COGECO CABLE REPORTS STRONG CUSTOMER ADDITIONS AND STRONG EARNINGS GROWTH
Page 1
Press release
For immediate release
Cogeco Cable reports strong customer additions
and strong earnings growth
Montréal, January 12, 2006 – Today, Cogeco Cable Inc. (TSX: CCA.SV) announced its financial
results for the first quarter ended November 30, 2005.
Strong increase in the number of customers in all services
For the first quarter of 2006, Cogeco Cable reports strong increases in customer numbers in all
services. Net additions of basic customers were approximately 10,900 for the first quarter
compared to about 7,700 for the same period last year. The sustained appetite for digital video and
HSI services continues to prevail as shown by over 21,000 digital video customer additions and
close to 23,000 high-speed Internet (HSI) customer additions during the quarter. As for digital
telephony, this service was extended to the majority of residents of Hamilton, Windsor, Burlington,
Oakville and Kingston in Ontario and those of Trois-Rivières, Drummondville and St-Hyacinthe in
Québec whether they already subscribe to a Cogeco Cable service or not. At the end of the first
quarter, 6,900 clients subscribed to this new service, and 2,200 installations were pending.
Enhanced video-on-demand (VOD) offering
During the first quarter, Cogeco Cable signed an agreement with Warner Bros. International
Television Distribution to bolster Cogeco Cable’s VOD offering by adding current and classic
movie titles from this major movie distributor. With this agreement, Cogeco Cable’s VOD
subscribers enjoy access to movies representing about 60% of domestic box office receipts. “This
service is gaining in popularity as our clients slowly migrate from on-schedule television to on-
demand television,” stated Mr. Louis Audet, President and Chief Executive Officer of Cogeco
Cable.
Continued improvement in financial performance
Cogeco Cable’s financial performance continues to improve. Net income more than doubled to
reach $9 million, mainly as a result of operating income before amortization growth of 7.7% fuelled
by strong service sales, tight cost controls in a telephony launch environment coupled with the
reduction of amortization expense.
“Internal growth is key to creating shareholder value. This first quarter showed strong marks in
attracting customers and improving financial results. Demand for products and services continue to
prevail in our markets as customers show increasing interest for our triple-play bundled offer,”
explained Mr. Audet.
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FINANCIAL HIGHLIGHTS
Quarters ended November 30,
(unaudited)
($000s, except percentages and per share data)
2005 2004
%
Change
Revenue $ 143,413 $ 135,766 5.6
Operating income before amortization 57,302 53,194 7.7
Net income 8,998 3,827 ―
Cash flow from operations 43,389 39,192 10.7
Less:
Capital expenditures and
increase in deferred charges
33,678
23,779 41.6
Free Cash Flow
(1)
9,711 15,413 (37.0)
Per share data
Basic net income $ 0.23 $ 0.10 ―
Cash flow from operations 1.09 0.98 11.2
(1) Free Cash Flow is defined as cash flow from operations less capital expenditures and increase in deferred charges. Free Cash Flow is
not a defined term under Canadian Generally Accepted Accounting Principles (GAAP) and should be treated accordingly.
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
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” 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 “Uncertainty and main risk factors” of the Corporation’s 2005 annual MD&A)
that could cause actual results to differ materially from what we currently expect. These factors include
technological changes, changes in market and competition, governmental or regulatory developments,
general economic conditions, the development of new products and services, the enhancement of existing
products and services, and the introduction of competing products having technological or other advantages,
many of which are beyond our control. Therefore, future events and results may vary significantly from what
we currently foresee. You should not place undue importance on forward-looking information and should not
rely upon this information as of any other date. While we may elect to, we are under no obligation (and
expressly disclaim any such obligation) and do not undertake to update or alter this information before next
quarter.
This analysis should be read in conjunction with the Corporation’s financial statements and the notes thereto
prepared in accordance with Canadian GAAP and the MD&A included in the Corporation’s Annual Report.
Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.
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CUSTOMER STATISTICS
Net additions % Penetration
(1)
Quarters ended
November 30, November 30,
November 30,
2005
2005 2004 2005 2004
Revenue-generating units
(2)
1,408,503
60,770
42,359
Basic service customers 832,336 10,903 7,743
HSI service customers
(3)
300,641 22,993 17,397 39.9 35.5
Digital video service customers
(4)
268,619 21,415 17,219 32.9 27.0
Digital telephony service customers 6,907 5,459 ―
2.7
―
Digital terminals
(5)
334,869 30,985 21,842
41.0
32.2
(1) As a percentage of basic service customers in areas served.
(2) Including basic service, digital video service, Internet service and digital telephony service customers.
(3) The number of Internet customers in fiscal 2005 has been restated to reflect the number of customers based on the billing dates, which are
distributed throughout the month, instead of the number of customers as at the end of the quarter. This change produces a downward
adjustment of approximately 4,800 customers as at November 30, 2004. Customers subscribing only to Internet services amounted to 57,051
as at November 30, 2005 compared to 55,057 as at August 31, 2005.
(4) In fiscal 2005, the number of digital video service customers has been restated to reflect changes brought about by our billing improvement
program, which has allowed us to identify digital video service customer accounts that were not cancelled when they became inactive. This
change resulted in a downward adjustment of approximately 6,200 customers as at November 30, 2004 and did not affect the number of digital
terminals.
(5) 64% of terminals as at November 30, 2005 were purchased compared to 77% one year earlier.
All services generated higher growth in the first quarter compared to the same period last year.
The number of net additions of basic service and HSI service customers were higher by 40.8%
and 32.2%, respectively, in the first quarter of 2006, compared to the same quarter last year. This
result is mainly attributable to winback over satellite competition due to anti-piracy measures and
to additional marketing initiatives such as outbound telemarketing and promotional activities as
well as digital telephony up-sell activities and the triple-play bundled offer.
The increase in the number of digital video service customers stems from Cogeco Cable’s
attractive promotional offer in Québec and from the growing interest for this technology among
customers.
By the end of the first quarter of fiscal 2006, 6,907 customers were subscribing to digital telephony
while pending orders reached 2,208. During the quarter, Cogeco Cable launched its digital
telephony service in Kingston and Hamilton, Ontario and rolled it out to all residents in its service
areas, whether or not they were Cogeco Cable customers. The digital telephony service is now
available to 30% of Cogeco Cable basic customers.
ACCOUNTING POLICIES AND ESTIMATES
There has been no significant change in Cogeco Cable’s accounting policies and estimates since
August 31, 2005. A description of these policies and estimates can be found in the Corporation’s
2005 annual MD&A.
RELATED PARTY TRANSACTIONS
Cogeco Cable is a subsidiary of COGECO Inc., which holds 39.2% of the Corporation’s equity
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, the management fee
was capped at $7 million per year, subject to annual upward adjustments based on increases in
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the Consumer Price Index in Canada. Accordingly, for fiscal 2006, the management fee has been
set at a maximum of $8.4 million. During the quarter, the Corporation granted 31,743 stock options
to COGECO Inc.’s employees, compared to 38,397 in the first quarter of fiscal 2005. Further
details regarding the management agreement and stock options granted to COGECO Inc.’s
employees are provided in the Corporation’s 2005 annual MD&A. There were no other material
related party transactions during the first quarter of fiscal years 2006 and 2005.
OPERATING RESULTS
Quarters ended November 30,
($000s, except percentages)
2005
2004 %
Change
Revenue $ 143,413 $ 135,766 5.6
Operating costs 83,243 79,857 4.2
Management fees - COGECO Inc.
2,868 2,715
5.6
Operating income before amortization 57,302 53,194 7.7
Operating margin 40.0% 39.2%
Revenue
Revenue for the first quarter rose by $7.6 million or 5.6% compared to the same period last year
due to higher penetration rates in digital video, HSI and digital telephony services as well as to rate
increases implemented in June and August of 2005. Monthly rate increases of at most $3 per
customer and averaging $0.50 per basic service customer took effect on June 15, 2005 in Ontario
and on August 1, 2005 in Québec. As a result of these increases, the basic monthly rate is now
$24.99 in the majority of networks in Ontario, and the number of different basic rates in Québec
has dropped from 22 to 7, ranging essentially between $20 and $27.50 per month. The monthly
rate for certain bundled services has increased by $1 in Ontario, and other limited rate increases
for selective tier services were implemented in Québec. Furthermore, the August 2005 reduction in
digital terminal rental rates was more than offset by a greater number of customers renting digital
terminals.
Operating Costs
During the first quarter, operating costs, excluding management fees payable to COGECO Inc.,
rose by $3.4 million or 4.2%. This increase arises mainly from higher operating costs to serve
additional revenue-generating units (RGU), including digital telephony. In addition, network fees
increased by 2.5% in the first quarter compared to the same period last year as a result of the
introduction of digital telephony, the Canadian Radio-television and Telecommunications
Commission mandated APTN wholesale rate increase and RGU growth; this was partly offset by
the IP transport costs that have declined despite HSI customer growth.
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Operating Income before Amortization
For the first quarter, operating income before amortization rose by 7.7% compared to the same
period last year due to the increase in revenue outpacing the rise in operating costs. Cogeco
Cable had previously anticipated a reduction in its operating margin due to the launch of digital
telephony. However, the Corporation increased its operating margin to 40% in the first quarter
compared to 39.2% last year as a result of better than expected net additions of HSI service
customers.
FIXED CHARGES
Quarters ended November 30,
($000s, except percentages)
2005
2004
%
Change
Amortization $ 28,277 $ 32,244 (12.3)
Financial expense 13,582 13,894 (2.2)
Amortization expense amounted to $28.3 million during the first quarter of fiscal 2006 compared to
$32.2 million for the same period last year. Amortization expense declined during the first quarter
as many cable modems and digital terminals were fully amortized.
For the first quarter of fiscal 2006, financial expense decreased compared to the same period last
year. The decline is due to the lower level of Indebtedness (defined as bank indebtedness and
long-term debt) during the first quarter compared to the same period last year, partially offset by
increases in the short-term interest rate on the Term Facility.
INCOME TAXES
Income taxes for the first quarter amounted to $6.4 million compared to $3.2 million for the same
period last year. This increase was mainly attributable to the operating income before amortization
growth and the decline in fixed charges as discussed above.
NET INCOME
Net income for the first quarter amounted to $9 million, or $0.23 per share, compared to
$3.8 million, or $0.10 per share, for the same period last year. This increase was mainly
attributable to the strong operating income before amortization growth as well as the decline in
fixed charges.
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CASH FLOW AND LIQUIDITY
Quarters ended November 30,
($000s)
2005 2004
Operating Activities
Cash flow from operations $ 43,389 $ 39,192
Changes in non-cash operating items (42,787)
(33,006)
$ 602 $ 6,186
Investing Activities $ (33,678) $ (23,777)
Financing Activities $ 53,698 $ 17,591
Net change in cash and cash equivalents
$ 20,622 $ ―
For the first quarter, cash flow from operations was $43.4 million, or 10.7%, higher than last year
due primarily to the increase in operating income before amortization. Changes in non-cash
operating items generated greater cash outflow than last year mainly as a result of a larger
decrease in accounts payable and accrued liabilities caused by increased capital expenditures
incurred late in fiscal 2005.
Investing activities, including capital expenditures segmented according to the National Cable
Television Association (NCTA) standard reporting categories, are as follows:
Quarters ended November 30,
($000s)
2005 2004
Customer premise equipment
(1)
$ 15,423 $ 11,304
Scalable infrastructure
3,672 2,405
Line extensions
2,552 2,777
Upgrade / rebuild
6,974 4,446
Support capital
1,392 642
Total capital expenditures
30,013 21,574
Deferred charges and others
3,665 2,203
Total investing activities
$
33,678 $ 23,777
(1) Includes mainly new and replacement drops but also home terminal devices.
During the first quarter, the increase related to capital expenditures is due mainly to the following
factors:
¾ The increase in customer premise equipment results primarily from a rise in the number of
digital terminals rented to customers. This increase is explained by higher customer growth
in the first quarter, by more customers renting their digital terminals fuelled by a reduction
in rental rates for digital terminals in August 2005 and by a greater ratio of digital terminals
per digital home.
¾ The growth in scalable infrastructure is mainly attributable to the additional capital
expenditures to support the rollout of digital telephony.
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¾ Expenditures associated with the network upgrade and rebuild program rose by
$2.5 million in the first quarter due to the acceleration of the program to expand the
bandwidth to 750 MHz and 550 MHz for the Ontario and Québec networks, respectively,
and to improve network reliability. An increase in the number of households with access to
two-way service was also a factor. The percentage of customers with access to two-way
service rose from 87% as at November 30, 2004 to 90% as at November 30, 2005.
The first quarter increase in deferred charges is explained by higher reconnect costs attributable to
the significant level of RGU increase, which includes the digital telephony customer growth.
Free Cash Flow of $9.7 million was generated during the first quarter of fiscal 2006 as a result of
increased cash flow from operations partly offset by increased capital expenditures and deferred
charges. Free Cash Flow declined in the first quarter of fiscal 2006 compared to the same period
last year. This is attributable to increased capital expenditures and deferred charges to support
digital telephony and better than expected RGU growth.
Net change in cash and cash equivalents generated cash inflow in the first quarter. At quarter end,
the Corporation had cash and cash equivalents in hand with a maturity that could not be
synchronized with the maturity of its Indebtedness under the Term Facility.
During the first quarter, the level of Indebtedness increased by $55.3 million mainly due to a
decline in non-cash operating items of $42.8 million and a net change in cash and cash
equivalents of $20.6 million, partly offset by generated Free Cash Flow of $9.7 million. For the
same period last year, Indebtedness grew by $18.1 million, essentially due to a decline of
$33 million in non-cash operating items counterbalanced by generated Free Cash Flow of
$15.4 million. In addition, a dividend of $0.04 per share for subordinate and multiple voting shares,
totalling $1.6 million, was paid during the first quarter of fiscal 2006 compared to a dividend of
$0.02 per share or $0.8 million for the first quarter of fiscal 2005.
As at November 30, 2005, the Corporation had utilized $40 million of its Term Facility. Taking into
account existing bank covenants, Cogeco Cable could have used the entire committed amount
under the Term Facility. Going forward, Cogeco Cable expects to generate Free Cash Flow and
thus further reduce its leverage ratio net of cash and cash equivalents.
DIVIDEND DECLARATION AND NORMAL COURSE ISSUER BID
At its January 11, 2006 meeting, the Board of Directors of Cogeco Cable declared a quarterly
dividend of $0.04 per share for subordinate and multiple voting shares, payable on February 8,
2006, to shareholders on record as at January 25, 2006.
On December 14, 2005, Cogeco Cable renewed its normal course issuer bid pursuant to which it
can acquire up to 250,000 subordinate voting shares for cancellation representing 1.03% of the
outstanding shares of this class. During the first quarter of fiscal 2006, Cogeco Cable did not
acquire any of its shares.
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FINANCIAL POSITION
Since August 31, 2005, there have been major changes to the “Cash and cash equivalents,”
“Accounts payable and accrued liabilities,” and “Indebtedness” items on the balance sheet.
Accounts payable and accrued liabilities declined by $43.5 million as the use of working capital
was tightly managed at fiscal 2005 year-end. Cash and cash equivalents and Indebtedness
increased by $20.6 million and $55.3 million, respectively, due to the factors previously discussed
in the “Cash Flow and Liquidity” section.
A description of Cogeco Cable’s share data as of December 30, 2005 is presented in the table
below:
Number of
shares/options
Amount
($000s)
Common Shares
Multiple voting shares
Subordinate voting shares
15,691,100
24,301,000
98,346
532,036
Options to Purchase Subordinate Voting Shares
Outstanding options
Exercisable options
714,065
447,140
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
have not materially changed since August 31, 2005 and are described in the 2005 annual MD&A.
FOREIGN EXCHANGE MANAGEMENT
Cogeco Cable has entered into cross-currency swap agreements to fix the liability for interest and
principal payments on its US$150 million Senior Secured Notes. These agreements have the
effect of converting the US interest coupon rate of 6.83% per annum to an average Canadian
dollar fixed interest rate of 7.254% per annum. The exchange rate applicable to the principal
portion of the debt has been fixed at CDN$1.5910. Amounts due under the
US$150 million Senior Secured Notes Series A decreased by CDN$3 million during the first
quarter due to the Canadian dollar’s appreciation. Since the Senior Secured Notes Series A are
fully hedged, the fluctuation is fully offset by a variation in deferred credit described in
Note 5 of the first quarter interim financial statements. The $63.6 million deferred credit represents
the difference between the quarter-end exchange rate and the exchange rate on the
cross-currency swap agreements, which determine the liability for interest and principal payments
on the Senior Secured Notes Series A.
FISCAL 2006 FINANCIAL GUIDELINES
In furtherance of its existing line of business and external growth strategy, the Corporation
continues to investigate cable system acquisition opportunities, including cable systems located
outside Canada.
Since economic and industry factors described in the 2005 annual MD&A remain unchanged,
management is maintaining its fiscal 2006 financial and customer guidance and, as a result, still
expects to generate Free Cash Flow of $35 to $40 million.
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RISK FACTORS AND UNCERTAINTIES
There has been no significant change in the risk factors and uncertainties facing Cogeco Cable as
described in the Corporation’s 2005 annual MD&A.
ADDITIONAL INFORMATION
This MD&A was prepared on January 11, 2006. 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) is the second largest cable operator in both Ontario and Québec,
and ranks fourth in Canada in terms of the number of basic service customers served. Cogeco
Cable invests in state-of-the-art broadband network facilities, delivers a wide range of services
over these facilities with great speed and reliability at attractive prices, and strives to provide both
superior customer care and growing profitability to satisfy its customers’ varied electronic
communication needs. Through its two-way broadband cable infrastructure, Cogeco Cable
provides its residential and commercial customers with analogue and digital video and audio
services, high-speed Internet access as well as digital telephony service. The Corporation provides
about 1,409,000 revenue-generating units to approximately 1,454,000 households in its service
territory. Cogeco Cable’s subordinate voting shares are listed on the Toronto Stock Exchange
(CCA.SV).
– 30 –
Source: Cogeco Cable Inc.
Pierre Gagné
Vice President, Finance and Chief Financial Officer
Tel.: (514) 874-2600
Information: Media
Marie Carrier
Director, Corporate Communications
Tel.: (514) 874-2600
Analyst Conference Call: Thursday January 12, 2006, at 11:00 a.m. EST
By Internet at www.cogeco.ca/investors
By telephone: 1 (800) 310-6649 (confirmation code 4786865)
Media are invited to participate in listen mode only.
Re-broadcast of the call available until January 19: 1 (888) 203-1112
(confirmation code 4786865)
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Supplementary Quarterly Financial Information
Quarters ended November 30, August 31, May 31, February 28, February 29,
2005 2004 2005 2004 2005 2004 2005 2004
($000, except percentages and
per share data)
(restated)
(1)
Revenue $143,413 $135,766 $140,178 $133,053 $140,071 $132,364 $138,389 $131,574
Operating income before
amortization
57,302
53,194
60,720
54,290
58,310
51,329
55,297
50,413
Operating margin 40.0% 39.2% 43.3 % 40.8% 41.6 % 38.8% 40.0 % 38.3%
Amortization 28,277 32,244 29,460 32,476 31,396 32,070 31,988 32,355
Financial expense 13,582 13,894 14,004 13,871 13,954 14,414 13,840 14,767
Income taxes 6,445 3,229 6,220 1,474 4,715 2,993 3,856 2,703
Net income 8,998 3,827 11,036 6,469 8,245 1,852 5,613 588
Cash flow from operations 43,389 39,192 46,509 41,025 43,562 36,593 41,675 35,278
Net income per share $0.23 $0.10 $0.28 $0.16 $0.21 $0.05 $0.14 $0.01
(1) During the third quarter of fiscal 2004, Cogeco Cable adopted new accounting standards regarding revenue recognition and certain related
costs, as well as the classification of certain items as revenue, expense or capitalized cost. These changes were applied on a retroactive basis in
accordance with Abstracts 141 and 142 issued by the Canadian Institute of Chartered Accountants’ (CICA) Emerging Issues Committee (EIC). See
“Accounting Policies and Estimates” of the 2005 MD&A for a detailed description of these new accounting standards implemented on a retroactive
basis.
Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations.
However, the loss of basic service customers is usually greater, and the addition of HSI customers
is generally lower in the third quarter, mainly due to students leaving campuses at the end of the
school year. Cogeco Cable offers its services in several university and college towns such as
Kingston, Windsor, St. Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski.
Furthermore, the fourth quarter’s 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. Since the maximum amount was reached
early in the fourth quarter of fiscal 2004 and at the end of the third quarter of fiscal 2005, Cogeco
Cable paid lower or no management fees during these quarters.
COGECO CABLE INC.
Customer Statistics
November 30, August 31,
2005 2005
Homes Passe
d
Ontario 990 777 986 401
Québec 463 516 462 332
1 454 293 1 448 733
Revenue Generating Units
Ontario 1 011 926 968 749
Québec 396 577 378 984
1 408 503 1 347 733
Basic Service Customer
s
Ontario 589 476 581 631
Québec 242 860 239 802
832 336 821 433
Discretionnary Service Customer
s
Ontario 466 250 461 038
Québec 186 957 183 320
653 207 644 358
Pay TV Service Customer
s
Ontario 82 923 80 817
Québec 38 019 35 407
120 942 116 224
High Speed Internet Service Customers
Ontario 243 896 226 133
Québec 56 745 51 515
300 641 277 648
Digital Video Customers
Ontario 173 811 159 734
Québec 94 808 87 470
268 619 247 204
Digital Terminals
Ontario 232 265 209 662
Québec 102 604 94 222
334 869 303 884
Digital Telephony
Ontario 4 743 1 251
Québec 2 164 197
6 907 1 448
Page 11
Page 12
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended November 30,
(In thousands of dollars, except per share data)
2005
2004
(unaudited)
(unaudited)
Revenue
Service
$ 142,759
$ 134,710
Equipment
654
1,056
143,413
135,766
Operating costs
83,243
79,857
Management fees – COGECO Inc.
2,868
2,715
Operating income before amortization 57,302
53,194
Amortization (note 2)
28,277
32,244
Operating income 29,025
20,950
Financial expense (note 5)
13,582
13,894
Income before income taxes 15,443
7,056
Income taxes (note 3)
6,445
3,229
Net income $ 8,998
$ 3,827
Earnings per share (note 4)
Basic
$0.23
$0.10
Diluted
0.22
0.10
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COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended November 30,
(In thousands of dollars)
2005
2004
(unaudited)
(unaudited)
Balance at beginning $ 58,604
$ 33,880
Net income
8,998
3,827
Dividends on multiple voting shares
(628)
(314)
Dividends on subordinate voting shares
(972)
(485)
Balance at end $ 66,002
$ 36,908
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COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
November 30,
2005
August 31,
2005
(unaudited)
(audited)
Assets
Current
Cash and cash equivalents
$ 20,683
$61
Accounts receivable
27,521
26,485
Income tax receivable
286
-
Prepaid expenses
3,378
3,946
51,868
30,492
Fixed assets
704,590
697,526
Deferred charges
36,322
38,226
Customer base
989,552
989,552
$ 1,782,332
$ 1,755,796
Liabilities and Shareholders’ equity
Liabilities
Current
Bank indebtedness
$ 15,646
$-
Accounts payable and accrued liabilities
81,542
125,090
Income tax liabilities
-
678
Deferred and prepaid income
26,778
24,907
Current portion of long-term debt (note 5)
1,296
1,322
125,262
151,997
Long-term debt (note 5)
730,837
691,159
Deferred and prepaid income
10,844
10,522
Pension plans liabilities and accrued employee benefits
1,993
1,903
Future income tax liabilities
216,351
210,731
1,085,287
1,066,312
Shareholders’ equity
Capital stock (note 6)
630,220
630,220
Retained earnings
66,002
58,604
Contributed surplus - stock-based compensation
823
660
697,045
689,484
$ 1,782,332
$ 1,755,796
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COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended November 30,
(In thousands of dollars)
2005
2004
(unaudited)
(unaudited)
Cash flow from operating activities
Net income
$ 8,998
$ 3,827
Items not affecting cash and cash equivalents
Amortization (note 2)
28,277
32,244
Amortization of deferred financing costs
241
234
Future income taxes (note 3)
5,620
2,604
Other
253
283
Cash flow from operations
43,389
39,192
Changes in non-cash operating items (note 7a))
(42,787)
(33,006)
602
6,186
Cash flow from investing activities
Acquisition of fixed assets
(30,013)
(21,574)
Increase in deferred charges
(3,665)
(2,205)
Other
-
2
(33,678)
(23,777)
Cash flow from financing activities
Increase in bank indebtedness
15,646
21,328
Increase in long-term debt
40,000
-
Repayment of long-term debt
(348)
(3,267)
Issue of subordinate voting shares
-
329
Dividends on multiple voting shares
(628)
(314)
Dividends on subordinate voting shares
(972)
(485)
53,698
17,591
Net change in cash and cash equivalents 20,622
-
Cash and cash equivalents at beginning
61
-
Cash and cash equivalents at end $ 20,683
$-
See supplemental cash flow information in note 7.
Page 16
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in
accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present
fairly the financial position of Cogeco Cable Inc. as at November 30, 2005 and August 31, 2005 as well as its results
of operations and its cash flow for the three month periods ended November 30, 2005 and 2004.
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, 2005. These unaudited interim consolidated financial statements follow the
same accounting policies as the most recent annual consolidated financial statements.
The interim consolidated financial statements for the three month period ended November 30, 2004 have not been
subject to a review by the Corporation’s external auditors.
2. Amortization
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Fixed assets $ 22,949 $ 26,304
Deferred charges 5,328 5,940
$ 28,277 $ 32,244
3. Income taxes
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Current $ 825 $ 625
Future 5,620 2,604
$ 6,445 $ 3,229
Page 17
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
3. Income taxes (continued)
The following table provides the reconciliation between statutory federal and provincial income taxes and the
consolidated income tax expense:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Income tax at combined income tax rate of 35.09 %
(34.96 % in 2004)
$
5,419
$
2,467
Loss or income subject to lower or higher tax rates (8) 94
Increase in income taxes as a result of increases in
substantially enacted tax rates
162
-
Large corporation tax 825 625
Other 47 43
Income tax at effective income tax rate $ 6,445 $ 3,229
4. Earnings per share
The following table provides reconciliation between basic and diluted earnings per share:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Net income $ 8,998 $3,827
Weighted average number of multiple voting and
subordinate voting shares outstanding
39,984,586
39,935,729
Effect of dilutive stock options
(1)
195,214 114,763
Weighted average number of diluted multiple voting and
subordinate voting shares outstanding
40,179,800
40,050,492
Earnings per share
Basic $ 0.23 $0.10
Diluted 0.22 0.10
(1) For the three month period ended November 30, 2005, 143,248 stock options (162,942 in 2004) were excluded from the calculation of diluted earnings per share
since the exercise price of the options was greater than the average share price of the subordinate voting shares.
Page 18
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
5. Long-term debt
Maturity Interest rate
November 30,
2005
August 31,
2005
(unaudited) (audited)
Parent company
Term Facility 2007 4.75 %
$ 40,000 $-
Senior Secured Debentures Series 1 2009 6.75
150,000 150,000
Senior – Secured Notes
Series A – US $150 million 2008 6.83
(1)
175,035 178,065
Series B 2011 7.73
175,000 175,000
Second Secured Debentures Series A 2007 8.44
125,000 125,000
Deferred credit
(2)
2008 -
63,615 60,585
Subsidiaries
Obligations under capital leases 2010 5.87 – 8.36
3,483 3,831
732,133 692,481
Less current portion
1,296 1,322
$ 730,837 $ 691,159
(1) 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.
(2) The deferred credit represents the amount which would have been payable as at November 30, 2005 and August 31, 2005 under cross-
currency swaps entered into by the Corporation to hedge Senior Secured Notes Series A denominated in US dollars.
Interest on long-term debt for the three month period ended November 30, 2005 amounted to $13,048,000
($13,244,000 in 2004).
Page 19
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
6. 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, issuable in series.
Multiple voting shares, 10 votes per share.
Subordinate voting shares, 1 vote per share.
November 30,
2005
August 31,
2005
(unaudited) (audited)
Issued
15,691,100 multiple voting shares $ 98,346 $ 98,346
24,293,486 subordinate voting shares 531,874 531,874
$ 630,220 $ 630,220
During the period, subordinate voting shares transactions were as follows:
Three months ended Twelve months ended
November 30, 2005 August 31, 2005
(unaudited) (audited)
Number of
shares
Amount
Number of
shares
Amount
Balance at beginning 24,293,486 $ 531,874 24,232,815 $ 531,070
Shares issued for cash under the Employee Stock Purchase Plan
and the Stock Option Plan
-
-
60,671
742
Compensation expense previously recorded in contributed
surplus for options exercised
-
-
-
62
Balance at end 24,293,486 $ 531,874 24,293,486 $ 531,874
Page 20
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
6. Capital Stock (continued)
Stock-based plans
The Corporation established for the benefit of its employees and those of its subsidiaries, an Employee Stock
Purchase Plan and a Stock Option Plan for certain executives which are described in the Corporation’s annual
consolidated financial statements. During the first quarter, the Corporation granted 123,342 stock options
(140,766 in 2004) with an exercise price of $29.05 ($21.50 in 2004) of which 31,743 stock options (38,397 in 2004)
were 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 $163,000 ($98,000 in 2004) was recorded for the
three month period ended November 30, 2005. If compensation cost had been recognized using the fair value-based
method at the grant date for options granted between September 1, 2001 and August 31, 2003, the Corporation’s net
income and earnings per share for the three month periods ended November 30, 2005 and 2004 would have been
reduced to the following pro forma amounts:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Net income
As reported $ 8,998 $ 3,827
Pro forma 8,978 3,731
Basic earnings per share
As reported $ 0.23 $ 0.10
Pro forma 0.22 0.09
Diluted earnings per share
As reported $ 0.22 $ 0.10
Pro forma 0.22 0.09
The fair value of each option granted was estimated on the grant date for purposes of determining stock-based
compensation expense using the Binomial option pricing model based on the following assumptions:
2005 2004
Expected dividend yield
1.27 % 1.27 %
Expected volatility
39 % 43 %
Risk-free interest rate
3.70 % 3.70 %
Expected life in years
4.0 4.0
The fair value of stock options granted for the three month period ended November 30, 2005 was $9.46 ($7.46 in
2004) per option.
As at November 30, 2005, the Corporation had outstanding stock options providing for the subscription of 714,065
subordinate voting shares. These stock options can be exercised at various prices ranging from $7.05 to $40.75 and
at various dates up to October 20, 2015.
Page 21
COGECO CABLE INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
7. Statements of cash flow
a) Changes in non-cash operating items
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Accounts receivable $ (1,036) $ (671)
Income tax receivable (286) -
Prepaid expenses 568 603
Accounts payable and accrued liabilities (43,548) (36,411)
Income tax liabilities (678) (64)
Deferred and prepaid income 2,193 3,537
$ (42,787) $ (33,006)
b) Other information
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Interest paid $ 15,957 $ 16,120
Income taxes paid 1,789 689
8. Employees future benefits
The Corporation and its subsidiaries offer their employees defined contributory 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 related to these plans are as follows:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Defined contributory benefit pension plans $ 174 $ 92
Defined contribution pension plan and collective
registered retirement savings plan
383
340
$ 557 $ 432