9,314 4,218 (939) 1,379 8,375 5,597
Net income 18,767 7,645 1,596 4,890 20,363 12,535
Net assets employed
(1) (2)
$ 1,783,250 $ 1,744,616 $ 662,674 $ 653,681 $ 2,445,924 $ 2,398,297
Total assets
(2)
1,914,103 1,955,218 763,781 759,121 2,677,884 2,714,339
Fixed assets
(2)
819,666 811,982 310,415 307,516 1,130,081 1,119,498
Goodwill
(2)
– – 348,298 342,584 348,298 342,584
Acquisition of fixed assets 38,293 57,588 12,434 9,583 50,727 67,171
(1)
Total assets less cash and cash equivalents, accounts payable and accrued liabilities, and deferred and prepaid income.
(2)
As at November 30, 2007 and August 31, 2007.
- 6 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
3. Amortization
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Fixed assets $ 29,872 $ 23,985 $ 44,874 $ 39,263
Deferred charges 4,929 5,475 5,370 5,046
Intangibles assets 2,443 –
$ 34,801 $ 29,460 $ 52,687 $ 44,309
4. Financial expense
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Interest on long-term debt $ 1,100 $ 416 $ 16,525 $ 20,246
Amortization of deferred financing costs 407 646
Other (13,398) 5,804 (20) 329
$ (12,298) $ 6,220 $ 16,912 $ 21,221
5. Income Taxes
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Current $ 1,100 $ 416 $ 3,189 $ 1,686
Future (13,398) 5,804 5,186 3,911
$ (12,298) $ 6,220 $ 8,375 $ 5,597
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COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
5. Income Taxes (continued)
The following table provides the reconciliation between Canadian statutory federal and provincial income taxes and
the consolidated income tax expense:
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Income before income taxes $ 28,738 $ 18,132
Combined income tax rate 34.17 % 35.14 %
Income taxes at combined income tax rate
6,033
$ 9,820 $ 6,371
Loss or income subject to lower or higher tax rates (363) (204) (385) (50)
Income taxes arising from non-deductible expenses 101 –
Effect of foreign income tax rate differences 1,430 - (1,164) (824)
Other 507 226 3 100
Income taxes at effective income tax rate $ (12,298) $ 6,220 $ 8,375 $ 5,597
6. Earnings per Share
The following table provides a recon ciliation between basic and dilu ted earnings per share:
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Net income $ 33,987 $ 11,036 $ 20,363 $ 12,535
Weighted average number of multiple voting and subordinate voting shares
outstanding
39,983,975
48,380,353
40,002,441
Effect of dilutive stock options
(1)
129,091 213,087 337,568 224,302
Weighted average number of diluted multiple voting and subordinate voting
shares outstanding
40,197,062
48,717,921
40,226,743
Earnings per share
Basic $ 0.85 $ 0.28 $ 0.42 $ 0.31
Diluted 0.85 0.27 0.42 0.31
(1)
For the three month period ended November 30, 2007, 97,214 stock options (141,740 in 2006) were excluded from the calculation of diluted earnings per share
since the exercise price of the optio ns was greater than the average share price of the subordinate voting shares.
- 8 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
7. Goodwill and Other Intangible Ass ets
November 30,
2007
August 31,
2007
(unaudited) (audited)
Customer relationships $ 67,475 $ 68,858
Customer base
989,552 989,552
1,057,027 1,058,410
Goodwill
348,298 342,584
$ 1,405,325 $ 1,400,994
a) Intangible assets
During the first three months, intangible assets variations were as follows:
Customer
relationships
Customer
base
Total
(unaudited) (unaudited) (unaudited)
Balance as at August 31, 2007 $ 68,858 $ 989,552 $ 1,058,410
Amortization
(2,443) – (2,443)
Foreign currency translation adjustment
1,060 – 1,060
Balance as at November 30, 2007 $ 67,475 $ 989,552 $ 1,057,027
b) Goodwill
During the first three months, goodwill variation was as follows:
(unaudited)
Balance as at August 31, 2007 $ 342,584
Foreign currency translation adjustment
5,714
Balance as at November 30, 2007 $ 348,298
- 9 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
8. Long-Term Debt
Maturity Interest rate
November 30,
2007
August 31,
2007
(unaudited) (audited)
Parent company
Term Facility
Term loan – €104,551,500 2011 5.38 %
(1)
$ 151,862 $ 150,450
Term loan – €17,358,700 2011 5.25
(1)
25,190 24,979
Revolving loan – €174,000,000
(€196,725,000 as at August 31, 2007)
2011
5.38
(1)
254,562 283,087
Senior Secured Debentures Series 1 2009 6.75
149,636 150,000
Senior – Secured Notes
Series A – US$150 million 2008 6.83
(2)
149,638 158,430
Series B 2011 7.73
174,203 175,000
Deferred credit
(3)
2008 –
– 80,220
Subsidiaries
Obligations under capital leases 2011 6.42 – 8.30
5,210 5,760
910,301 1,027,926
Less current portion
166,821 17,292
$ 743,480 $ 1,010,634
(1)
Average interest rate on debt as at November 30, 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)
The deferred credit represents th e amount that was deferred fo r h edge accounting purpose as at August 31, 2007 un der cross-cur rency swaps
entered into by the Corporation to hedge Senior Secured Notes Series A denominated in U.S. dollars. In accordance with the standards on
financial instruments, the Corporation’s cross-currency swaps are now presented as derivative financial instrument liabilities (see note 1).
- 10 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
9. Capital Stock
Authorized, an unlimited number
Class A Preference shares, without voting rights, redeemable by the Corporation and retractable at the option of the
holder at any time at a price of $1 per share, carrying a cumulative preferential cash dividend at a rate of 11% of the
redemption price per year.
Class B Preference shares, without voting rights, could be issued in series.
Multiple voting shares, 10 votes per share.
Subordinate voting shares, 1 vote per share.
November 30,
2007
August 31,
2007
(unaudited) (audited)
Issued
15,691,100 multiple voting shares $ 98,346 $ 98,346
32,804,116 subordinate voting shares (32,663,587 as at August 31, 2007) 889,904 886,059
$ 988,250 $ 984,405
During the period, subordinate voting share transactions were as fo llows:
Three months ended Twelve months ended
November 30, 2007 August 31, 2007
(unaudited) (audited)
Number of
shares
Amount
Number of
shares
Amount
Balance at beginning 32,663,587 $ 886,059 24,308,112 $ 532,112
Shares issued for cash consideration – – 8,000,000 345,950
Shares issued for cash under the Employee Stock Purchase Plan
and the Stock Option Plan
140,529
3,056
355,475
7,014
Compensation expense previously recorded in contributed
surplus for options exercised
–
789
–
983
Balance at end 32,804,116 $ 889,904 32,663,587 $ 886,059
- 11 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
9. Capital Stock (continued)
Stock-based plans
The Corporation offers for the benefit of its employees and those of its subsidiaries, an Employee Stock Purchase
Plan and a Stock Option Plan for certain executives which are described in the Corporation’s annual consolidated
financial statements. During the first quarter, the Corporation granted 97,214 stock options (197,407 in 2006) with an
exercise price of $49.82 ($26.63 in 2006) of which 22,683 stock options (56,335 in 2006) were granted to
COGECO Inc.’s employees. In 2006, 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 conditional 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. During the first quarter
of 2007, the Corporation charged an amount of $84,000 with regards to the Corporation’s options granted to Cogeco
Inc.’s employees. The Corporation records compensation expense for options granted on or after September 1, 2003.
As a result, a compensation expense of $236,000 ($261,000 in 2006) was recorded for the three month period ended
November 30, 2007.
The fair value of stock options granted for the three month period ended November 30, 2007 was $12.88 ($7.37 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 prici ng model based on the following assumptions:
2007 2006
Expected dividend yield
0.90 % 1.27 %
Expected volatility
27 % 32 %
Risk-free interest rate
4.25 % 4.05 %
Expected life in years
4.0 4.0
As at November 30, 2007, the Corporation had outstanding stock options providing for the subscription of 850,079
subordinate voting shares. These stock options, which include 250,667 conditional stock options, can be exercised at
various prices ranging from $7.05 to $4 9.82 and at various dates up to October 26, 2017.
The Corporation had also a Performance Unit Plan for key employees, which was terminated in June 2007. A
compensation expense of $104,000 was recorded for the three month period ended November 30, 2006 related to
this plan.
- 12 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
10. Accumulated Other Com prehensive Income (Loss)
Translation of net
investments in self-
sustaining foreign
subsidiaries
Cash flow hedges
Total
(unaudited) (unaudited) (unaudited)
Balance as at August 31, 2007 $ (3,110) $ – $ (3,110)
Cumulative effect of changes in accounting policy (note 1)
– (2,231) (2,231)
Other comprehensive income
3,964 432 4,396
Balance as at November 30, 2007 $ 854 $ (1,799) $ (945)
11. Statem ents of Cash Flow
a) Changes in non-cash operating items
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Accounts receivable $ 1,023 $ 1,159 $ (443) $ (3,253)
Income tax receivable 178 - 101 (1,593)
Prepaid expenses 244 (1,177) 1,335 (360)
Accounts payable and accrued liabilities 48,788 46,846 (38,992) (73,915)
Income tax liabilities 450 (501) 2,616 3,280
Deferred and prepaid income (188) (231) 975 3,932
$ 50,495 $ 46,096 $ (34,408) $ (71,909)
b) Other information
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Fixed asset acquisitions through capital leases $ $ $ 73 $ 205
Financial expenses paid 20,922 24,132
Income taxes paid – 889
- 13 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
12. Employee Future Benefits
The Corporation and its Canadian 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 financial statements. The total expenses rel ated to these plans are as follows:
Three months ended August 31, Three months ended November 30,
2006 2005 2007 2006
(unaudited) (unaudited)
Contributory defined benefit pension plans $ $ $ 282 $ 230
Defined contribution pension plan and collective registered retirement savings plan 690 528
$ $ $ 972 $ 758
13. Contingent liability
The Canadian Radio-television and Telecommunications Commission (“CRTC”) collects two different types of fees
from broadcast licensees. These are known as Part I and Part II fees. In 2003 and 2004, lawsuits were commenced in
the Federal Court, alleging that the Part II licence fees are taxes rather than fees and that the regulations authorizing
them are unlawful. On December 14, 2006, the Federal Court ruled that the CRTC did not have the jurisdiction to
charge Part II fees. The Court ruled that licensees were not entitled to a refund of past fees paid. Both the Crown and
the applicants have appealed this case to the Federal Court of Appeal. The applicants are seeking an order requiring
a refund of past fees paid. The Crown is seeking to reverse the finding that Part II fees are unlawful. On October 1
st
,
2007, the CRTC sent a letter to all broadcast licensees, including Cogeco Cable Inc. The letter stated that the CRTC
will not collect Part II license fees due on November 30, 2007 and subsequent years unless the Federal Court of
appeal or the Supreme Court of Canada (should the case be appealed to that level) reverses the Federal Court's
decision. The Appeal hearing was held on December 4
th
and 5
th
, 2007 in Ottawa. During the hearing, questions were
raised by the hearing panel concerning the appropriateness of considering Part II Licence Fees as a tax rather than a
fee under the relevant portion of the Broadcasting Act. The decision is not expected before several months. The
Corporation believes that there is a reasonable likelihood that the Federal Court's decision will be reversed. The
Corporation has accrued $7.8 million with respect to these fees for fiscal year 2007 and the first quarter of fiscal 2008.
In the unlikely event that the Federal Court of Appeal or the Supreme Court of Canada, should this case be appealed
to that level, maintains the decision from the Federal Court, this would have a beneficial impact on the future financial
results of the Corporation.
- 14 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2007
(amounts in tables are in thousands of dollars, except per share data)
14. Subsequent events
a) Corporate income tax rate s
On October 16, 2007, the Canadian federal government announced in its Economic Statement reduction in corporate
income tax rates. According to the new legislation, corporate income tax rates will be further reduced from 20.5% to
19.5% effective January 1, 2008, from 20% to 19% effective January 1, 2009, from 19% to 18% effective January 1,
2010, from 18.5% to 16.5% effective January 1, 2011, and to 15% effective January 1, 2012. These corporate income
tax rates were considered substantively enacted on December 14, 2007. The reduction of these corporate income tax
rates will reduce future income tax expense by ap proximately $23 million in the second quarter of fiscal 2008.
b) Senior unsecured debenture
On January 8, 2008, the Corporation and the Solidarity Fund QFL entered into an agreement to issue senior
unsecured debenture with par value of $100 million by way of private placement, subject to usual market conditions.
The debenture which must be issued by no later than May 9, 2008, will bear interest at a fixed rate determined at the
then prevailing rate of the ten-year Government of Canada bond plus a spread of 220 basis points, and will mature
ten years after issuance. The debenture will be callable under ce rtain conditions.
15. Comparative figures
Certain comparative figures have be en reclassified in order to conform to the presentation ad opted in 2007.