COGECO CABLE ANNOUNCES STRONG FINANCIAL RESULTS FOR THE FIRST QUARTER OF FISCAL 2009 DESPITE DIFFICULT MARKET CONDITIONS
PRESS RELEASE
For immediate release
Cogeco Cable announces strong financial results for the first
quarter of fiscal 2009 despite difficult market conditions
Montréal, January 14, 2009 – Today, Cogeco Cable Inc. (TSX: CCA) (“Cogeco Cable” or the “Corporation”) announced
its financial results for the first quarter of fiscal 2009, ended Novem ber 30, 2008.
For the first quarter of fiscal 2009:
• Consolidated revenue incre ased by 18.9% to $299.4 million;
• Consolidated operating income before a m ortization
(1)
grew by 23% to reach $119.7 million;
• Consolidated net income amounted to $23.6 million, compared to $20.4 million for the same period of the prior
year, an increase of 15.7%;
• Free cash flow
(1)
reached $17.8 million, a 17.6% decrease over the prior year;
• Operating margin
(1)
increased to 40% from 38.6%;
• Revenue-generating units (“RGU”)
(2)
grew by 52,714 net additions, for a total of 2,769,588 RGU at
November 30, 2008.
“The first quarter financial results represent a positive start for the Corporation’s 2009 fiscal year. Cogeco Cable has
improved most of its key indicators over the prior year, with the exception of a decrease in free cash flow caused by the
increases in capital expenditures required to support the enhanced demand for the HD Television service in Canada and
the deployment of Digital Television in Portugal. Our Canadian operations benefit from continued organic growth despite
the early signs of maturation in some services. In our European operations, the continuing unfavorable economic
environment and highly competitive dynamics negatively impacted the RGU growth in all of our services, with the
exception of the Digital Television service which has contributed steady increases in subscriptions to the service since its
launch in the second half of fiscal 2008. In our commercial activities, Cogeco Data Services successfully bid on a long
term contract to provide innovative and cost-efficient solutions for the telecommunications needs of the Toronto District
School Board. We are pleased with our financial results to date and will continue to strive to be the first choice for
telecommunications services to the customers in all of our territories”, declared Louis Audet, President and CEO of
Cogeco Cable.
(1)
The indicated terms do not have standard definitions prescribed by Canadian Generally Accepted Accounting Principles (“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
Management’s discussion and analysis.
(2)
Represents the sum of Basic Cable, High Speed Internet (“HSI”), Digital Television and Telephony service customers.
- 2 -
FINANCIAL HIGHLIGHTS
Quarters ended November 30,
($000, except percentages and per share data) 2008 2007
(1)
Change
$ $ %
(unaudited) (unaudited)
Revenue 299,438 251,833 18.9
Operating income before amort iz ati o n
(2)
119,723 97,302 23.0
Operating income 55,801 44,615 25.1
Net income 23,551 20,363 15.7
Cash flow from operating activities 28,474 45,345 (37.2)
Cash flow from operations
(2)
91,610 79,753 14.9
Capital expenditures and increase in deferred charges 73,813 58,144 26.9
Free cash flow
(2)
17,797 21,609 (17.6)
Earnings per share
Basic 0.49 0.42 16.7
Diluted 0.48 0.42 14.3
(1)
Certain comparativ e figures hav e be en reclas sified to c onfor m to the c urrent year’s pres ent ation to ref lect the reclas sification of foreign exchange g ains or los ses
from operating costs to financial expense.
(2)
The indicated terms do not have standardiz ed def inition s prescr ibed by Canadia n Generally Acc epted Accounting Pri nciples (“GAAP ”) and therefo re, may not be
comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP financial measures” section of the
Management’s discussion and analysis.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute forward-looking information within the meaning of securities laws.
Forward-looking information may relate to Cogeco Cable’s future outlook 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 other 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 Cable believes are reasonable 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. Forward-looking information is also subject to certain factors,
including risks and uncertainties (described in the “Uncertainties and main risk factors” section of the Corporation’s 2008
annual Management’s Discussion and Analysis (MD&A) that could cause actual results to differ materially from what
Cogeco Cable 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 foresee. 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.
This analysis should be read in conjunction with the Corporation’s consolidated financial statements, and the notes
thereto, prepared in accordance with Canadian Generally Accepted Accounting Principles and the MD&A included in the
Corporation’s 2008 Annual Report. Throughout this discussion, all amounts are in Canadian dollars unless otherwise
indicated.
- 3 -
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
CORPORATE STRATEGI ES AND OBJECTIVES
Cogeco Cable Inc.’s (“Cogeco Cable” or the “Corporation”) objectives are to improve profitability and create shareholder
value. The strategies for reaching those objectives are sustained growth through the diversification and the improvement
of products, services, clientele and territories, as well as the continuous improvement of networks and equipment and tight
controls over costs and business processes. The Corporation measures its performance, with regard to these objectives
by monitoring revenue growth, revenue-generating units (“RGU”)
(1)
growth and free cash flow
(2)
. Below are the recent
achievements in furthering Cogeco Cable’s objectives.
Continuous improvement of the service offering and expan sion of the customer base
Canadian operations
• Digital Television service:
o On December 4, launch of TSN2 HD, TELETOON Retro and Canal Indigo HD on the High Definition
(“HD”) Television service in Québec;
o During the first quarter, the following Di gital and HD Television services were la unched:
• TELETOON On Demand and TSN2 in Ontario and Québec;
• TELETOON Jr. On Demand and TSN HD in Québec;
• CBS College Sports, Speed HD, Raptors HD, TSN2 HD a nd Super Channel HD in Ontario.
• Telephony service:
o During the first quarter, the Telephony servi ce was launched in the following cities:
• Vineland, Stevensville, Port Robinson, Tecumseh and LaSalle, Ontario;
• Bromptonville, Richmond and Windsor, Québec.
• Customer service:
o On November 20, the Cogeco Cable Québec call centre won a Flèche d’or - Contact Centre of the Year,
Best Employer Award from the Québec Relation ship Marketing Association (RMA);
o On November 18, for a second consecutive year, Cogeco Cable’s call centres, located in Trois-Rivières,
Québec, and in Burlington, Ontario, received from the Service Quality Measurement Group (“SQM”) the
Highest Customer Satisfaction Award and the First Call resolution Merit Award which recognizes the best
improvement in first call resolution.
• Cogeco Data Services:
o On December 15, announcement of a 10-year, $39 million contract with the Toronto District Scho ol Board
(“TDSB”).
European operations
• Digital Television service:
o Continued deployment of Cabovisão - Televisão por Cabo, S.A. (“Cabovisão”)’s Digital Television service;
o Launch of Sony AXN, Disney and Benfica channel s;
o Launch of a new PVR box.
Continuous improv ement of networks and equipment
• During the first quarter of fiscal 2009, the Corporation invested approximately $23 million in its infrastructure
including head-ends and upgrades and rebuilds.
Tight control over costs and business processes
• For the first quarter ended November 30, 2008, consolidated operating costs excluding management fees
payable to COGECO Inc. increased by 16.2% while revenue grew by 18.9%;
• Cabovisão maintained tight cost co ntrol and continued to improve its busi ness processes;
• The design of internal controls over financial reporting as per National Instrument 52-109 is still ongoing. As
discussed in the 2008 annual MD&A, the Corporation had identified certain material weaknesses in the design of
internal controls over financial reporting and has been working to improve the design and efficiency of internal
controls on some significant processes during the quarter. The documentation and remediation of key internal
controls are progressi ng normally.
(1)
Represents the sum of Basic Cable, High Speed Internet (“HSI”), Digital Television and Telephony service customers.
(2)
Free cash flow does not have a s tandardized definition pre scribed by Canadian Generally Accepted Accounting Principles (“GAA P”) and therefore, may not be
comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP financial measures” section.
- 4 -
Effective management of capital
• October 1, the Corporation completed, pursuant to a private placement, the issue of 7.00% Senior Secured Notes
Series A for US$190 million maturing October 1, 2015, and 7.60% Senior Secured Notes Series B for $55 million
maturing October 1, 2018. The Corporation also entered into cross-currency swap agreements to fix the liability
for interest and principal payments on the total of its Senior Secured Notes Series A. Interest on the Notes is
payable semi-annually on April 1 and October 1 of each year commencing April 1, 2009. The aggregate gross
proceeds from the issuance of these Notes amounted to approximately $257 million. Net proceeds of
approximately $255 million, after underwriters’ fees and other expenses, were used to repay maturing debt and
reduce bank indebtedness.
RGU gro wth
During the quarter ended November 30, 2008, the consolidated number of RGU increased by 52,714, or 1.9%, to reach
2,769,588 RGU, on target to attain the Corporation’s RGU growth projections of 100,000 net additions issued on
October 29, 2008, which represents approximately 3.7%, for the fiscal year ending August 31, 2009.
Revenue growth
First-quarter revenue increased by $47.6 million, or 18.9%, to reach $299.4 million when compared to the same period of
the prior year.
Free cash flow
In the quarter ended November 30, 2008, Cogeco Cable generated free cash flow of $17.8 million compared to
$21.6 million for the same period last year. The free cash flow decrease resulted mainly from an increase in capital
expenditures and deferred charges to support HD and Digital Television services as well as to acquire a power generator
for the newly acquired Canadian data communications subsidiary and by the impact of the rapid appreciation of the US
dollar over the Canadian dollar. This increase was partly offset by the increase in cash flow from operations resulting
primarily from the improvement of the Corporation’s operating income before amortization
(1)
.
OPERATING RESULTS – CONSOLIDATED OVERVIEW
Quarters ended November 30,
($000,except perc enta ges ) 2008 2007
(1)
Change
$ $ %
(unaudited) (unaudited)
Revenue 299,438 251,833 18.9
Operating costs 173,734 149,496 16.2
Management fees - COGECO Inc. 5,981 5,035 18.8
Operating income before amort iz ati o n 119,723 97,302 23.0
Operating margin
(2)
40.0% 38.6%
(1)
Certain comparativ e figures hav e be en reclas sified to c onfor m to the c urrent year’s pres ent ation to ref lect the reclas sification of foreign exchange g ains or los ses
from operating costs to financial expense.
(2)
Operating margin does not have a standardize d definition prescribed by Canadia n GAAP and therefore, may not be comparable to simi lar measures presented
by other companies. For more details, please consult the “Non-GAAP financial measures” section.
Revenue
Fiscal 2009 first-quarter consolidated revenue improved by $47.6 million, or 18.9%, when compared to the prior year, to
reach $299.4 million. Driven by an increased number of RGU combined with rate increases and the acquisition of MaXess
Networx®, FibreWired Burlington Hydro Communications and Cogeco Data Services (the “recent acquisitions”) in the
second half of fiscal 2008, first-quarter Canadian operations revenue went up by $41.1 million, or 21%.
(1)
Operating income before am ortization does not have a standardized definition prescrib ed by Canadian GAAP and therefore, may not be comp arable to similar
measures presented by other companies. For more details, please consult the “Non-GAAP financial measures” section.
- 5 -
Fiscal 2009 first-quarter European operations revenue increased by $6.5 million, or 11.6%, to reach $62.1 million
compared to the same period last year. The increase is essentially due to the strength of the Euro against the Canadian
dollar. Rate increases also generated highe r revenue despite a RGU loss in the first quarter.
Operating costs
For the first quarter of fiscal 2009, operating costs, excluding management fees payable to COGECO Inc., increased by
$24.2 million, or 16.2% compared to the prior year, to reach $173.7 million. Operating costs increased due to the servicing
of additional RGU and the impact of the recent acqui sitions in Canada.
Operating income before amortization
Operating income before amortization increased by $22.4 million, or 23%, to reach $119.7 million in the first quarter of
fiscal 2009, as a result of various rate increases, recent acquisitions, and RGU growth generating additional revenues
which outpaced operating cost increases. Cogeco Cable’s 2009 first-quarter operating margin increased to 40% from
38.6% for the same period of fiscal 2008. The operating margin in Canada increased for the first quarter of 2009 to 41.6%
compared to 40.7% and in Europe improved to 33.6% from 31.3% in the same period of the prior year.
RELATED PARTY TRAN SACTIONS
Cogeco Cable is a subsidiary of COGECO Inc., which holds 32.3% 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 upwards adjustments based on increases in the Consumer Price Index in Canada.
Accordingly, for fiscal 2009, management fees have been set at a maximum of $9 million, which is expected to be
reached in the second quarter. For fiscal 2008, management fees were set at a maximum of $8.7 million, and were fully
paid in the first six months of the year.
Management fees for the first quarter of fiscal 2009 stood at $6 million compared to
$5 million for the same period last year.
Furthermore, Cogeco Cable granted 29,711 stock options to COGECO Inc.’s employees during the first quarter of fiscal
2009, compared to 22,683 for the same period last year. During the quarter ended November 30, 2008, Cogeco Cable
charged COGECO Inc. an amount of less than $0.1 million with regards to Cogeco Cable’s options granted to COGECO
Inc.’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 2008 Annual Report. There were no other material related party
transactions during the quarter.
FIXED CHARGES
Quarters ended November 30,
($000, except percentages) 2008 2007
(1)
Change
$ $ %
(unaudited) (unaudited)
Amortization 63,922 52,687 21.3
Financial expens e
23,394 15,877 47.3
(1)
Certain comparativ e figures hav e be en reclas sified to c onfor m to the c urrent year’s pres ent ation to ref lect the reclas sification of foreign exchange g ains or los ses
from operating costs to financial expense.
2009 first-quarter amortization amounted to $63.9 million compared to $52.7 million for the same period the year before.
The increase is mainly due to additional capital expenditures arising from customer premise equipment acquisitions to
sustain RGU growth in Canada and the deployment of the Digital Television service in Portugal, and to the recent
acquisitions.
First-quarter financial expense increased by $7.5 million compared to the same period in 2008 due to the rapid
appreciation of the US dollar and the Euro over the Canadian dollar, the increase in the level of Indebtedness (defined as
bank indebtedness, derivative financial instruments and long-term debt) and by an increase in the average cost of
Indebtedness. More specifically, financial expense was adversely impacted by foreign exchange losses amounting to
- 6 -
$3.8 million in the first quarter of fiscal 2009 as the majority of customer premise equipment is purchased and
subsequently paid in US dollars. These losses were essentially due to the unusually high US dollar volatility, with the
Bank of Canada closing rate fluctuating from CA$1.0620 per US dollar at August 31, 2008 to CA$1.2370 per US dollar at
November 30, 2008, reaching a maximum of CA$1.2935 per US dollar on November 20, 2008. For the corresponding
period of the prior year, the Corporation record ed a foreign exchange gain of $1 million.
INCOME TAXES
Fiscal 2009 first quarter income tax expense amounted to $8.9 million compared to $8.4 million in fiscal 2008, mainly due
to the increase in operating income before amortization surpassing that of the fixed charges.
NET INCOME
Fiscal 2009 first quarter net income amounted to $23.6 million, or $0.49 per share, compared to $20.4 million, or
$0.42 per share, for the same period in 2008, an increase of 15.7% and 16.7%, respectively. Net income progression has
resulted mainly from the growth in operating income before amortization exceeding that of fixed charges.
CASH FLOW AND LIQUIDITY
Quarters ended November 30,
($000) 2008 2007
$ $
(unaudited) (unaudited)
Operating activities
Cash flow from operations
(1)
91,610 79,753
Changes in non-cash operating items (63,136) (34,408)
28,474 45,345
Investing activities
(2)
(72,858) (58,070)
Financing activities
(2)
39,420 (34,401)
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies
687 (153)
Net change in cash and cash equivalents
(4,277) (47,279)
Cash and cash equivalents, beginning of period
36,371 64,208
Cash and cash equivalents, end of period
32,094 16,929
(1)
Cash flow from operations does not have a standardized definition 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.
Fiscal 2009 first quarter cash flow from operations reached $91.6 million, 14.9% higher than the comparable period last
year, primarily due to the increase in operating income before amortization. Changes in non-cash operating items
generated greater cash outflows compared to the same period last year, mainly as a result of a decrease in accounts
payable and accrued liabilities and in income tax liabilities. The significant decrease in income tax liabilities is due to
payments made during the first quarter of the 2009 fiscal year related to the 2008 fiscal yea r.
- 7 -
Investing activities, including capital expenditure s segmented according to the National Cable Television Association
(NCTA) standard reporting categories, are as follows:
Quarters ended November 30,
($000) 2008 2007
$ $
(unaudited) (unaudited)
Customer premise equipmen t
(1)
31,824 23,796
Scalable infrastructure 12,542 9,823
Line extensions 4,287 2,589
Upgrade / Rebuild 10,442 11,862
Support capital 7,511 2,657
Total capital expenditures
(2)
66,606 50,727
Deferred charges and others 7,191 7,416
Total investing activities
(2)
73,797 58,143
(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 flows.
Fiscal 2009 first quarter total capital expenditures amounted to $66.6 million, an increase of 31.3%, when compared to the
corresponding period of last year, due to the following factors:
• An increase in customer premise equipment capital spending resulting from RGU growth fuelled in part by
increased interest for the HD Television service for the Canadian operations combined with the deployment of
Digital Television in Portugal;
• An increase in support capital spending due to the acquisition of a power generator for the newly acquired
Canadian data communications subsidiary;
• An increase in scalable infrastructure capital spending mainly due to the timing of the expansion and head-end
improvements, system powering and equipment reliability to sustain increased customer demand for HSI and
Telephony services in Canada;
• The appreciation of the US dollar and the Euro over the Canadian dollar also had a significant impact on the total
capital expenditures in the first quarter of 2009.
Deferred charges and others are mainly attributable to reconnect costs. For the first quarter, the increase in deferred
charge amounted to $7.2 million compared to $7.4 million for the same period the year before. Slower RGU growth
explained the lower increase recorded in fiscal 2 009.
In the first quarter, the Corporation generated free cash flow amounting to $17.8 million, compared to $21.6 million for the
same period of the preceding year. The lower free cash flow over the same period of the prior year is mainly due to an
increase in capital expenditures, partly offset by an increase in operating income before amortization net of financial
expense. The aggregate amount of total capital expenditures and deferred charges increased by $15.7 million for the
quarter ended November 30, 2008 compared to the corresponding perio d of last year due to the factors expl ained above.
In the first quarter of 2009, Indebtedness affecting cash increased by $45 million due to the reduction of non-cash
operating items of $63.1 million, partly offset by the free cash flow of $17.8 million. Indebtedness was increased through
the issuance on October 1, 2008 of Senior Secured Notes, Series A and Series B, maturing October 1, 2015 and
October 1, 2018, respectively, for net proceeds of approximately $255 million, net of the repayment of US$150 million
Senior Secured Notes Series A and the related derivative financial instrument of $88.7 million, both maturing on October
31, 2008, for a total of $238.7 million, and by an increase of $21.6 million in bank indebtedness. During the first quarter of
fiscal 2008, the level of Indebtedness affecting cash decreased by $32.6 million, essentially due to the 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. In addition, during the first quarter of fiscal 2009, a dividend of $0.12 per share was paid to the holders of
subordinate and multiple voting shares, totalling $5.8 million, compared to a dividend of $0.10 per share, or $4.8 million
the year before.
As at November 30, 2008, the Corporation had a working capital deficiency of $334.8 million compared to $607.8 million
as at August 31, 2008. The decrease in the deficiency is mainly attributable to the repayment of the US$15 0 million Senior
Secured Notes, Series A and the related derivative financial instrument for a total of $238.7 million on October 31, 2008,
- 8 -
using the proceeds of issuance of the Senior Secured Notes Series A and B. As part of the usual conduct of its business,
Cogeco Cable maintains a working capital deficiency due to a low level of accounts receivable as a large portion of the
Corporation’s customers pay before their services are rendered, unlike accounts payable and accrued liabilities, which are
paid after products are delivered or services are rendered, thus enabling the Corporation to use cash and cash
equivalents to reduce Indebtedness.
At November 30, 2008, the Corporation had used $513.7 million of its $885 million Term Facility for a remaining
availability of $371.3 million.
On October 1, 2008, the Corporation completed, pursuant to a private placement, the issue of US$190 million Senior
Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured Notes Series B maturing
October 1, 2018. The Senior Secured Notes Series B bear interest at the coupon rate of 7.60% per annum, payable semi-
annually. The Corporation has entered into cross-currency swap agreements to fix the liability for interest and principal
payments on the Senior Secured Notes Series A in the amount of US$190 million, which bear interest at the coupon rate
of 7.00% per annum, payable semi-annually. Taking into account these agreements, the effective interest rate on the
Senior Secured Notes Series A is 7.24% and the exchange rate applicable to the principal portion of the US dollar-
denominated debt has been fixed at CA$1.0625 per US dollar.
FINANCIAL POSITION
Since August 31, 2008, there have been major changes to the balance of “fixed assets”, “accounts payable and accrued
liabilities”, “income tax liabilities” and “Indebtedness”.
The $14.6 million increase in fixed assets is mainly related to increased capital expenditures to sustain RGU growth, to
the recent acquisitions in Canada and to the appreciation of the Euro and the US dollar over the Canadian dollar. The
$42.7 million decrease in accounts payable and accrued liabilities is related to the timing of payments made to suppliers.
The $16.9 million decrease in income tax liabilities is due to income tax payments relating to fiscal 2008 that were made in
the first quarter of fiscal 2009. Indebtedness has increased by $53 million as a result of the unfavourable impact of the
appreciation of the US dollar and the Euro over the Canadian dollar and to the factors previously discussed in the “Cash
Flow and Liquidity” section, partly offset by the increase of $29.2 million in the fair value of the cross-currency swaps
related to the Senior Secured Notes Series A issued on October 1, 2008.
A description of Cogeco Cable’s share data as of December 31, 2008 is presented in the table below:
Number of shares/options Amount
($000)
Common shares
Multiple voting shares
Subordinate voting shares
15,691,100
32,851,870
98,346
891,243
Options to purchase Subordinate voting shares
Outstanding options
Exercisable options
928,713
540,243
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, as discussed in the 2008 annual MD&A, have
not materially changed since August 31, 2008 except for the new financing discussed in the “Cash Flow and Liquidity”
section.
DIVIDEND DECLARATION
At its January 13, 2009 meeting, the Board of Directors of Cogeco Cable declared a quarterly eligible dividend of
$0.12 per share for subordinate and multiple voting shares, payable on February 10, 2009, to shareholders of record on
January 27, 2009. The declaration, amount and date of any future dividend will continue to be considered and approved
by the Board of Directors of the Corporation based upon the Corporation’s financial condition, results of operations, capital
requirements and such other factors as the Board of Directors, at its sole discretion, deems relevant. There is therefore no
assurance that dividends will be declar ed, and if declared, the amount and periodicity may vary.
- 9 -
FINANCIAL MANAGEME NT
Cogeco Cable entered into cross-currency swap agreements to set the liability for interest and principal payments on its
US$190 million Senior Secured Notes, Series A maturing in October 1, 2015. These agreements have the effect of
converting the U.S. interest coupon rate of 7.00% per annum to an average Canadian dollar interest rate of 7.24% per
annum. The exchange rate applicable to the principal portion of the debt has been fixed at CA$1.0625 per US dollar.
Since the issuance on October 1, 2008, amounts due under the US$190 million Senior Secured Notes Series A increased
by $33.2 million due to the US dollar’s appreciation over the Canadian dollar. The fair value of cross-currency swaps
increased by a net amount of $29.2 million, of which $33.2 million offsets the foreign exchange loss on the debt
denominated in US dollars. The difference of $4 million was recorded as a decrease of other comprehensive income, net
of income taxes of $1.1 million.
The Corporation’s net investment in the self-sustaining foreign 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 the net investment in self-sustaining foreign subsidiaries and accordingly,
the Corporation realized a foreign exchange gain of $2.7 million in the first quarter of fiscal 2009 which is presented in
other comprehensive income. The exchange rate used to convert the Euro into Canadian dollars for the balance sheet
accounts at November 30, 2008 was $1.5711 per Euro compared to $1.5580 per Euro at August 31, 2008. The average
exchange rates prevailing during the first quarter used to convert the operating results of the European operations was
$1.5462 per Euro, compar ed to $1.4119 per Euro for the same period last year.
The following table shows the Canadian dollar impact of a 10% change in the average exchange rate of the Euro currency
into Canadian dollars on European operating results f or the first quarter ended November 30, 2008:
Quarter ended November 30, 2008 As reported
Exchange rate
impact
($000) $ $
(unaudited) (unaudited)
Revenue 62,064 6,206
Operating income before amort iz ati o n 20,857 2,086
Net income 1,754 175
CANADIAN OPERATION S
CUSTOMER STATISTICS
Net additions % of Penetration
(1)
November 30,
Quarters ended
November 30,
November 30,
2008 2008 2007 2008 2007
RGU 2,057,371 65,463 72,826 – –
Basic Cable service customers
865,927 8,833 8,064 – –
HSI service customers
(2)
492,976 19,509 25,294 59.6 54.8
Digital Television service customers 459,966 18,220 16,253 54.0 47.3
Telephony service customers
(3)
238,502 18,901 23,215 31.6 24.9
(1)
As a percentage of Basic Cable service customers in areas served.
(2)
Customers subscribing only to the HSI service totalled 77,466 as at November 30, 2008 compared to 71,182 as at November 30, 2007.
(3)
Customers subscribing only to the Telephony service totalled 1,720 as at November 30, 2008 compared to 1,029 as at November 30, 2007.
Fiscal 2009 first-quarter RGU net additions were lower than for the same period last year and reflect an early sign of
maturation in some services. The number of net additions for Basic Cable stood at 8,833 customers compared to
8,064 customers for the same period last year. This increase is primarily due to continuous improvements to the service
offering, targeted marketing activities and an upswing in subscription activity in border markets due to the impending over-
the-air digital conversion in the United States. Telephony customers grew by 18,901 to reach 238,502 compared to a
growth of 23,215 for the same period last year. The lower growth is mostly attributable to the increased penetration in
areas where the service is already offered and to fewer new areas where the service was launched. Telephony service
- 10 -
coverage, as a percentage of homes passed, has now reached 87% compared to 78% at November 30, 2007. The
number of net additions to HSI service stood at 19,509 customers compared to 25,294 customers for the same period last
year. During the first quarter of 2009, the growth in HSI customer net additions continues to stem from the enhancement
of the product offering, the impact of the bundled offer (Cogeco Complete C onnection) of Television, HSI and Telephony
services, and promotional activities. The Digital Television service net additions stood at 18,220 customers compared to
16,253 customers for the same period in the prior year due to targeted marketing initiatives in the second half of fiscal
2008 and in 2009 to improve penetration and to the continuing strong interest for the HD Television service.
OPERATING RESULTS
Quarters ended
November 30,
($000, except percentages) 2008 2007
(1)
Change
$ $ %
(unaudited) (unaudited)
Revenue 237,374 196,241 21.0
Operating costs 132,527 111,303 19.1
Management fees - COGECO Inc. 5,981 5,035 18.8
Operating income before amort iz ati o n 98,866 79,903 23.7
Operating margin 41.6% 40.7%
(1)
Certain comparativ e figures hav e be en reclas sified to c onfor m to the c urrent year’s pres ent ation to ref lect the reclas sification of foreign exchange g ains or los ses
from operating costs to financial expense.
Revenue
First-quarter revenue rose by $41.1 million, or 21%, to reach $237.4 million. This growth is explained mainly by the growth
in RGU mentioned in the “Customer Statistics” section, combined with the impact of the recent acquisitions as well as the
various rate increases implemented by the Corporation during fiscal 2008. The rate increases represent an average
increase of approximately $1.60 per Ba sic Cable serv ice customer.
Operating costs
2009 first-quarter operating costs, excluding management fees payable to COGECO Inc., increased by $21.2 million, or
19.1%, to reach $ 132.5 million. The increase in operating costs is mainly attributable to servicing additional RGU and to
the impact of the recent acquisitions.
Operating income before amortization
First-quarter operating income before amortization rose by $19 million, or 23.7%, to reach $98.9 million. The operating
income before amortization has risen due to the increased revenue outpacing the operating cost growth including the
impact of the recent acquisitions. Cogeco Cable’s Canadian operations’ first-quarter operating margin increased to 41.6%
compared to 40.7% for the same period in the prio r year.
- 11 -
EUROPEAN OPERATIONS
CUSTOMER STATISTICS
Net additions (losses) % of Penetration
(1)
November 30,
Quarters ended
November 30,
November 30,
2008 2008 2007 2008 2007
RGU
712,217 (12,749)
10,198 – –
Basic Cable service customers
288,100 (8,035)
4,933 – –
HSI service customers
(2)
154,092 (5,209)
3,806 53.5 54.8
Digital Tele vision service customers
(3)
29,849 5,397 – 10.4 –
Telephony service customers
(4)
240,176 (4,902)
1,459 83.4 81.8
(1)
As a percentage of Basic Cable service customers in areas served.
(2)
Customers subscribing only to the HSI service totalled 7,264 as at November 30, 2008 compared to 8,317 as at November 30, 2007.
(3)
The Digital Television service was launched in the third quarter of 2008.
(4)
Customers subscribing only to the Telephony service totalled 9,421 as at November 30, 2008 compared to 8,611 as at November 30, 2007.
The first quarter of 2009 was marked by a continuing unfavourable economic environment in the Iberian Peninsula,
aggressive advertising campaigns by competitors and the emergence of multiple triple-play service providers in the
Portuguese market. Cabovisão chose not to match the competition’s intensive advertising programs due to the difficult
economic environment. These factors were the main contributors to net customer losses in the Basic Cable, HSI and
Telephony services compared to the same period last year. The Digital Television service was launched in the third
quarter of 2008, with net additions of 5,397 customers in the first quarter of fiscal 2009, for a total of 29,849 net additions
since the launch. Fiscal 2009 first-quarter Basic Cable service customers decreased by 8,035 customers compared to a
growth of 4,933 in 2008, HSI service customers decreased by 5,209 customers compared to an increase of 3,806 in 2008,
and Telephony service decreased by 4,902 customers compared to a growth of 1,459 for the same period of the
preceding year. Management considers the current adverse market conditions in Portugal to be transitory. However,
management anticipates that the difficult economic and competitive environment will continue throughout the current fiscal
year and is currently aligning its marketing strategy to respond to the market conditions prevail ing in Portugal.
OPERATING RESULTS
Quarters ended November 30,
($000, except percentages) 2008 2007
(1)
Change
$ $ %
(unaudited) (unaudited)
Revenue 62,064 55,592 11.6
Operating costs 41,207 38,193 7.9
Operating income before amort iz ati o n 20,857 17,399 19.9
Operating margin 33.6% 31.3%
(1)
Certain comparativ e figures hav e be en reclas sified to c onfor m to the c urrent year’s pres ent ation to ref lect the reclas sification of foreign exchange g ains or los ses
from operating costs to financial expense.
Revenue
2009 first-quarter revenue increased by $6.5 million to reach $62.1 million, an increase of 11.6% compared to fiscal 2008.
This growth for the quarter is mainly due to the favourable impact of the appreciation of the Euro over the Canadian dollar,
to monthly rate increases implemented by Cabovisão averaging $2.00 (€1.30) per Basic Cable customer during fiscal
2008 and by the additional RGU from the launch of the Digital Television service despite a decrease in overall RGU in the
first quarter of fiscal 2009. Revenue from the European operations in the local currency for the first quarter amounted to
€40.1 million, an increase of €0.8 million, or 1.9%.
- 12 -
Operating costs
For the first quarter, operating costs increased by $3 million to reach $41.2 million, an increase of 7.9% compared to last
year. The increase in operating costs for the quarter is mainly attributable to the unfavourable impact of the appreciation
of the Euro over the Canadian dollar. Operating costs from the European operations in the local currency for the first
quarter of fiscal 2009 amounted to €26.7 million, a decrease of €0.3 million or 1.1%. The operating costs decreased in
local currency mainly due to cost reduction initiatives in 2009 and the one-time brand repositioning program during the
first quarter of fiscal 2008.
Operating income before amortization
For the quarter ended November 30, 2008 operating income before amortization increased to $20.9 million from
$17.4 million, an increase of 19.9%, mainly due to revenue growth outpacing the increase in operating costs. First-quarter
European operations’ operating margin increased to 33.6% from 31.3%. Operating income before amortization in the local
currency amounted to €13.5 million for the first quarter, an increa se of €1.1 million or 8.6%.
UNCERTAINTIES AND M AIN RISK FACTORS
There has been no significant change in the uncertainties and main risk factors faced by the Corporation since
August 31, 2008, except as described below. A detailed description of the uncertainties and main risk factors faced by
Cogeco Cable can be found in the 2008 annual MD&A.
Cogeco Cable’s footprint includes certain regions in Ontario (Burlington and Windsor) and in Portugal (Palmela) where the
automobile industry is a significant driver of economic activity. The sharp downturn experienced by the automobile
industry in recent months may have an adverse impact on the level of economic activity and consumer expenditures on
goods and services within those communities. In previous recessionary periods, demand for cable telecommunications
services has generally proved to be resilient. However, there is no assurance that demand will remain resilient in a
prolonged global recession.
Despite Cogeco Cable’s strong balance sheet and the proactive management of debt maturities, the present situation in
financial markets and the credit crisis may result in reduced availability of capital in both the debt and equity markets in
the coming years. As Cogeco Cable’s current credit facilities and other sources of financing reach their respective
maturities, the terms of bank and other debt facilities may be less favourable upon renewal.
The Corporation is exposed to interest rate risks for both fixed interest rate and floating interest rate instruments.
Fluctuations in interest rates will have an effect on the valuation and the collection or repayment of these instruments
which could result in a significant impact on the Corporation’s financial expense.
The current volatility of currency exchange and interest rates in the financial markets is unusually high and could lead to
an increase in the level of risk on hedging instruments to which Cogeco Cable is a party should one or more of the
counterparts to these instruments become financially distressed and unable to meet their obligations.
ACCOUNTING POLICIES AND ESTIMATES
There has been no significant change in Cogeco Cable’s accounting policies, estimates and future accounting
pronouncements since August 31, 2008, except as described below. A description of the Corporation’s policies and
estimates can be found in the 2008 annual MD&A.
Financial instruments
Effective September 1, 2008, the Corporation adopted the Canadian Institute of Chartered Accountants (“CICA”)
Handbook Section 1535, Capital Disclosures, Section 3862, Financial Instruments – Disclosures and Section 3863,
Financial Instruments – Prese ntation .
Capital disclosures
Section 1535 of the CICA Handbook requires that an entity disclose information that enables users of its financial
statements to evaluate the entity’s objectives, policies and processes for managing capital, including disclosures of any
externally imposed capital requirements and the consequences for non-compliance. These new disclosures are included
in note 13 of the Corporation’s interim consolidated financial statem ents.
- 13 -
Financial instruments
Section 3862 on financial instrument disclosures requires the disclosure of information about the significance of financial
instruments for the entity's financial position and performance and the nature and extent of risks arising from financial
instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages
those risks.
Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the
classification of financial instruments, from the perspective of the issuer, between liabilities and equities, the classification
of related interest, dividends, gains and losses, and circumstances in which financial assets and financial liabilities are
offset.
The adoption of these standards did not have any impact on the classification and measurements of the Corporation’s
financial instruments. The new disclosures pursuant to these new Sections are included in note 13 of the Corporation’s
interim consolidated financial statement s.
General standards of financial sta tement presentation
The CICA amended Section 1400 of the CICA Handbook, General Standards of Financial Statement Presentation, to
include a requirement for management to make an assessment of the entity’s ability to continue as a going concern when
preparing financial statements. These changes, including the related disclosure requirements, were adopted by the
Corporation on September 1, 2008 and had no impact on the interim consolidated financial statements.
FUTURE ACCOUNTING PRO NOUN CEMENTS
Harmonization of Canadian and International accounting s tandards
In March 2006, the Accounting Standards Board of the CICA released its new strategic plan, which proposed to abandon
Canadian GAAP and effect a complete convergence to the International Financial Reporting Standards (“IFRS”) for
publicly accountable entities.
In April 2008, the CICA published an exposure draft as guidance which requires the transition to IFRS to replace
Canadian GAAP as currently employed by Canadian publicly accountable enterprises. The changeover will occur no later
than fiscal years beginning on or after January 1, 2011. Accordingly, the Corporation expects that its first interim
consolidated financial statements presented in accordance with IFRS will be for the three-month period ending
November 30, 2011, and its first annual consolidated financial statements presented in accordance with IFRS will be for
the year ending August 31, 2012.
IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition,
measurement and disclosure requirements. As a result, the Corporation is developing a plan to convert its consolidated
financial statements to IFRS. The plan highlights the need to identify key accounting policy changes as the first step in the
conversion process. Once these changes have been identified, other elements of the plan will be addressed. The
Corporation has selected an external advisor to assist with the project and is currently in the process of assessing the
differences between IFRS and the Corporation’ s current accounting policies.
As implications of the conversion are identified, information technology and data system impacts as well as impacts on
business activities will be assessed. Changes in accounting policies are likely. These changes may materially impact the
Corporation’s consolidated financial statements. The conversion project is progressing according to the plan established
by management.
- 14 -
NON-GAAP FINANCI AL 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 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”, and “operating margin”.
Cash flow from operations and fr ee cash flow
Cash flow from operations is used by Cogeco Cable’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 flows 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”. 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.
Cash flow from operations is calculated as follows:
Quarters ended November 30,
2008 2007
($000) $ $
(unaudited) (unaudited)
Cash flow from operating activities 28,474 45,345
Changes in non-cash operating items
63,136 34,408
Cash flow from operations 91,610 79,753
Free cash flow is calculated as follows:
Quarters ended November 30,
2008 2007
($000) $ $
(unaudited) (unaudited)
Cash flow from operations 91,610 79,753
Acquisition of fixed assets
(65,667)
(50,654)
Increase in deferred charges
(7,207)
(7,417)
Assets acquired under capital leases – as per note 11b)
(939)
(73)
Free cash flow 17,797 21,609
Operating income before amortization and opera ting margin
Operating income before amortization is used by Cogeco Cable’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 taxes, to
pay for its fixed costs, such as interest on Indebtedness. Operating margin is calculated by dividing operating income
before amortization by revenue.
- 15 -
The most comparable Canadian GAAP financial measure is operating income. Operating income before amortization and
operating margin are calculated as follows:
Quarters ended November 30,
($000, except percentages) 2008 2007
(1)
$ $
(unaudited) (unaudited)
Operating income 55,801 44,615
Amortization 63,922 52,687
Operating income before amortization 119,723 97,302
Revenue 299,438 251,833
Operating Margin 40.0% 38.6%
(1)
Certain comparativ e figures hav e be en reclas sified to c onfor m to the c urrent year’s pres ent ation to ref lect the reclas sification of foreign exchange g ains or los ses
from operating costs to financial expense.
ADDITIONAL INFORMATION
This MD&A was prepared on January 13, 2009. Additional information relating to the Corporation, including its Annual
Information Form, is available on the SEDAR website at www.sedar.com.
ABOUT COGE CO CABLE
Cogeco Cable (www.cogeco.ca), is a telecommunications company ranking as 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 customers with Audio, Analogue and Digital Television,
as well as HSI and Telephony services. Cogeco Cable also provides, to its commercial customers, data networking, e-
business applications, video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, dark fibre, data
storage, date security and co-location services and other advanced communication solutions. Cogeco Cable’s
subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CCA).
– 30 –
- 16 -
Source: Cogeco Cable Inc.
Pierre Gagné
Vice President, Finance and Chief Financial Officer
Tel.: 514-764-4700
Information: Media
Marie Carrier
Director, Corporate Communications
Tel.: 514-764-4700
Analyst Conference Call: Wednesday, January 14, 2009 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
five minutes before the start of the conference:
Canada/USA Access Nu mber: 1 866-321-8231
International Access Number: + 1 416-642-5213
Confirmation Code: 4963066
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until January 19, by dialing:
Canada and USA access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 4963066
- 17 -
Supplementary Quarterly Financial Information
(unaudited)
Quarters ended November 30, August 31, May 31, February 29 / 28,
2008 2007
(1)
2008
(1)
2007
(1)
2008
(1)
2007
(1)
2008
(1)
2007
(1)
($000, except percentages and
per share data) $ $ $ $ $ $ $ $
Revenue 299,438 251,833 284,908 244,314 274,944 240,612 265,102 231,952
Operating income before
amortization
(2)
119,723 97,302 122,000 102,586 117,492 96,616 108,658 87,378
Operating margin
(2)
40.0% 38.6% 42.8% 42.0% 42.7% 40.2% 41.0% 37.7%
Amortization 63,922 52,687 61,414 54,164 58,209 47,278 55,989 43,572
Operating income 55,801 44,615 60,586 48,422 59,283 49,338 52,669 43,806
Financial expens e 23,394 15,877 18,752 18,684 17,374 20,015 17,136 24,138
Income taxes 8,856 8,375 9,968 (6,630)
10,767 8,942 (14,378)
4,261
Net income 23,551 20,363 31,866 36,368 31,142 20,381 49,911 15,407
Cash flow from operations
(2)
91,610 79,753 99,547 83,825 95,829 76,416 85,273 62,264
Cash flow from operating
activities 28,474 45,345 143,748 112,615 112,799 53,387 90,991 55,657
Free cash flow
(2)
17,797 21,609 21,075 14,861 36,901 18,599 19,305 9,420
Earnings per share
Basic 0.49 0.42 0.66 0.79 0.64 0.45 1.03 0.37
Diluted 0.48 0.42 0.65 0.78 0.64 0.45 1.02 0.37
(1)
Certain comparativ e figures hav e be en reclas sified to c onfor m to the c urrent year’s pres ent ation to ref lect the reclas sification of foreign exchange g ains or los ses
from operating costs to financial expense.
(2)
The indicated terms do not have standardized definitions prescribed by Canadian Generally Accepted Accounting Principles (“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
Management’s discussion and analysis.
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, and Aveiro, Covilhã, Evora, Guarda and Coimbra in Portugal. 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. - 18 -
Customer Statistics
November 30, August 31,
2008 2008
Homes Passe
d
Ontario
1 033 452 1 029 121
Québec 506 850 502 490
Canada 1 540 302 1 531 611
Portugal 900 328 895 923
Total 2 440 630 2 427 534
Revenue Generating Unit
s
Ontario 1 428 230 1 387 054
Québec 629 141 604 854
Canada 2 057 371 1 991 908
Portugal 712 217 724 966
Total 2 769 588 2 716 874
Basic Cable Service Customer
s
Ontario 601 511 596 229
Québec 264 416 260 865
Canada 865 927 857 094
Portugal 288 100 296 135
Total 1 154 027 1 153 229
Discretionnary Service Customer
s
Ontario 493 642 493 858
Québec 220 916 215 820
Canada 714 558 709 678
Portugal - -
Total 714 558 709 678
Pay TV Service Customer
s
Ontario 103 74
5
97 753
Québec 50 009 47 075
Canada 153 75
4
144 828
Portugal 59 398 57 715
Total 213 152 202 543
High Speed Internet Service Customer
s
Ontario 365 810 352 553
Québec 127 166 120 914
Canada 492 976 473 467
Portugal 154 092 159 301
Total 647 068 632 768
Digital Television Service Customers
Ontario 299 887 288 345
Québec 160 079 153 401
Canada 459 966 441 746
Portugal 29 849 24 452
Total 489 81
5
466 198
Telephony Service Customer
s
Ontario 161 022 149 927
Québec 77 480 69 674
Canada 238 502 219 601
Portugal 240 176 245 078
Total 478 678 464 679
- 19 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended November 30,
(In thousands of dollars, except per share data)
2008
2007
$
$
Revenue
Service
297,393
250,406
Equipment
2,045
1,427
299,438
251,833
Operating costs
173,734
149,496
Management fees – COGECO Inc.
5,981
5,035
Operating income before amortization
119,723
97,302
Amortization (note 3)
63,922
52,687
Operating income
55,801
44,615
Financial expense (note 4)
23,394
15,877
Income before income taxes
32,407
28,738
Income taxes (note 5)
8,856
8,375
Net income
23,551
20,363
Earnings per share (note 6)
Basic
0.49
0.42
Diluted
0.48
0.42
- 20 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three months ended November 30,
(In thousands of dollars)
2008
2007
$
$
Net income
23,551
20,363
Other comprehensive income
Unrealized gains (losses) on derivative financial instruments designated as cash flow hedges, net of
income taxes expense
of $3,387,000 (income taxes recovery of $1,143,000 in 2007)
25,789
(6,653)
Reclassification to net income of realized gains (losses) on derivative financial instruments
designated as cash flow hedges, net of income taxes expense of $4,323,000 (income taxes
recovery of $1,345,000 in 2007)
(28,391)
7,085
Unrealized gains on translation of a net investment in self-sustaining foreign subsidiaries
6,080
10,340
Unrealized losses on translation of long-term debts designated as hedges of a net investment in self-
sustaining foreign subsidiaries
(3,359)
(6,376)
119
4,396
Comprehensive income
23,670
24,759
- 21 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(unaudited)
Three months ended November 30,
(In thousands of dollars) 2008
2007
$
$
Balance at beginning, as reported 297,150
181,952
Changes in accounting policies ─
1,307
Balance at beginning, as restated 297,150
183,259
Net income 23,551
20,363
Dividends on multiple voting shares (1,883)
(1,569)
Dividends on subordinate voting shares (3,940)
(3,272)
Balance at end 314,878
198,781
- 22 -
COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands of dollars)
November 30, 2008
August 31, 2008
$
$
Assets
Current
Cash and cash equivalents 32,094
36,371
Accounts receivable 61,268
59,582
Income taxes receivable 6,125
2,267
Prepaid expenses 11,505
12,892
Future income tax assets 5,378
8,661
116,370
119,773
Fixed assets 1,272,586
1,257,965
Deferred charges 58,779
57,751
Intangible assets (note 7) 1,087,666
1,091,042
Goodwill (note 7) 490,923
487,805
Derivative financial instruments 29,176
─
Future income tax assets 3,951
4,819
3,059,451
3,019,155
Liabilities and Shareholders’ equity
Liabilities
Current
Bank indebtedness 31,933
10,302
Accounts payable and accrued liabilities 204,914
247,638
Income tax liabilities 3,315
20,212
Deferred and prepaid income 33,180
32,859
Derivative financial instruments ─
79,791
Current portion of long-term debt (note 8) 177,783
336,807
451,125
727,609
Long-term debt (note 8) 1,017,637
718,234
Deferred and prepaid income and other liabilities 12,767
11,859
Pension plan liabilities and accrued employees benefits 3,393
3,139
Future income tax liabilities 251,224
253,235
1,736,146
1,714,076
Shareholders’ equity
Capital stock (note 9) 989,264
988,889
Contributed surplus 3,690
3,686
Retained earnings 314,878
297,150
Accumulated other comprehensive income (note 10) 15,473
15,354
1,323,305
1,305,079
3,059,451
3,019,155
- 23 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended November 30,
(In thousands of dollars)
2008
2007
$
$
Cash flow from operating activities
Net income
23,551
20,363
Adjustments for:
Amortization (note 3)
63,922
52,687
Amortization of deferred transaction costs
648
722
Future income taxes (note 5)
2,911
5,186
Stock-based compensation
56
236
Loss on disposal of fixed assets
223
342
Other
299
217
91,610
79,753
Changes in non-cash operating items (note 11 a))
(63,136)
(34,408)
28,474
45,345
Cash flow from investing activities
Acquisition of fixed assets (note 11 b))
(65,667)
(50,654)
Increase in deferred charges
(7,207)
(7,417)
Other
16
1
(72,858)
(58,070)
Cash flow from financing activities
Increase in bank indebtedness
21,631
―
Increase in long-term debt, net of transaction costs
277,457
―
Repayment of long-term debt
(254,123)
(32,616)
Issue of subordinate voting shares
278
3,056
Dividends on multiple voting shares
(1,883)
(1,569)
Dividends on subordinate voting shares
(3,940)
(3,272)
39,420
(34,401)
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies
687
(153)
Net change in cash and cash equivalents
(4,277)
(47,279)
Cash and cash equivalents at beginning
36,371
64,208
Cash and cash equivalents at end
32,094
16,929
See supplemental cash flow information in note 11.
- 24 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and 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”), present fairly the financial position of
Cogeco Cable Inc. (“the Corporation”) as at November 30, 2008 and August 31, 2008 as well as its results of
operations and its cash flows for the three month periods ended November 30, 2008 and 2007.
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, 2008. These unaudited interim consolidated financial statements follow the
same accounting policies as the most recent annual consolidated financial statements, except for the adoption of the
new accounting policies described below.
Financial instruments
Effective September 1, 2008, the Corporation adopted the Canadian Institute of Chartered Accountants (“CICA”)
Handbook Section 1535, Capital Disclosures, Section 3862, Financial Instruments – Disclosures and Section 3863,
Financial Instruments – Prese ntation .
Capital disclosures
Section 1535 of the CICA Handbook requires that an entity disclose information that enables users of its financial
statements to evaluate the entity’s objectives, policies and processes for managing capital, including disclosures of
any externally imposed capital requirements and the consequences for non-compliance. These new disclosures are
included in note 13.
Financial instruments
Section 3862 on financial instrument disclosures requires the disclosure of information about the significance of
financial instruments for the entity's financial position and performance and the nature and extent of risks arising from
financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the
entity manages those risks.
Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals
with the classification of financial instruments, from the perspective of the issuer, between liabilities and equities, the
classification of related interest, dividends, gains and losses, and circum stances in which financial assets and financial
liabilities are offset.
The adoption of these standards did not have any impact on the classification and measurements of the Corporation’s
financial instruments. The new disclosures pursuant to these new Sections are included in note 13.
General standards of financial statement presentation
The CICA amended Section 1400 of the CICA Handbook, General Standards of Financial Statement Presentation, to
include a requirement for management to make an assessment of the entity’s ability to continue as a going concern
when preparing financial statements. These changes, including the related disclosure requirements, were adopted by
the Corporation on September 1, 2008 and had no impact on the consolidated financial state ments.
- 25 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
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 an d in Europe.
The principal financi al information per business segment is pre sente d in the tables below:
Canada Europe Consolidated
Three months ended November 30, 2008
2007
2008
2007
2008
2007
$
$
$
$
$
$
Revenue 237,374
196,241
62,064
55,592
299,438
251,833
Operating costs 132,527
111,303
41,207
38,193
173,734
149,496
Management fees − COGECO Inc. 5,981
5,035
─
─
5,981
5,035
Operating income before amortization 98,866
79,903
20,857
17,399
119,723
97,302
Amortization 43,276
35,879
20,646
16,808
63,922
52,687
Operating income 55,590
44,024
211
591
55,801
44,615
Financial expense (revenue) 23,405
15,943
(11)
(66)
23,394
15,877
Income taxes 10,388
9,314
(1,532)
(939)
8,856
8,375
Net income 21,797
18,767
1,754
1,596
23,551
20,363
Total assets
(1)
2,262,300
2,214,840
797,151
804,315
3,059,451
3,019,155
Fixed assets
(1)
960,027
940,683
312,559
317,282
1,272,586
1,257,965
Intangible assets
(1)
1,026,074
1,027,268
61,592
63,774
1,087,666
1,091,042
Goodwill
(1)
116,890
116,890
374,033
370,915
490,923
487,805
Acquisition of fixed assets
(2)
55,751
38,293
10,855
12,434
66,606
50,727
(1)
At November 30, 2008 and August 31, 2008.
(2)
Includes capital leases that are excluded from the statements of cash flows.
- 26 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
3. Amortization
Three months ended November 30,
2008 2007
$ $
Fixed assets 54,270 44,874
Deferred charges 5,783 5,370
Intangible assets 3,869 2,443
63,922 52,687
4. Financial expense
Three months ended November 30,
2008 2007
$ $
Interest on long-term debt 20,027 16,525
Foreign exchange losses (gains) 3,784 (1,035)
Amortization of deferred transaction costs 407 407
Other (824) (20)
23,394 15,877
5. Income Taxes
Three months ended November 30,
2008 2007
$ $
Current 5,945 3,189
Future 2,911 5,186
8,856 8,375
- 27 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
5. Income Taxes (continued)
The following table provides a reconciliation between Canadian statutory federal and provincial income taxes and the
consolidated income tax expen se:
Three months ended November 30,
2008 2007
$ $
Income before income taxes 32,407 28,738
Combined income tax rate 32.56 % 34.17 %
Income taxes at combined income tax rate 10,552 9,820
Adjustment for loss or income subject to lower or higher tax rates
(227) (385)
Income taxes arising from non-deductible expenses 77 101
Effect of foreign income tax rate differences (1,604) (1,164)
Other 58 3
Income taxes at effective income tax rate 8,856 8,375
6. Earnings per Share
The following table provides a recon ciliation between basic and dilu ted earnings per share:
Three months ended November 30,
2008 2007
$ $
Net income 23,551 20,363
Weighted average number of multiple voting and subordinate voting shares outstanding 48,523,769 48,380,353
Effect of dilutive stock options
(1)
212,875 337,568
Weighted average number of diluted multiple voting and subordinate voting shares outstanding 48,736,644 48,717,921
Earnings per share
Basic 0.49 0.42
Diluted 0.48 0.42
(1)
For the three month period ended November 30, 2008, 109,497 stock options (97,214 in 2007) were excluded from the calculation of diluted earnings per
share as the exercise price of the options was greater than the average share price of the subordinate voting shares.
- 28 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
7. Goodwill and Other Intangible Assets
November 30, 2008 August 31, 2008
$ $
Customer relationships 98,114 101,490
Customer base
989,552 989,552
1,087,666 1,091,042
Goodwill
490,923 487,805
1,578,589 1,578,847
a) Intangible assets
During the first three months, intangible assets variations were as follows:
Customer
relationships
Customer
base
Total
$ $ $
Balance as at August 31, 2008 101,490 989,552 1,091,042
Amortization (3,869) ─ (3,869)
Foreign currency translation adjustment 493 ─ 493
Balance as at November 30, 2008 98,114 989,552 1,087,666
b) Goodwill
During the first three months, goodwill variation was as follows:
$
Balance as at August 31, 2008 487,805
Foreign currency translation adjustment 3,118
Balance as at November 30, 2008 490,923
- 29 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
8. Long-Term Debt
Maturity
Interest rate November 30, 2008 August 31, 2008
% $
$
Parent company
Term Facility
Term loan – €94,096,350 2011 5.94
(1)
147,166
145,832
Term loan – €17,358,700 2011 5.94
(1)
27,108
26,881
Revolving loan – €117,000,000 (€126,000,000 as at August 31, 2008) 2011 5.81
(1)
183,819
196,308
Revolving loan 2011 3.62
(1)
116,980
94,375
Senior Secured Debentures Series 1 2009 6.75 149,873
149,814
Senior Secured Notes
Series A – US$150 million 2008 6.83
(2)
─
159,233
Series B 2011 7.73 174,386
174,338
Senior Secured Notes
(3)
Series A – US$190 million 2015 7.00 233,417
─
Series B 2018 7.60 54,552
─
Senior Unsecured Debenture 2018 5.94 99,772
99,768
Subsidiaries
Obligations under capital leases 2013 6.42 – 8.30 8,347
8,492
1,195,420
1,055,041
Less current portion 177,783
336,807
1,017,637
718,234
(1)
Average interest rate on debt as at November 30, 2008, 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 US denominated debt.
(3)
On October 1, 2008, the Corporation issued US$190 million Senior Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured
Notes Series B maturing October 1, 2018, net of transaction costs of $2.1 million. The Senior Secured Notes Series B bear interest at the coupon rate of
7.60% per annum, payable semi-annually. The Corporation has entered into cross-currency swap agreements to fix the liability for interest and principal
payments on the Senior Secured Notes Series A in the amount of US$190 million, which bear interest at the coupon rate of 7.00% per annum, payable
semi-annually. Taking into account these agreements, the effective interest rate on the Senior Secured Notes Series A is 7.24% and the exchange rate
applicable to the principal portion of the US dollar-denominated debt has been fixed at $1.0625.
- 30 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
9. Capital Stock
Authorized, an unlimited number
Class A Preference shares, non-voting, 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, non-voting, issuable in series.
Multiple voting shares, 10 votes per share.
Subordinate voting shares, 1 vote per share.
November 30, 2008 August 31, 2008
$ $
Issued
15,691,100 multiple voting shares 98,346 98,346
32,839,840 subordinate voting shares (32,826,611 as at August 31, 2008) 890,918 890,543
989,264 988,889
During the first three months, subordinate voting share transactio ns were as follows:
Number of shares Amount
$
Balance as at August 31, 2008 32,826,611 890,543
Shares issued for cash under the Stock Option Plan 13,229 278
Compensation expense previously recorded in contributed surplus for options exercised ─ 97
Balance as at November 30, 2008 32,839,840 890,918
- 31 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and 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 133,381 stock options (97,214 in 2007) with an
exercise price of $34.46 ($49.82 in 2007) of which 29,711 stock options (22,683 in 2007) were granted to
COGECO Inc.’s employees. During the first quarter, the Corporation charged an amount of $12,000 ($84,000 in 2007)
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
$89,000 ($236,000 in 2007) was recorded for the three month period ended November 30, 2008.
The fair value of stock options granted for the three month period ended November 30, 2008 was $8.96 ($12.88 in
2007) per option. The fair value of each option granted was estimated at the grant date for purposes of determining
the stock-based compensation expense using the binomial option pricing model based on the following assumptions:
2008 2007
% %
Expected dividend yield
1.40 0.90
Expected volatility
29 27
Risk-free interest rate
4.22 4.25
Expected life in years
4.0 4.0
At November 30, 2008, the Corporation had outstanding stock options providing for the subscription of 928,713
subordinate voting shares. These stock options, which include 125,333 conditional stock options, can be exercised at
various prices ranging from $7.05 to $4 9.82 and at various dates up to October 29, 2018.
The Corporation also offers a deferred share unit plan (“DSU Plan”) which is described in the Corporation’s annual
consolidated financial statements. During the first quarter, the Corporation did not award any deferred share units to
the participants in connection with the DSU Plan. A reduction of $45,000 was recorded for the three month period
ended November 30, 2008 for the liabil ity related to this plan.
- 32 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
10. Accumulated Other Comprehensive Income
Translation of a net
investment in self-
sustaining foreign
subsidiaries
Cash flow hedges
Total
$ $ $
Balance as at August 31, 2008 15,660 (306) 15,354
Other comprehensive income 2,721 (2,602) 119
Balance as at November 30, 2008 18,381 (2,908) 15,473
11. Statements of Cash Flows
a) Changes in non-cash operating items
Three months ended November 30,
2008 2007
$ $
Accounts receivable (1,565) (443)
Income taxes receivable (3,833) 101
Prepaid expenses 1,397 1,335
Accounts payable and accrued liabilities (43,459) (38,992)
Income tax liabilities (16,902) 2,616
Deferred and prepaid income and other liabilities 1,226 975
(63,136) (34,408)
b) Other information
Three months ended November 30,
2008 2007
$ $
Fixed asset acquisitions through capital leases 939 73
Interest paid 21,497 20,922
Income taxes paid 26,686 ―
- 33 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
12. Employees 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 November 30,
2008 2007
$ $
Contributory defined benefit pension plans 346 282
Defined contribution pension plan and collective registered
retirement savings plan
896
690
1,242 972
13. Financial and Capital Management
a) Financial management
Management’s objectives are to protect Cogeco Cable Inc. and its subsidiaries against material economic exposures
and variability of results, and against certain financial risks including credit risk, liquidity risk, interest rate risk and
foreign exchange risk.
Credit risk
Credit risk represe nts the risk of financial lo ss for the C orpor ation if a customer or counterpart to a financial asset fails
to meet its contractual obligations. The Corporation is exposed to credit risk arising from the derivative financial
instruments, cash equivalents and trade accounts receivable, the maximum exposure of which is represented by the
carrying amounts reported on the balance sheet.
Credit risk from the derivative financial instruments arises from the possibility that counterparts to the cross-currency
swap agreements may default on their obligations in instances where these agreements have positive fair values for
the Corporation. The Corporation reduces this risk by completing transactions with financial institutions that carry a
credit rating equal to or superior to its own credit rating. The Corporation assesses the creditworthiness of the
counterparts in order to minimize the risk of counterparts default under the agreements. At November 30, 2008,
management believes that the credit risk relating to cross-currency swaps is minimal, since the lowest credit rating of
the counterparts to the agreements is A
-
.
Cash equivalents consist mainly of highly liquid investments, such as money market deposits. The Corporation has
deposited the cash equivalents with reputable financial institutions, from which management believes the risk of loss
to be remote.
- 34 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
13. Financial and Capital Management (continued)
The Corporation is also exposed to credit risk in relation to its trade accounts receivable. The Corporation
continuously monitors the financial condition of its customers and reviews the credit history or worthiness of each new
major customer. At November 30, 2008, no customer balance represents a significant portion of the Corporation’s
consolidated trade receivables. The Corporation establishes an allowance for doubtful accounts based on specific
credit risk of its customers by examining such factors as the number of overdue days of the customer’s balance
outstanding as well as the customer’s collection history. The Corporation believes that its allowance for doubtful
accounts is sufficient to cover the related credit risk. The Corporation has credit policies in place and has established
various credit controls, including credit checks, deposits on accounts and advance billing, and has also established
procedures to suspend the availability of services when customers have fully utilized approved credit limits or have
violated existing payment terms. Since the Corporation has a large and diversified clientele dispersed throughout
Canada and Portugal, there is no significant concentration of credit risk. The following table provides further details on
the Corporation’s accounts receivable balances:
November 30, 2008 August 31, 2008
$ $
Trade accounts receivable 69,119 66,559
Allowance for doubtful accounts
(14,259) (12,357)
54,860 54,202
Other accounts receivable
6,408 5,380
61,268 59,582
The following table provides further details on trade accounts receivable, net of allowance for doubtful accounts.
Trade accounts receivable past due is defined as amount outstanding beyond normal credit terms and conditions for
the respective customers. A large portion of the Corporation’s customers are billed in advance and are required to pay
before their services are rendered. The Corporation considers amount outstanding at the due date as trade accounts
receivable past due.
November 30, 2008 August 31, 2008
$ $
Net trade accounts receivable not past due 40,326 40,945
Net trade accounts receivable past due
14,534 13,257
54,860 54,202
- 35 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
13. Financial and Capital Management (continued)
Liquidity risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The
Corporation manages liquidity risk through the management of its capital structure and access to different capital
markets. It also manages liquidity risk by continuously monitoring actual and projected cash flows to ensure sufficient
liquidity to meet its obligations when due. At November 30, 2008, the available amount of the Corporation’s Term
Facility was $371.3 million. Management believes that the committed Term Facility will, until its maturity in July 2011,
provide sufficient liquidity to manage its long-term debt maturities and support working capital requirements.
The following table summa rize s the contractual maturities of the financial liabilities and related capital amounts:
2009 2010 2011 2012 2013 Thereafter Total
$ $ $ $ $ $ $
Bank indebtedness 31,933 − − − − − 31,933
Accounts payable and accrued liabilities 204,914 − − − − − 204,914
Long-term debt
(1)
174,639 41,065 410,221 175,000 − 390,030 1,190,955
Derivative financial instruments
Cash outflows (Canadian dollar) − − − − − 201,875 201,875
Cash inflows (Canadian dollar
equivalent of US dollar)
−
−
−
−
−
(235,030)
(235,030)
Obligations under capital leases
(2)
2,932 3,134 1,929 1,195 25 − 9,215
414,418 44,199 412,150 176,195 25 356,875 1,403,862
(1)
Principal excluding obligations under capital leases.
(2)
Including interest.
The following table is a summary of interest payable on long-term debt (excluding interest on capital leases) that are
due for each of the next five years and thereafter, based on the current debt at November 30, 2008 and their
respective maturities:
2009 2010 2011 2012 2013 Thereafter Total
$ $ $ $ $ $ $
Interest payments on long-term debt 54,000 63,746 59,727 28,823 26,568 82,236 315,100
Interest payments on derivative
financial instruments
10,960 14,614 14,614 14,614 14,614 30,445 99,861
Interest receipts on derivative financial
instruments
(12,339) (16,452) (16,452) (16,452) (16,452) (34,275) (112,422)
52,621 61,908 57,889 26,985 24,730 78,406 302,539
- 36 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
13. Financial and Capital Management (continued)
Interest rate risk
The Corporation is exposed to interest rate risks for both fixed interest rate and floating interest rate instruments.
Fluctuations in interest rates will have an effect on the valuation and collection or repayment of these instruments. At
November 30, 2008, all of the Corporation’s long-term debt was at fixed rate, except for the Corporation’s Term
Facility. The sensitivity of the Corporation’s annual financial expense to a variation of 1% in the interest rate applicable
to the Term Facility is approximately $4.8 million based on the current debt at November 30, 2008.
Foreign exchange risk
The Corporation is exposed to foreign exchange risk related to its long-term debt denominated in US dollars. In order
to mitigate this risk, the Corporation has established guidelines whereby currency swap agreements can be used to fix
the exchange rates applicable to its US dollar denominated long-term debt. All such agreements are exclusively used
for hedging purposes. Accordingly, on October 2, 2008, the Corporation entered into cross-currency swap agreements
to set the liability for interest and principal payments on its US$190 million Senior Secured Notes Series A issued on
October 1, 2008. These agreements have the effect of converting the US interest coupon rate of 7.00% per annum to
an average Canadian dollar interest rate of 7.24% per annum. The exchange rate applicable to the principal portion of
the debt has been fixed at $1.0625.
The Corporation is also exposed to foreign exchange risk on cash and cash equivalents, bank indebtedness and
accounts payable denominated in US dollars or Euros. At November 30, 2008, cash and cash equivalents
denominated in US dollars amounted to US$240,000 (bank indebtedness of US$286,000 as at August 31, 2008) while
accounts payable denominated in US dollars amounted to US$9,946,000 (US$16,121,000 as at August 31, 2008). At
November 30, 2008, Euro-denominated cash and cash equivalents amounted to €670,000 (€219,000 as at August 31,
2008) while accounts payable denominated in Euros amounted to €1,767,000 (€163,000 as at August 31, 2008). Due
to their short-term nature, the risk arising from fluctuations in foreign exchange rates is usually not significant, except
for the unusual high volatility of the US dollar compared to the Canadian dollar during the first three months of fiscal
2009. During the three month period ended November 30, 2008, the exchange rate increased from $1.0620 at
September 1, 2008, to $1.2370 at November 30, 2008, reaching a maximum of $1.2935 on November 20, 2008. The
impact of a 10% change in the foreign exchange rates (US dollar and Euros) would change financial expense by
approximately $1.4 million.
Furthermore, the Corporation’s net investment in self-sustaining foreign subsidiaries 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-Televisão por Cabo,
S.A. was borrowed directly in Euros. At November 30, 2008, the net investment amounted to €437,051,000
(€446,051,000 as at August 31, 2008) while long-term debt denominated in Euros amounted to €228,455,000
(€237,455,000 as at August 31, 2008). The exchange rate used to convert the Euro currency into Canadian dollars for
the balance sheet accounts at November 30, 2008 was $1.5711 per Euro compared to $1.5580 per Euro at August
31, 2008. The impact of a 10% change in the exchange rate of the Euro into Canadian dollars would change financial
expense by approximately $2.1 million and other comprehensive income by approximately $32.8 million.
- 37 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
13. Financial and Capital Management (continued)
Fair value
Fair value is the amount at which willing parties would accept to exchange a financial instrument based on the current
market for instruments with the same risk, principal and remaining maturity. Fair values are estimated at a specific
point in time, by discounting expected cash flows at rates for debts of the same remaining maturities and conditions.
These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and
therefore, cannot be determined with precision. In addition, income taxes and other expenses that would be incurred
on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not
necessarily the net amounts that would be realized if these instruments were settled. The carrying value of all of the
Corporation’s financial instruments appro x imates fair value, except as otherwise noted in the following table.
November 30, 2008 August 31, 2008
Carrying value Fair value Carrying value Fair value
Long-term debt 1,195,420 1,152,979 1,055,041 1,049,329
b) Capital management
The Corporation’s objectives in managing capital are to ensure sufficient liquidity to support the capital requirements
of its various businesses, including growth opportunities. The Corporation manages its capital structure and makes
adjustments in light of general economic conditions, the risk characteristics of the underlying assets and the
Corporation’s working capital requirements. Management of the capital structure involves the issuance of new debt,
the repayment of existing debts using cash generated by operations and the level of distribution to shareholders.
The capital structure of the Corporation is composed of shareholders’ equity, bank indebtedness, long-term debt and
assets or liabilities related to derivative financial instruments.
The provisions under the Term Facility provide for restrictions on the operations and activities of the Corporation.
Generally, the most significant restrictions relate to permitted investments and dividends on multiple and subordinate
voting shares, as well as incurrence and maintenance of certain financial ratios primarily linked to the operating
income before amortization, financial expense and total Indebtedness. At November 30, 2008, the Corporation was in
compliance with all of its debt covenants and was not subject to any other externally imposed capital requirements.
- 38 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
13. Financial and Capital Management (continued)
The following table summarizes certain of the key ratios used to monitor and manage the Corporation’s capital
structure:
November 30, 2008 August 31, 2008
Net indebtedness
(1)
/ Shareholders’ equity 0.9 0.8
Net indebtedness
(1)
/ Operating income before amortization
(2)
2.5 2.5
Operating income before amortization / Financial expense
5.1 6.4
(1)
Net indebtedness is defined as the total of bank indebtedness, long-term debt and derivative financial instrument liability, less cash and cash equivalents and
assets related to derivative financial instruments.
(2)
Calculation based on operating income before amortization for the last twelve month period ended November 30, 2008.
14. Comparative figures
Certain comparative figures have been reclassified to conform to the current year’s presentation to reflect the
reclassification of foreign exchan ge gains or losses from operating costs to financial expense.