COGECO CABLE’S CONTINUED ORGANIC GROWTH AND ACQUISITIONS CONTRIBUTE POSITIVELY TO THE FOURTH QUARTER AND 2008 YEAR END RESULTS
PRESS RELEASE
For immediate release
Cogeco Cable’s continued organic growth and acquisitions
contribute positively to the fourth quarter and 2008 year end results
Montreal, October 30, 2008 – Today, Cogeco Cable Inc. (TSX: CCA) (the “Corporation”) announced its
financial results for the fourth quarte r and fiscal year ended August 31, 2008.
For the fourth quarter and fiscal 2008:
• Consolidated revenue increased by 16.6% to $284.9 million and by 14.7% to $1,076.8 million,
respectively;
• Consolidated operating income before amortization
(1)
grew by 18.2% to reach $121.1 million and by
20.1% to reach $445.4 million, respectively;
• Quarterly consolidated net income amounted to $31.9 million, compared to $36.4 million for the same
period of the prior year. For the 2008 year, consolidated net income grew by 57.4% to reach $133.3
million, up by $48.6 million compared to the prior year;
• Free cash flow
(1)
reached $21.1 million for the quarter, 41.8% higher compared to the year before. For
the fiscal year, free cash flow amounted to $98.9 million compared to $30.6 million the prior year;
• Operating margin
(1)
improved to reach 42.5% from 41.9% and to 41.4% from 39.5%, in the fourth
quarter and fiscal year, respectively;
• Revenue-generating units (“RGU”)
(2)
grew by 41,100 and 231,209 net additions, respectively, for a
total of 2,716,874 RGU at August 31, 2008.
External growth:
• During the fourth quarter, Cogeco Cable announced its entry into the Greater Toronto Area market
through the acquisition of all the shares of Toronto Hydro Telecom Inc., the telecommunications
subsidiary of Toronto Hydro Corporation, which now operates under the name of Cogeco Data
Services Inc. (“CDS ”).
• The Corporation also completed the acquisition of all the assets of FibreWired Burlington Hydro
Communications, Burli ngton Hydro Electric’s telecommunications division.
“The fourth-quarter was marked by our entry in the Greater Toronto Area market with the acquisition of Toronto
Hydro Telecom. Our new subsidiary, Cogeco Data Services, gives us access to complementary markets and
expertise that should contribute to our future commercial growth and development. This acquisition is perfectly
aligned with our long-term external growth strategy. As for our fiscal year-end results, we are very pleased to
report continued growth and the generation of financial results above expectations. Cogeco Cable completed a
private placement issuance of Senior Secured Notes for gross proceeds of $257 million which will permit the
Corporation to repay maturing debt and reduce bank indebtedness. This financing was completed despite a
(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)
Represent the sum of Basic Cable, High Speed Internet (“HSI”), Digital Television and Telephony service customers.
- 2 -
difficult financial market, and denotes the financial market’s confidence in Cogeco Cable. As for fiscal 2009, we
have reviewed our guidelines in light of the global economic slowdown and the competitive landscape in
Portugal and to include our projection s for CDS”, declared Louis Audet, Preside nt and CEO of Cogeco Cable.
Fiscal 2009 Financial Guideline s:
The Corporation issued its 2009 financial guidelines, setting revenue outlook at about $1,210 million, an
increase of $45 million compared to the 2009 preliminary financial projections issued in July 2008. Operating
income before amortization should increase to approximately $508 million, an improvement of $13 million
compared to our preliminary projections, and free cash flow should amount to approximately $90 million, a
decrease of $15 million due to an increase in capital expenditures driven by the recent acquisitions. Please
consult the fiscal 2009 projections in the “Fiscal 2009 Financial Guidelines” se ction for further details.
FINANCIAL HIGHLIGHTS
Quarters ended August 31, Years ended August 31,
($000, except percentages and per
share data)
2008 2007 Change 2008 2007 Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Revenue 284,908 244,314 16.6 1,076,787 938,880 14.7
Operating income before
amortization
(1)
121,116 102,426 18.2 445,424 370,753 20.1
Net income 31,866 36,368 (12.4) 133,282 84,691 57.4
Cash flow from operations
(1)
99,547 83,825 18.8 360,402 284,565 26.7
Less:
Capital expenditures and increase in
deferred charges 78,472 68,964 13.8 261,512 254,008 3.0
Free cash flow
(1)
21,075 14,861 41.8 98,890 30,557 –
Earnings per share
Basic 0.66 0.79 (16.5) 2.75 1.96 40.3
Diluted 0.65 0.78 (16.7) 2.73 1.94 40.7
(1)
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 othe r 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 2007 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
- 3 -
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 2007 Annual Report. Throughout this discussion, all amounts are in Canadian
dollars unless otherwise indicated.
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
CORPORATE STRATEGI ES AND OBJECTIVES
Cogeco Cable’s (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 cost control over 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 achie vements in furthering Cogeco Cable’s objectives.
Continuous improvement of the service offering and expansion of the customer base
Canadian operations
• Acquisitions:
o July 31, conclusion of the acquisition of all the shares of Toronto Hydro Telecom Inc., the
telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto’s energy
company), in order to further develop Cogeco Cable’s business telecommunications activities
by entering the Greater Toronto Area market. The new subsidiary now operates under the
name of Cogeco Data Services Inc. (“CDS”);
o June 30, conclusion of the acquisition of all assets of FibreWired Burlington Hydro
Communications, Burlington Hydro Electric’s telecommunications division (City of Burlington’s
energy company) to expand Cogeco Business Solutions’ commercial broadband service
offering in Burlington, Ontario.
• Digital Television services:
o October 9, launch of CBS College Sports on Di gital Television services in Ontario;
o October 2, launch of TSN2 and TSN HD on Digital and HD Television services in Québec;
o September 3, launch of TSN2, TSN2 HD and Super Channel HD on Digital and HD Television
services in Ontario.
• Telephony service:
o October 8, launch of Telephony service i n Vineland, St evensville and Port Robinson, Ontario;
o October 3, launch of Telephony service in Bromptonville, Richmond and Windsor, Québec;
o September 10, launch of Telephony service in Tecumseh and LaSalle, Ontario;
o During the fourth quarter, t he Telephony service was laun ched in the following cities:
o Gentilly, St-Léonard-d'Aston, St-Grégoire-de-Nicolet, Ste-Angèle-de-Laval, Bécancour,
Maskinongé, Yamachiche, Champlain, St-Boniface-de-Shawinigan, Delisle, Wickham,
Morin-Heights, Shawbridge, St-Cyrille-de-Wendover, St-Germain-de-Grantham et St-
Prosper-de-Dorchester in Québec;
o Maitland, Prescott, Tillbury, Odessa, Bath and Millgrove in Ontario.
(1)
Represent the sum of Basic Cable, High Speed Internet (“HSI”), Digital Television and Telephony service customers.
(2)
Free cash flow does not have a standardized definition 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.
- 4 -
• HSI Services:
o Expanded Wi-Fi service s to non-customers in Ontario;
o Phased launch of Wi-Fi service for Cogeco Cable cu stomers and non-customers in Québec.
European operations
• Digital Television services:
o Cabovisão - Televisão por Cabo, S.A. (“Cabovisão”) continued its Digital Television service
deployment.
• HSI Services:
o Increased uploading and downloading capacity for all services;
o Launch of free Security services for all HSI custome r s.
Continuous improv ement of networks and equipment
• During fiscal 2008, the Corporation has invested approximately $103.9 million in its infrastructure
including head-ends and upgrades and rebuilds.
Tight cost control over business processes
• For the fourth quarter of 2008, consolidated operating costs increased by 15.4% while revenue grew by
16.6%;
• The Portuguese cable subsidiary maintained tight cost control and continued to improve its business
processes;
• The design of internal controls over financial reporting as per National Instrument 52-109 is still
ongoing. As discussed in the 2007 annual MD&A, the Corporation had identified certain material
weaknesses in the design of internal controls over financial reporting and there have been
improvements in the design of internal controls on some significant processes during the quarter. The
documentation and remediation of internal controls weaknesses are progressing normally.
Effective management of capital
• October 1, the Corporation completed, pursuant to a private placement, the issue of 7.00% Series A
Senior Secured Notes for US$190 million maturing October 1, 2015, and 7.60% Series B Senior
Secured Notes 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 US$190 million of its
Senior Secured Notes Series A. Interest on the Notes is payable semi-annually in arrears on April 1
and October 1 of each year commencing April 1, 2009. The aggregate gross proceeds from the
issuance of these Notes amounts to approximately $257 million. Net proceeds of approximately
$255 million, after underwriters’ fees and other expenses, will be applied to repay Cogeco Cable’s
maturing debt and reduce bank indebtedness.
RGU gro wth
During the year ended August 31, 2008, the consolidated number of RGU increased by 231,209, or 9.3% to
reach 2,716,874 RGU, surpassing the Corporation’s revised RGU growth projections of 225,000 RGU issued
on April 10, 2008, which represents approximately 9%, for the fiscal year ending August 31, 2008.
Revenue growth
Fiscal 2008 fourth-quarter revenue increased by $40.6 million, or 16.6%, to reach $284.9 million. During fiscal
2008, revenue increased by $137.9 million, or 14.7%, to reach $1,076.8 million, exceeding the revised
projection of $1,060 million issued on April 10, 2008.
Free cash flow
In the fourth quarter of fiscal 2008, Cogeco Cable generated free cash flow of $21.1 million, compared to $14.9
million for the same period last year. For the year ended August 31, 2008, the Corporation generated free cash
flow of $98.9 million compared to $30.6 million the year before. The free cash flow generated surpassed by
$28.9 million or 41.3% the Corporation’s revised projection of $70 million for the year ended August 31, 2008.
- 5 -
The free cash flow improvements resulted mainly from an increase in operating income before amortization
(1)
and a reduction in financial expense. Capital expenditures and deferred charges for the fourth quarter and year
ended August 31, 2008 increased by $9.5 million and $7.5 million respectively when compared to the
corresponding periods of the prior year.
OPERATING RESULTS – CONSOLIDATED OVERVIEW
Quarters ended August 31, Years ended August 31,
($000,except perc enta ges ) 2008 2007 Change 2008 2007 Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Revenue 284,908 244,314 16.6 1,076,787 938,880 14.7
Operating costs 163,792 141,888 15.4 622,649 559,559 11.3
Management fees -
COGECO Inc. – – – 8,714 8,568 1.7
Operating income before
amortization
121,116 102,426 18.2 445,424 370,753 20.1
Operating margin
(1)
42.5% 41.9% 41.4% 39.5%
(1)
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 othe r companies. For more details, please consult the “Non-GAAP financial
measures” section.
Revenue
Fiscal 2008 fourth-quarter consolidated revenue improved by $40.6 million, or 16.6%, to reach $284.9 million,
and, for fiscal 2008, by $137.9 million, or 14.7%, to reach $1,076.8 million. Driven by an increased number of
RGU combined with rate increases and the acquisitions of MaXess Networx®, FibreWired Burlington Hydro
Communications, and Cogeco Data Services (the “recent acquisitions”), fourth-quarter 2008 Canadian
operations revenue went up by $32.3 million, or 17.1%, and for fiscal 2008 by $119 million, or 16.7%.
Fiscal 2008 fourth-quarter European operations revenue increased by $8.3 million, or 14.8%, to reach
$64.1 million, and for fiscal 2008 by $18.9 million, or 8.4%, to reach $243.7 million compared to the same
periods last year. European operations implemented rate increases, and generated RGU growth for the year
despite a decline in RGU in the fourth quarter. Furthermore the strength of the Euro against the Canadian
dollar compared with the prior year had a positive impa ct on revenue when translated to Canadian dollars.
Operating costs
For the fourth quarter and fiscal 2008, operating costs, excluding management fees payable to COGECO Inc.,
increased by $21.9 million, or 15.4% and $63.1 million, or 11.3%, compared to the prior year, to reach
$163.8 million and $622.7 million, respectively. The increase in operating costs for the fourth quarter and fiscal
2008 was mainly attributable to servicing additional RGU in Canada and Portugal, the impact of recent
acquisitions on Canadian operating costs as well as the impact of the appreciation of the Euro over the
Canadian dollar on European operating costs. In addition, for the fiscal year, operating costs were impacted by
the additional investment into certain marketing initiatives in Portugal, including a major campaign to increase
brand awareness, and costs related to the design of internal controls and review of business processes to
comply with National Instrument 52-109.
Operating income before amortization
Fourth-quarter and 2008 fiscal year operating income before amortization increased by $18.7 million, or 18.2%,
to reach $121.1 million and by $74.7 million, or 20.1%, to reach $445.4 million, respectively, as a result of
various rate increases, recent acquisitions, and RGU growth generating additional revenues which outpaced
(1)
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.
- 6 -
operating cost increases. Cogeco Cable’s 2008 fourth-quarter operating margin increased to 42.5% from
41.9% for the fourth quarter of fiscal 2007. The operating margin in Canada increased slightly for the fourth-
quarter of 2008 to 43.6% compared to 43.3% and in Europe improved to 38.8% from 37.3% in the same period
of the prior year.
For fiscal 2008, the operating margin improved to 41.4% from 39.5% due to the reasons described above, with
the Canadian operating margin improving to 42.8% from 41% and the European operating margin to 36.3%
from 34.6% when compared to the same period the year before.
Excluding the results of the recent acquisitions, financial results exceeded the Corporation’s revised projections
of operating income before amortization of $440 million and were in line with the Corporation’s projected
operating margin between 41% and 42% for fiscal 2008.
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 2008, management fees have been
set at a maximum of $8.7 million, which was reached in the second quarter, and therefore, no management
fees were paid in the second half of the year. For fiscal 2007, management fees were set at a maximum of $8.6
million, and were fully paid in the first six months of the year.
Furthermore, Cogeco Cable granted 22,683 stock options to COGECO’s employees during fiscal 2008,
compared to 319,647 for the same period last year. Of these 319,647 stock options granted in fiscal 2007,
262,400 were conditional on the achievement of certain yearly financial objectives by the Portuguese
subsidiary over a period of three years. During the fourth quarter and fiscal 2008, Cogeco Cable charged
COGECO Inc. an amount of $0.1 million and $0.4 million, respectively, with regards to Cogeco Cable’s options
granted to COGECO’s employees. Details regarding the management agreement and stock options granted to
COGECO Inc.’s employees are provided in the MD&A of the Corporation’s 2007 Annual Report. There were no
other material related party transactions during the 2008 year.
FIXED CHARGES
Quarters ended August 31, Years ended August 31,
($000, except percentages) 2008 2007 Change 2008 2007 Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Amortization 61,414 54,164 13.4 228,299 189,323 20.6
Financial expens e 17,868 18,524 (3.5)
69,111 84,569 (18.3)
2008 fourth-quarter amortization amounted to $61.4 million compared to $54.2 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, to support the deployment of the Digital Television service in
Portugal, and to the recent acquisitio ns.
Amortization for fiscal 2008 amounted to $228.3 million compared to $189.3 million for fiscal 2007. Amortization
expense increased due to the following factors: the completion, in the fourth quarter of fiscal 2007 of the
purchase price allocation of the Cabovisão acquisition, which includes the revaluation of tangible and intangible
assets for an additional amortization expense of approximately $18.7 million for the fiscal year and additional
capital expenditures arising from the required customer premise equipment to sustain RGU growth and to
support the deployment of the Digital Television service in Portugal. The impact of the recent acquisitions has
also contributed to the increase in the a mortization expense for the 2008 fiscal year.
- 7 -
Fourth-quarter and fiscal 2008 financial expense decreased by $0.7 million and $15.5 million, respectively,
compared to the same periods in 2007 due to the reduction of the level of Indebtedness (defined as bank
indebtedness, derivative financial instruments and long-term debt) from the net proceeds of subordinate voting
shares issued during fisc al 2007 as well as fr ee cash flow generated during those periods, net of the impact of
increases in long-term debt in the third and fourth quarters of fiscal 2008 to finance the recent acquisitions. In
addition, during fiscal 2007, the Corporation recorded a one-time charge of $2.6 million related to the early
repayment of the Second Secured Debentures, Series A.
INCOME TAXES
Fiscal 2008 fourth quarter income tax expense amounted to $10 million compared to a recovery of $6.6 million
in fiscal 2007, mainly due to the increase in operating income before amortization surpassing that of the fixed
charges. In addition, the 2007 income tax expense was reduced by $14.7 million due to the recognition of
benefits stemming from prior years’ income tax losses, minimum income tax paid and a reduction of Canadian
federal enacted income tax rates to take effect in January 2011.
For fiscal 2008, income tax expense amounted to $14.7 million compared to $12.2 million in 2007. Included in
the 2008 expense is a recovery of $24 million related to the reduction in corporate income tax rates announced
on October 16, 2007 by the Canadian federal government in its Economic Statement. According to the new tax
initiatives, corporate income tax rates have been further reduced from 20.5% to 19.5% effective January 1,
2008, from 20% to 19% effective January 1, 2009, from 19% to 18% effective January 1, 2010, from 18.5% to
16.5% effective January 1, 2011, and to 15% effective January 1, 2012. These corporate income tax rates were
considered substantively enacted on December 14, 2007. The income tax reductions also resulted from the
revaluation of tangible and intangible assets upon the completion of the Cabovisão purchase price allocation in
the fourth quarter of fiscal 2007. In addition, the 2007 expense was reduced by a non-cash adjustment of
$16.2 million due to the recognition of benefits stemming from prior years’ income tax losses, minimum income
tax paid and a reduction of Cana dian federal enacted income tax rates to take effect in January 2011.
Excluding these adjustments, income taxes for the fourth quarter and fiscal 2008 would have amounted to
$10 million and $38.7 million, respectively, compared to $8.1 million and $28.4 million for the corresponding
periods of the prior year. The increase in income taxes is mainly due to the increase in operating income before
amortization exceeding the increa se in fixed charges.
NET INCOME
Fiscal 2008 fourth quarter net income amounted to $31.9 million, or $0.66 per share, compared to
$36.4 million, or $0.79 per share, for the same period in 2007, a decrease of 12.4% and 16.5%. The decrease
is mainly due to favourable income tax adjustments of $14.7 million in 2007. Excluding the effect of these
adjustments, net income would have been $21.6 milli on, or $0.47 per share in fiscal 2007.
Fiscal 2008 net income amounted to $133.3 million, or $2.75 per share compared to $84.7 million, or $1.96 per
share in fiscal 2007. Excluding the effect of income tax rate reductions of $24 million in 2008 and of
$16.2 million in 2007, net income for fiscal 2008 would have amounted to $109.3 million, or $2.25 per share,
compared to $68.5 million, or $1.58 per share in 2007, an increase of 59.6% and 42.4%, respectively. Net
income progression, excluding the effect of the income tax rate reductio ns, has re sulted mainly fr om the gro wth
in operating income before amortization exceeding that of fixed charges.
- 8 -
CASH FLOW AND LIQUIDITY
Quarters ended August 31, Years ended August 31,
($000) 2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Operating activities
Cash flow from operations
(1)
99,547 83,825 360,402 284,565
Changes in non-cash operating items 44,201 28,790 32,481 (72,755)
143,748 112,615 392,883 211,810
Investing activities
(2)
(289,008) (68,778) (485,663) (248,579)
Financing activities
(2)
100,138 (2,042) 63,672 28,218
Effect of exchange rate changes on cash and cash
equivalents denominated in foreign currencies 6 (243) 1,271 1,243
Net change in cash and cash equivalents
(45,116) 41,552 (27,837) (7,308)
Cash and cash equivalents, beginning of period
81,487 22,656 64,208 71,516
Cash and cash equivalents, end of period
36,371 64,208 36,371 64,208
(1)
Cash flow from operations does not have a standardized definition prescribed by Canadian Generally Accepted Accounting Principl es (“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 2008 fourth quarter cash flow from operations reached $99.5 million, 18.8% higher than the comparable
period last year, primarily due to the increase in operating income before amortization. Changes in non-cash
operating items generated higher cash inflows compared to the same period last year, mainly as a result of an
increase in accounts payable and accrued liabilities and in income tax liabilities, net of increases in accounts
receivable and prepaid expenses.
Fiscal 2008 cash flow from operations reached $360.4 million, an increase of 26.7% compared to the year
before, primarily due to the growth in operating income before amortization and to the reduction in financial
expense partly offset by the growth in current income taxes. Changes in non-cash operating items generated
cash inflows of $32.5 million for fiscal 2008 compared to cash outflows of $72.8 million in the previous year,
mainly as a result of increases in accounts payable and accrued liabilities and in income tax liabilities. In fiscal
2007, the reduction in accounts payable and accrued liabilities wa s due to non-recurring payments made by the
Portuguese subsidiary in accordance with the terms of the acquisition.
On March 31, 2008, the Corporation completed the acquisition of all the assets of MaXess Networx®, ENWIN
Energy Ltd.’s telecommunications division (City of Windsor’s energy company) for a total consideration of $15.6
million. MaXess Networx® operates a broadband network equipped with next generation ATM and Ethernet
technology and provides organizations in south-western Ontario with the broadband capacity required for data
networking, HSI access, e-business applications, video conferencing and other advanced communications.
On June 30, 2008, the Corporation completed the acquisition of all the assets of FibreWired Burlington Hydro
Communications, Burlington Hydro Electric's telecommunications division (City of Burlington’s energy
company) for a total consideration of $12.6 million. FibreWired Burlington Hydro Communications operates a
broadband network equipped with next generation ATM and Ethernet technology, provides Burlington’s
organizations with the broadband capacity required for data networking, HSI access, hosting services, e-
business applications, video conferencing and other a dvanced communications.
On July 31, 2008, the Corporation completed the acquisition of all of the shares of Toronto Hydro Telecom Inc,
the telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto’s energy company) for a total
consideration of $200 million. In addition, the Corporation assumed a working capital deficiency and certain
liabilities of approximately $4 million. Toronto Hydro Telecom Inc., which now operates under the name of
Cogeco Data Services Inc., offers data communications and other telecommunications services such as
Ethernet, private line, Voice-over-Internet protocol (“VoIP”), HSI access, dark fibre, data storage, data security
and co-location to a wide range of business customers and organizations throughout the Greater Toronto
- 9 -
Area (“GTA”). This acquisition allows the Corporation to further the development of its business
telecommunications activities.
These acquisitions were accounted for using the purchase method. The results have been consolidated as of
the acquisition dates.
The allocation of the purchase price of the acquisition s was as follows:
Cogeco Data
Services Inc.
(1)
Other Total
($000)
$ $ $
(audited) (audited) (audited)
Consideration paid
Purchase price of shares or assets 200,000 28,113 228,113
Acquisition costs 1,988 852 2,840
201,988 28,965 230,953
Net assets acquired
Cash and cash equivalents 1,230 - 1,230
Accounts receivable 4,575 968 5,543
Prepaid expenses 535 612 1,147
Fixed assets 57,098 19,102 76,200
Deferred charges - 24 24
Customer relationships 33,983 4,220 38,203
Goodwill 112,228 4,662 116,890
Future income tax assets 2,335 - 2,335
Accounts payable and ac c rued lia bilities assume d (4,380) (361) (4,741)
Deferred and prepaid income and other liabilities assumed (4,958) (262) (5,220)
Pension plan liabilities and accrued employee benefits (356) - (356)
Future income tax liabili ties (302) - (302)
201,988 28,965 230,953
(1)
The purchase price allocation of Cogeco Data Services Inc. is preliminary and will be finalized during the 2009 fiscal year.
- 10 -
Investing activities, including capital expenditure s segmented according to the National Cable Television
Association ( NCTA) standard reporting categories, are as follows:
Quarters ended August 31, Years ended August 31,
($000) 2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Customer premise equipmen t
(1)
25,849 22,004 96,326 98,192
Scalable infrastructure 16,280 11,692 47,006 43,392
Line extensions 6,191 3,366 13,929 11,164
Upgrade / Rebuild 15,767 16,673 56,873 58,640
Support capital 7,350 4,445 19,782 12,578
Total capital expenditures
(2)
71,437 58,180 233,916 223,966
Deferred charges and others 7,011 10,763 27,499 29,553
Business acquisitions and related adjustments 213,618 629 229,723 (1,265)
Decrease in restricted cash – (503)
– (591)
Total investing activities
(2)
292,066 69,069 491,138 251,663
(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 2008 fourth quarter total capital expenditures amounted to $71.4 million, an increase of 22.8% when
compared to the corresponding last year period, due to the following factors:
• An increase in customer premise equipment capital spending resulting from higher RGU growth fuelled
in part by increased interest for HD technology for the Canadian operations combined with the
deployment of Digital Television in Portugal, partly offset by a decrease in RGU in Portugal;
• 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;
• An increase in support capital due to the acquisition of vehicles and to leasehold improvements in the
Corporation’s head office.
The appreciation of the Euro over the Canadian dollar also had an impact on the total capital expenditures in
the fourth quarter of 2008.
Fiscal 2008 total capital expenditures increased to $233.9 million from $224 million for the prior year due to the
following factors:
• An increase in support capital due to the improvement in information systems to sustain the business
operations, to the acquisition of vehicles, and to leasehold improvements in the Corporation’s head
office;
• 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.
Deferred charges and others are mainly attributable to reconnect costs. Fourth quarter and fiscal 2008
increases in deferred charges amounted to $7 million and $27.5 million compared to $10.8 million and
$29.6 million for the same periods the year before. Lower RGU growth in Canadian operations explained the
lower increases reco rded in 2008.
In the fourth quarter and for the 2008 year, the Corporation generated free cash flow amounting to $21.1 million
and $98.9 million, respectively, compared to $14.9 million and $30.6 million for the same periods of the
preceding year. The free cash flow improvements over last year’s same periods are mainly due to an increase
in operating income before amortization and a reduction in financial expense net of increases in capital
expenditures. The aggregate amount of total capital expenditures and deferred charges increased by
- 11 -
$9.5 million in the 2008 fourth-quarter and by $7.8 million for the 2008 year compared to the corresponding
periods of last year due to the factors explaine d above.
In the fourth quarter of 2008, Indebtedness affecting cash increased by $104.7 million, due to the increase in
long-term debt to finance the recent acquisitions completed in the quarter, for an aggregate amount of
$214.8 million and the increase in bank indebtedness, partly offset by the cash inflows of $44.2 million from the
changes in non-cash operating items, the free cash flow of $21.1 million, and the use of cash and cash
equivalents for an amount of $45.1 million. During the fourth quarter of fiscal 2007, the level of Indebtedness
affecting cash decreased by $146.5 million and was essentially due to the repayment of Term Facility using the
public offering net proceeds of $146.9 million.
In addition, during the fourth quarter of fiscal 2008, a dividend of $0.10 per share was paid to the holders of
subordinate and multiple voting shares, totalling $4.9 million, compared to a dividend of $0.08 per share, or
$3.6 million, for the fourth quarter of fiscal 2007.
During fiscal 2008, the level of Indebtedness affecting cash increased by $79.4 million mainly due to the recent
acquisitions, for an aggregate amount of $228.1 million offset by the free cash flow of $98.9 million, a reduction
of $27.8 million in cash and cash equivalents and from an increase of $32.5 million in non-cash operating
items. In addition, on March 5, 2008, the Corporation issued a $100 million Senior Unsecured Debenture by
way of a private placement, the proceeds of which were primarily used to finance the recent acquisitions. The
debenture bears interest at a fixed rate of 5.936%, is redeemable at the Corporation’s option at any time, in
whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium and will mature
on March 5, 2018.
For fiscal 2007, the level of Indebtedness affecting cash decreased by $299.6 million, mainly due to the
completion of two public offerings totalling 8,000,000 subordinate voting shares for net proceeds of
approximately $331.1 million that were used to reimburse the Second Secured Debentures Series A and a
portion of the Term Facility, the free cash flow of $30.6 million and a reduction of $7.3 million in cash and cash
equivalents, partly offset by a decline of $72.8 million in non-cash operating items.
In addition, quarterly dividends of $0.10 per share were paid to the holders of subordinate and multiple voting
shares totalling $19.4 million during 2008 compared to quarterly dividends of $0.04 per share in the first
quarter, $0.06 per share in the second and third quarters, and $0.08 per share in the fourth quarter totalling
$10.3 million for the year before.
As at August 31, 2008, the Corporation had a working capital deficiency of $607.8 million compared to
$120.7 million as at August 31, 2007. The increased deficiency is mainly attributable to the following factors:
the expiry of the US$150 million Senior Secured Notes, Series A and the related derivative financial
instruments of $79.8 million on October 31, 2008, the increase in the current portion of long-term debt relating
to the $150 million Senior Secured Debentures, Series 1, due on June 4, 2009 and the €15.7 million
($24.4 million) repayment of the third tranche of the Term Facility due on July 28, 2009 for an aggregate
amount of $413.1 million due within the next fiscal year. 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 the majority 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.
During fiscal 2008, the Corporation repaid €10.5 million, representing 10% of the amount drawn, on the third
tranche of its $900 million Term Facility, which was reduced to $885 million accordingly. As at August 31, 2008,
the Corporation had used $467.6 million of its $885 million Term Facility for a remaining availability of
$417.4 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. In addition, the Corporation has also entered into cross-currency swap
agreements to fix the liability for interest and principal payments on US$190 million of its Senior Secured Notes
Series A, which bear interest at the coupon rate of 7.00% per annum, payable semi-annually. Taking into
account these agreements, the effective interest rate of the Senior Secured Notes Series A is 7.24% and the
exchange rate applicable to the principa l portion of the US dollar-denominated debt has been fixed at $1.0625.
- 12 -
FINANCIAL POSITION
Since August 31, 2007, there have been major changes to the balance of Fixed assets, Cash and cash
equivalents, Accounts payable and accrued liabilities, Income tax liabilities, Accounts receivable, Future
income tax assets, Future income tax liabilities, Goodwill, Customer relationships, Accumulated other
comprehensive income (loss) and Indebtedness.
The $138.5 million increase in fixed assets is mainly related to increased capital expenditures to sustain RGU
growth, the fixed assets acquired through the recent acquisitions, and to the appreciation of the Euro over the
Canadian dollar. The $27.8 million decrease in cash and cash equivalents is mainly due to the reduction of
Indebtedness. The $37.1 million increase in accounts payable and accrued liabilities is related to the timing of
payments made to suppliers and to the impact of the recent acquisitions. The $19.3 million increase in income
tax liabilities and the $4.5 million net reduction in future income tax assets are mainly due to the utilization of
most of the Corporation’s Canadian tax loss carry forwards before fiscal 2008, partly offset by the impact of the
recent acquisitions. The $12.8 million future income tax liabilities reduction is mainly due to the corporate
income tax rate reductions announced by the Canadian federal government and considered substantively
enacted on December 14, 2007. The $12.6 million accounts receivable increase is essentially due to revenue
growth and its related level of receivables, the recent acquisitions and the appreciation of the Euro over the
Canadian dollar. The increases of $145.2 million in Goodwill and of $32.6 million in Customer relationships are
due to the recent acquisitions as well as the appreciation of the Euro over the Canadian dollar. The
$18.5 million increase in accumulated other comprehensive income (loss) is mainly the result of the
appreciation of the Euro over the Canadian dollar, partly offset by the changes in accounting policies related to
financial instruments. Indebtedness has increased by $117.2 million as a result of the unfavourable impact of
the appreciation of the Euro over the Canadian dollar in addition to the accounting changes and factors
previously discussed in the “Cash Flow and Liquidity” section. For changes in accounting policies, please
consult “Accounting policies and estimates” section for further details.
A description of Cogeco Cable’s share data as of September 30, 2008 is presented in the table below:
Number of
shares/options
Amount
($000)
Common shares
Multiple voting shares
Subordinate voting shares
15,691,100
32,832,828
98,346
890,742
Options to purchase Subordinate voting shares
Outstanding options
Exercisable options
832,295
314,334
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 2007
annual MD&A, have not materially changed since August 31, 2007, with the exception of the new financing
discussed in the “Cash Flow and Liquidity” section.
DIVIDEND DECLARATION
At its October 29, 2008 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 November 26, 2008, to shareholders
of record on November 12, 2008. Continued improvement of the Corporation’s financial results explains the
dividend increase of 20% to $0.12 per share from $0.10 per share. 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 declared, and if declared, their am ount and timing may vary.
- 13 -
FOREIGN EXCHANGE MANAGEMENT
Cogeco Cable had entered into cross-currency swap agreements to set the liability for interest and principal
payments on its US$150 million Senior Secured Notes maturing in October 2008. These agreements have the
effect of converting the U.S. 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 $1.5910. Amounts due under the US$150 million Senior Secured Notes, Series A increased by $0.9
million at August 31, 2008 compared to August 31, 2007 due to the Canadian dollar’s depreciation. The fair
value of cross-currency swaps decreased by a net amount of $3.7 million, of which $0.9 million offsets the
foreign exchange loss on the $US debt. The difference of $2.8 million was recorded as an increase of other
comprehensive income, net of income taxes of $0.9 million.
As noted in the MD&A of the 2007 Annual Report, the Corporation’s investment in the Portuguese subsidiary,
Cabovisão, is exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily
changes in the values of the Canadian dollar versus the Euro. This risk is mitigated since the major part of the
purchase price for Cabovisão was borrowed directly in Euros. This debt is designated as a hedge of net
investments in self-sustaining foreign subsidiaries and accordingly, the Corporation realized a foreign exchange
gain of $18.8 million in fiscal 2008 which is presented in other comprehensive income. The exchange rate used
to convert the Euro into Canadian dollars for the balance sheet accounts at August 31, 2008 was $1.5580 per
Euro compared to $1.4390 per Euro at August 31, 2007. The average exchange rates prevailing during the
fourth quarter and the 2008 fiscal year used to convert the operating results of the European operations were
$1.5837 and $1.5098 per Euro, respectively, compared to $1.4374 and $1.4803 per Euro respectively, for the
same periods last year.
CANADIAN OPERATION S
CUSTOMER STATISTICS
Net additions (losses) % of Penetration
(1)
August 31,
Quarters ended
August 31,
Years ended
August 31,
August 31,
2008 2008 2007 2008 2007 2008 2007
RGU
1,991,908 42,909 39,656 203,400 232,572 – –
Basic Cable service
customers 857,094 (1,476)
(2,627)
7,937 15,980 – –
HSI service customers
(2)
473,467 8,799 12,363 57,631 72,756 57.7 52.2
Digital Television service
customers 441,746 16,150 8,747 61,867 52,515 52.4 45.8
Telephony service
customers
(3)
219,601 19,436 21,173 75,965 91,321 30.5 21.7
(1)
As a percentage of Basic Cable service customers in areas served.
(2)
Customers subscribing only to HSI services totalled 75,433 as at August 31, 2008 compared to 70,402 at August 31, 2007.
(3)
Customers subscribing only to Telephony services totalled 1,311 as at August 31, 2008 compared to 782 at August 31, 2007.
Fiscal 2008 fourth-quarter RGU net additions were higher than for the same period last year but the slower
growth rate reflects an early sign of maturation in some services. The number of net losses for Basic Cable
stood at 1,476 customers compared to 2,627 customers for the same period last year. Fourth-quarter Basic
Cable service customer losses reflect traditional seasonality and are due to the end of the school year for
college and university students. In addition, 2007 fourth-quarter net losses were unusually high due to an
attractive promotional offer that ended in the third quarter of fiscal 2007 which resulted in a higher than normal
number of customer disconnections for the fourth quarter of fiscal 2007. Telephony customers grew by 19,436
to reach 219,601 compared to 21,173 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 coverage, as a percentage of homes passed, has now reached 84%
compared to 78% last year. The number of net additions to HSI service stood at 8,799 customers compared to
12,363 customers for the same period last year. During the fourth quarter of 2008, 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 Conn ection) of Tel evision, HSI and Telephony services, and promotional activities.
- 14 -
The Digital Television service net additions stood at 16,150 customers compared to 8,747 customers for the
same period in the prior year due to targeted marketing initiatives in 2008 to improve the penetration rate and
the continuing strong interest for HD technology.
OPERATING RESULTS
Quarters ended
August 31,
Years ended
August 31,
($000, except percentages) 2008 2007 Change 2008 2007 Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Revenue 220,760 188,450 17.1 833,097 714,070 16.7
Operating costs 124,505 106,869 16.5 467,454 412,602 13.3
Management fees - COGECO Inc. – – – 8,714 8,568 1.7
Operating income before amort iz ati o n 96,255 81,581 18.0 356,929 292,900 21.9
Operating margin 43.6% 43.3% 42.8% 41.0%
Revenue
Fourth-quarter and fiscal 2008 revenue rose by $32.3 million, or 17.1%, and $119 million, or 16.7%, to reach
$220.8 million and $833.1 million, respectively. This growth is explained mainly by an increase in the number of
Telephony, Digital Television and HSI service customers as mentioned in the “Customer Statistics” section,
combined with the impact of the recent acquisitions as well as the following rate increases implemented by the
Corporation:
• In the second half of fiscal 2007:
o In March 2007; a monthly rate increase of $3 per Digital Television service customer in
Ontario;
o In April 2007; a monthly rate increase of $3 per Digital Television service customer in Québec
and a rate increase of $1.50 per Analog ue Value Pak service customer in Ontario.
These rate increases represent an average increase of approximately $1.25 per Basic Cable service
customer.
• In the first quarter of fiscal 2008:
o In October 2007 in Québec; a rate increase of between $1 and $2 per Analogue Basic Cable
service customer without a bundle, a rate increase of $0.50 per Basic Cable and tier service
customer without a bundle, and rate increases from $2 to $5 per HSI Lite service customer
and $5 per HSI Standard stand-alone service customer;
o In November 2007 in Ontario; a rate increase of between $1 and $2 per Analogue Basic Cable
service customer without a bundle, and rate increases from $2 to $5 per HSI Lite service
customer and $5 per HSI Standard stand-alone service customer;
o Finally, a rebate of $5 per Telephony service customer with two bundled service offers was
also introduced in fiscal 2008 in Ontario and in Québec.
• In the fourth quarter of fiscal 2008:
o In July 2008 in Ontario; a rate increase of $2 for all digital TV packages, slightly offset by
targets reductions in HD access fees in certain markets and monthly equipment rental fees of
selected digital receivers; a $2 rate increase to HSI Standard service in a bundle and a $5 rate
increase to HSI Pro service in a bundle.
o In July 2008 in Québec; a reduction of $4 for the monthly equipment rental fee of the standard
definition digital video recorded (“DV R”) receiver.
These rate adjustments implemented in fiscal 2008 represent an average increase of approximately
$1.60 per Basic Cabl e service customer.
Operating costs
2008 fourth-quarter and fiscal year operating costs, excluding management fees payable to COGECO Inc.,
increased by $17.6 million, or 16.5%, and $54.9 million, or 13.3%, to reach $124.5 million and $467.5 million,
- 15 -
respectively. The increase in operating costs is mainly attributable to servicing additional RGU and the impact
of recent acquisitions.
Operating income before amortization
Fourth-quarter and fiscal 2008 operating income before amortization rose by $14.7 million, or 18%, to reach
$96.3 million and by $64 million, or 21.9%, to reach $356.9 million, respectively. The operating income before
amortization has risen due to the increased revenue outpacing the operating costs growth as well as the impact
of the recent acquisitions. Cogeco Cable’s Canadian operations fourth-quarter operating margin increased
slightly to 43.6% compared to 43.3% for the same period in the prior year, and for the fiscal year increased to
42.8% from 41%, mainly as a result of RGU growth, recent acquisitions an d implemented rate increases.
EUROPEAN OPERATIONS
CUSTOMER STATISTICS
Net additions (losses) % of Penetration
(1)
August 31,
Quarters ended
August 31,
Years ended
August 31,
August 31,
2008 2008 2007 2008 2007 2008 2007
RGU 724,966 (1,809)
9,920 27,809 68,116 – –
Basic Cable service
customers 296,135 (4,456)
4,756 2,132 24,309 – –
HSI service customers
(2)
159,301 (5,009)
2,936 (722)
23,745 53.8 54.4
Digital Television
service custom ers
(3)
24,452 9,982
– 24,452 – 8.3 –
Telephony service
customers
(4)
245,078 (2,326)
2,228 1,947 20,062 82.8 82.7
(1)
As a percentage of Basic Cable service customers in areas served.
(2)
Customers subscribing only to HSI services totalled 8,176 as at August 31, 2008 compared to 8,370 at August 31, 2007.
(3)
The Digital Television service was launched in the third quarter of 2008.
(4)
Customers subscribing only to Telephony services totalled 10,201 as at August 31, 2008 compared to 8,119 at August 31, 2007.
2008 fourth-quarter and fiscal year were marked by an unfavourable economic environment in the Iberian
Peninsula, aggressive advertising campaigns from competitors and from the emergence of multiple triple-play
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 9,982 customers in the fourth
quarter, for a total of 24,452 net additions since the launch, surpassing management expectations. Fiscal 2008
fourth-quarter Basic Cable service decreased by 4,456 customers compared to a growth of 4,756 in 2007, HSI
service decreased by 5,009 customers compared to an increase of 2,936 in 2007, and Telephony service
decreased by 2,326 customers compared to a growth of 2,228 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
next fiscal year and is currently aligning its marketing strategy to respond to the current market conditions
prevailing in Portugal.
- 16 -
OPERATING RESULTS
Quarters ended August 31, Years ended August 31,
($000, except percentages) 2008 2007 Change 2008 2007 Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Revenue 64,148 55,864 14.8 243,690 224,810 8.4
Operating costs 39,287 35,019 12.2 155,195 146,957 5.6
Operating income before amort iz ati o n 24,861 20,845 19.3 88,495 77,853 13.7
Operating margin 38.8% 37.3% 36.3% 34.6%
Revenue
2008 fourth-quarter and fiscal year revenue increased by $8.3 million and $18.9 million to reach $64.1 million
and $243.7 million, respectively, an increase of 14.8% and 8.4%, compared to fiscal 2007. This growth for the
fourth quarter is mainly due to the following monthly rate increases implemented by Cabovisão: an increase of
$1 (€0.65) per Basic Cable service customer effective in March 2007, an increase averaging $1.50 (€1) per
Basic Cable customer and an increase averaging $0.90 (€0.60) per HSI customer effective in January 2008,
and the launch of Digital Television services. The growth for fiscal 2008 is mainly due to the monthly rate
increases described above, the increase in the number of Basic Cable and Telephony service customers, as
well as the launch of Digital Television services. Revenue from the European operations in the local currency
for the fourth quarter and fiscal 2008 amounted to €40.5 million and €161.3 million, an increase of €1.7 million,
or 4.3%, and €9.5 million, or 6.2%, respectively.
Operating costs
For the fourth quarter and fiscal 2008, operating costs increased by $4.3 million and $8.2 million to reach
$39.3 million and $155.2 million, respectively, an increase of 12.2% and 5.6% compared to last year. The
increase in operating costs for the fourth quarter of 2008 is mainly attributable to RGU growth including the
impact of the launch of Digital Television services. The operating costs increase for the fiscal year is due to
servicing additional RGU, timing of certain marketing initiatives, including a major campaign to increase brand
awareness, and costs related to the design of internal controls and review of business processes to comply
with National Instrument 52-109. Operating costs from the European operations in the local currency for the
fourth quarter and fiscal year amounted to €24.8 million and €102.5 million, an increase of €0.4 million or 1.7%,
and an increase of €3.3 million or 3.3%, respectively.
Operating income before amortization
Fourth-quarter and fiscal 2008 operating income before amortization increased to $24.9 million from
$20.8 million, an increase of 19.3% and to $88.5 million from $77.9 million, an increase of 13.7%, respectively.
The operating income before amortization increased due to revenue growth outpacing the rise in operating
costs. Fiscal 2008 fourth-quarter European operations operating margin increased to 38.8% from 37.3%. For
the 2008 year, the operating margin increased to 36.3% from 34.6%. Operating income before amortization
from the European operations in the local currency for the fourth quarter and fiscal 2008 amounted to
€15.7 million and €58.8 million, an increase of €1.2 million or 8.6%, and €6.2 million or 11.8%, respectively.
FISCAL 2009 FINANCIAL PROJECTIONS
The Corporation has revised its preliminary consolidated projections to take into consideration the acquisition of
CDS on July 31, 2008 and the slowdown in the global economy and the current competitive dynamics in the
Portuguese market.
For its Canadian operations, management has revised its preliminary projections to reflect the acquisition of
CDS and the lower than initially projected RGU growth. For its European operations, management has revised
downwards its preliminary projections to reflect a decline in RGU marked by the global economic slowdown
that is occurring and should continue in fiscal 2009, by the current adverse market conditions and by the
emergence of multiple triple-play provid ers in the Portuguese market.
- 17 -
Subsequent to these adjustments, projected revenue should increase by $45 million to reach $1,210 million,
operating income before amortization should increase to $508 million from $495 million and operating margin
should reduce to approximately 42%. Net income should stand at $107 million.
Management is also raising its guidance for capital expenditures and deferred charges from $275 million to
$300 million essentially due to the acquisition of CDS. Amortization and financial expenses are expected to
increase, respectively, from $250 million to $275 million and from $65 million to $70 million mainly due to the
acquisition of CDS.
As a result of the revised projections, free cash flow is now expected to reach $90 million, a decrease of
$15 million from the preliminary projections.
Consolidated
($ million, except customer data and operating margin)
Projections
October 29, 2008
Fiscal 2009
Preliminary Projections
July 9, 2008
Fiscal 2009
$ $
Financial Guidelines
Revenue
1,210 1,165
Operating income before amort iz ati o n
508 495
Operating margin
42% 42.5%
Financial expens e
70 65
Amortization
275 250
Net income
107 125
Capital expenditures and deferred charges
300 275
Free cash flow
90 105
Customer Addition Guidelines
RGU
100,000 175,000
The exchange rate used for the fiscal 2009 projections is $1.50 per Euro compared to $1.44 per Euro for the
July 2008 preliminary projections.
UNCERTAINTIES AND M AIN RISK FACTORS
This section outlines general as well as more specific risks faced by Cogeco Cable and its subsidiaries that
could significantly affect the financial condition, operating results or business of the Corporation. It does not
purport to cover all contingencies, or to describe all possible factors that might have an influence on the
Corporation or its activities at any point in time. Furthermore, the risks and uncertainties outlined in this section
may or may not materialize in the end, may evolve differently than expected or may have different
consequences than those that are being presently anticipated.
Cogeco Cable applies an on-going risk management process that includes an annual assessment of risks for
the Corporation and its subsidiaries, under the oversight of the Audit Committee. As part of this process, the
Corporation endeavours to identify risks that are liable to have a major impact on the Corporation’s financial
situation, revenue or activities, and to mitigate such risks proactively as may be reasonable and appropriate in
the circumstances. Thi s se ction reflects management’s current views on uncertainties and main risk factor s.
RISKS PERTAINING TO MARKETS AND COMPETITION
Electronic communications markets continue to evolve rapidly and are increasingly competitive in both Canada
and Portugal. Competitors offer video distribution, broadband Internet access, fixed telephone, mobile
telephone and data services through various means of telecommunications facilities including terrestrial
wireline and wireless networks as well as satellite. Rivalry extends over several elements, including the
features of individual services, the composition of service bundles, prices and perceived value, promotional or
introductory offers, duration of the commitment by the customer, terminal devices and customer service.
- 18 -
Service bundles offered by competitors include double, triple or even quadruple-play offers combining video,
broadband, fixed and/or mobile telecommunications to residential and commercial customers.
Cogeco Cable provides “double-play” and “triple-play” service bundles both in Canada and in Portugal, with
various combinations of Telephony, HSI and television distribution services being offered at attractive bundle
prices, but does not offer “quadruple-play” service bundles that include mobile communications. Cogeco Cable
continues to focus on its existing lines of service with a view to capturing the remaining growth opportunities for
HSI, Digital Television and Telephony services in its footprint, making the most efficient use of its own hybrid
fibre-coaxial (“HFC”) plant. As markets evolve and mobility becomes a more cost-effective substitute to wireline
communications, Cogeco Cable may need to add mobility components to its service bundles, through suitable
mobile virtual network (“MVNO”) arrangements with existing or future mobile operators, or otherwise through
new wireless alternatives. The capital and operating expenditures eventually required to offer quadruple-play
service bundles may not be offset by the incremental revenue that such new bundles would generate, thus
resulting in downward pressure on operating margins.
In Canada, Cogeco Cable faces competition in its service areas mainly from a few large integrated
telecommunications service providers. The largest, BCE Inc., offers through its various subsidiaries, income
trusts and partnerships a full range of competitive voice, data and video services to residential, as well as to
business customers in the Provinces of Ontario and Québec through a combination of fixed wireline (Bell
Canada, Télébec), mobile wireless (Bell Mobility) and satellite (Bell TV) platforms. BCE Inc. is in the process of
being acquired by a group of institutional investors led by the Ontario Teachers’ Pension Plan, with closing of
the transaction expected to take place by the end of December 2008. It is not known at this time to what extent
the changes in the ownership and management of this major competitor will affect market dynamics in the two
Provinces, notably with respect to the anticipated rollout of IPTV services over its fixed wireline platform. Telus
Communications Company competes with all of Cogeco Cable’s services in the Lower St. Lawrence area of the
Province of Québec through the use of its wireline network, and throughout Cogeco Cable’s Canadian footprint
through the use of its mobile telecommunications network. However, Cogeco Cable’s Telephony service is
provided with the assistance of certain Telus carrier services through a multi-year contractual arrangement.
Star Choice Television Network Incorporated, an indirect subsidiary of Shaw Communications Inc., competes
for video and audio distribution services throughout Cogeco Cable’s Canadian footprint. Rogers Wireless
Communications Inc., a subsidiary of Rogers Communications Inc., operates a mobile telecommunications
network in Ontario and Québec and is the owner of the Inukshuk broadband wireless network in partnership
with Bell Mobility. Rogers Cablesystems Inc., the cable subsidiary of Rogers Communications Inc., is now
licensed to extend its services in the Burlington, Oakville and Milton areas, which are part of Cogeco Cable’s
footprint in Ontario, although there has not been any significant cable overwiring to date. Videotron Ltd., an
indirect subsidiary of Quebecor Inc., offers competitive mobile telecommunications services in Cogeco Cable’s
Québec footprint. Cogeco Cable also competes with other telecommunications service providers, including
Vonage, Primus and Rogers Home Phone (formerly known as Sprint), with alternative service providers that
use resale or third-party access arrangements in effect, and with smaller facilities-based competitors such as
Maskatel in certain local markets within its network footprint. It is anticipated that, as a result of the advanced
wireless spectrum (“AWS”) auction completed earlier this year, there will be several new entrants entering the
wireless telecommunications markets in Canada on a national, regional or local basis with advanced wireless
voice, internet, data and video services, and that incumbent wireless carriers will use the new spectrum to
provide such advanced wireless services in competition with the new entrants, thus resulting in increased
competition for the fixed Telephony, HSI, data and television servic es of Cogeco Cable.
In Portugal, Cogeco Cable’s indirect subsidiary Cabovisão faces tough competition for all its lines of business
mainly from incumbent telecommunications carrier Portugal Telecom, SGPS, S.A. (“PT”), and Zon Multimedia,
SGPS, S.A. (“Zon”), as well as from Sonaecom, SGPS, S.A. (“Sonaecom”), a subsidiary of diversified
Portuguese conglomerate Sonae, SGPS, S.A. Zon owns TV Cabo, the largest cable telecommunications
operator in Portugal, and also offers a direct-to-home satellite distribution service to the Portuguese market.
Zon’s cable plant overlaps the major part of Cabovisão’s footprint in Portugal. Zon will be adding mobile voice
and data services as well as VOD and HD to its service offering starting in the fall of 2008. PT’s national
telephone network, PT Communicações, which offers a full range of fixed wireline and mobile wireless
telecommunications services throughout Portugal, is aggressively pursuing the rollout of Meo, its competitive
IPTV service over its telephone plant, and is offering its own direct-to-home satellite service launched earlier
this year. In addition, PT has been selected by Portuguese regulatory authorities to offer a new digital terrestrial
television service throughout Portugal which may have an adverse effect on subscriptions to basic and pay
services of cable operators, likely beginning in 2009. Sonaecom owns and operates the Clix (Residential Fixed
Telephony, HSI and IPTV), Novis (Business Telephony Solutions) and Optimus (Wireless Telephony and
Wireless HSI) services, which provide voice, data, HSI, video and mobile services to the residential and
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business markets. Cabovisão, Zon, PT and Sonaecom all have competitive triple-play offers available in the
Portuguese market. Cabovisão is pursuing the rollout of a Digital Television service in order to improve signal
security and quality, provide an expanded choice of programming, make better use of the distribution capacity
of its network and better compete with the digital video service offerings of its competitors, but this new digital
service is less penetrated than that of its main competitors. The competitive video service offerings are all
digital.
The level of piracy of video signals and the actual penetration of illicit reception of video distribution services in
households within the Corporation’s service areas may also have a significant effect on the Corporation’s
business and the competitiveness of its service offerings.
TECHNOLOGICAL RISKS
The evolution of telecommunications technologies unfolds at breathtaking speed, fuelled by a highly
competitive global market for digital content, consumer electronics and broadband products and services. The
Corporation continues to monitor the development of technologies used for the transmission, distribution,
reception and storage of data and their deployment by various existing or potential competitors in the
broadband telecom m unications markets.
There are now several terrestrial and satellite transmission technologies available to deliver a range of
electronic communications services to homes and to commercial establishments with varying degrees of
flexibility and efficiencies, and thus compete with cable telecommunications. On the other hand, cable
telecommunications also continue to benefit from rapid improvements, particularly in the areas of modulation,
digital compression, fractioning of optoelectronic links, multiplexing, HD distribution and switched digital video.
Management of the Corporation remains of the view that broadband wireline distribution over fibre and coaxial
cable will continue to be an efficient, reliable, economical and competitive platform for the distribution of a full
range of electronic communications products and services for the foreseeable future. The competitiveness of
the cable broadband telecommunications platform will however continue to require additional capital
investments on a timely basis in an increasingly competitive and uncertain market environment.
The growth in penetration of broadband connections of all types, the rapid increase in transmission speeds
offered by competitors in the market and the deployment of the more powerful and efficient MPEG-4 video
compression standard and of other similar compression technologies promote the increased distribution and
consumption of video content directly over the Internet. This may eventually lead to fragmentation of the retail
market for existing Analogue and Digital Television distribution services provided by the Corporation and
gradual disintermediation through direct transactions between video content suppliers and the Corporation’s
customers. In this context, revenue and margins derived from the Corporation’s HSI access services may not
entirely compensate for the loss of revenue or margin derived from the Corporation’s television services in the
future. Alternative voice and data communications services are proliferating over the Internet, resulting in the
risk that fragmentation and disintermediation may also occur in the future with respect to the Corporation’s
Telephony service.
Electronic communications increasingly rely on advanced security technology, devices, control systems and
software to ensure conditional access, appropriate billing and service integrity. Security and business systems
technology is provided worldwide by a small pool of global suppliers on a proprietary basis. As other providers
of electronic communications, the Corporation depends on the effectiveness of such technology for many of its
services and the ability of technological solutions providers to offer cost-effective and timely solutions to deal
with security breaches or new developments required in the marketplace.
REGULATORY RISKS
In Canada, electronic communications facilities and services are subject to regulatory requirements depending
mainly on the type of facilities involved, the incumbent status of service providers and their relative market
power, the technology used and whether the activities are categorized as telecommunications or broadcasting.
Canadian cable telecommunications facilities and services are subject to various requirements mainly under
federal legislation governing broadcasting, radiocommunication, telecommunications, copyright and privacy,
and under provincial legislation governing consumer protection and access to certain municipal property and
municipally-owned support structures. Licenses and broadcasting certificates are still required for the operation
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of larger (Class 1 and 2) cable systems, while smaller (Class 3) cable systems are now mostly license-exempt.
Various license and license exemption conditions continue to apply in Canada. Canadian cable
telecommunications operators are also subject to Canadian ownership and control requirements. Changes in
the regulatory framework or licenses, which are subject to periodic renewal, may affect the Corporation’s
existing business activities or future prospects. Following a comprehensive review of the regulatory framework
for broadcasting distribution and for pay and specialty television in Canada conducted earlier this year, the
Canadian Radio-Television and Telecommunications Commission (“CRTC”) is expected to publish its
conclusions on October 31, 2008. The issues to be canvassed in the new policy statement include the
possibility of imposing new fees for the carriage of the over-the-air television signals of Canadian conventional
television stations on satellite and cable broadcasting distribution undertakings.
The CRTC has forborne from regulating the residential and business local access telephone services of the
incumbent telephone companies in most of the geographic markets served by the Corporation in Ontario and
Québec. As a result, Bell Canada and Telus are now free to price and bundle their residential and business
local access telephone services and to extend general or specific promotional offers without prior regulatory
approval in the forborne local exchange areas withi n the Corporation’s footprint.
The telecommunications markets in Portugal have been fully open to competition since January 1, 2000, and
there are no foreign ownership restrictions applying to electronic communications service providers or the
ownership of broadband telecommunications facilities in Portugal. Competitors are essentially free to bundle
and price services based on competitive market considerations. However, situations have arisen where either
PT or Zon have been able to use their market power to respectively constrain access to certain support
structures and to a premium content service, Sport TV HD. These situations have been addressed through
complaints to the Autoridade da Concorrência (“AdC”) under applicable competition law, but the proceedings
are still pending and the final outcomes are not known at this time.
The European Commission launched, on June 29, 2006, a broad policy review initiative on electronic
communications with a view to boosting competition among telecommunications operators of European Union
(“EU”) member states and building a single market for services that use radio spectrum. New EU
telecommunications policy initiatives may eventually have an impact in the medium- to long-term on
Cabovisão’s electronic communications activities and the future state of competition for the provision of
electronic communication s in Portugal.
RISKS PERTAINING TO OPERATING COSTS
Cogeco Cable applies itself to keeping its cost of goods sold in check so as to secure continued operating
margin growth. The two largest drivers of cost of goods sold are network fees paid to audio and video service
suppliers as well as data transport and con nectivity charges, mostly for Telephony and HSI traffic.
The market for audio and video programming services in Canada is already characterized by high levels of
supplier integration and structural rigidities imposed by the CRTC’s regulatory framework for broadcasting
distribution, which is presently under review. While Cogeco Cable has been able to conclude satisfactory
distribution agreements with Canadian and foreign programming service suppliers to date, there is no
assurance that network fees will not increase by larger increments in future years. There is also no assurance
that programming service suppliers will not change other material terms of distribution agreements or extend
preferences for the distribution of their content to competing distributors, or push for the distribution of their
content over the Internet in the future. In Portugal, the offering of new Digital audio and television services by
Cabovisão requires the conclusion of suitable arrangements with program suppliers. The negotiation of these
arrangements is under way, but is not concluded as yet.
Since the markets for data transport and connectivity remain very competitive in Canada and Portugal, Cogeco
Cable and Cabovisão have negotiated cost effective arrangements in the past for voice and data traffic.
However, as overall traffic increases and capacity on existing broadband telecommunications facilities
becomes more widely used, the Corporation may not be able to se cure further cost efficiencies in the future.
Furthermore, the Part II Licence Fees payable to the CRTC are currently under litigation. On December 14,
2006, the Federal Court of Canada ruled that the Part II Licence Fees payable to the CRTC are an unlawful
tax. Both the Plaintiffs (the members of the Canadian Association of Broadcasters, Videotron Ltee and CF
Cable TV Inc.) and the Defendant (the Crown) have appealed this decision to the Federal Court of Appeal. The
Defendant was seeking to reverse the Court decision that Part II Licence Fees are unlawful and the Plaintiffs
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were seeking a Court order requiring a refund of past fees paid. The Appeal hearing was held on December 4
and 5, 2007 in Ottawa and a decision was rendered on April 28, 2008 in favour of the Crown, to the effect that
the fees are valid regulatory charges. On June 26 and 27, 2008, the Plaintiffs filed applications for leave to
appeal to the Supreme Court of Canada. The Defendant filed its response on September 29, 2008 and the
matter is currently pending. Cogeco Cable has accrued the full amount with respect to these fees for fiscal
years 2007 and 2008.
RISK PERTAINING TO INFORMATION SYSTEMS
Flexible, reliable and cost-effective information systems are an essential requirement for the handling of
sophisticated service options, customer account management, internal controls, provisioning, billing and the
rollout of new services. The Corporation uses different customer relations management tools and databases for
its operation respectively in Ontario, Québec and Portugal. The agreement with Amdocs, the main third-party
supplier of customer information systems in Ontario, and the agreement with Concurrent, the third-party
supplier of the VOD information system in Canada, were both renewed in 2008. There is however no
assurance that these or other information systems will be able to meet adequately future business or
competitive requirements.
RISKS PERTAINING TO DISASTERS AND OTHER CON TINGENCIES
The Corporation has a disaster recovery plan for dealing with the occurrence of natural disasters, quarantine,
power failures, terrorist acts, intrusions, computer hacking or data corruption, but the operations and facilities of
Cabovisão are not yet integrated into this plan. Cabovisão’s insurance coverage has been integrated into
Cogeco Cable’s insurance coverage. The emergency plans and procedures that are in place cannot provide
the assurance that the effect of any disaster can and will be mitigated as planned. Cogeco Cable is not insured
against the loss of data, hacking or malicious interference with its electronic communications and systems, or
against losses resulting from natural disasters. In Canada, it relies on data protection and recovery systems
that it has put in place with third-party service providers. In Portugal, similar arrangements with third parties
have not been implemented as yet.
FINANCIAL RISKS
Cable telecommunications is a very capital-intensive business that requires substantial and recurring
investment in property, plant, equipment and customer acquisition. Cogeco Cable depends on capital markets
for the availability of additional capital that it must deploy to support its internal and external growth. There is no
assurance that future capital requirements will be met when needed, or that the cost to secure such needed
incremental capital will not increase the Corporation’s weighted average cost of capital. Through its recent
issuance of new Senior Secured Notes on October 1, 2008, Cogeco Cable will be able to repay debt
instruments maturing in 2008 and 2009. The Corporation entered into cross-currency swap agreements to fix
the liability for interest and principal payments on its US-denominated Senior Secured Notes Series A
However, the global financial markets crisis and the ensuing global economic slowdown may extend further
and constrain the Corporation’s ability to meet its future financing requirements, both internal and external,
increase its weighted average cost of capital and cause other cost increases from counterparties also faced
with liquidity problems and higher cost of capital.
Cogeco Cable’s debt financing structure involves the borrowing of money from third parties by Cogeco Cable
and the subsequent investment of equity and debt by the Corporation into its direct and indirect subsidiaries.
This financing structure requires that Cogeco Cable be able to receive upstream flows of funds from its
subsidiaries through capital repayments, interest payments, dividend payments, management fees or other
distributions that are sufficient to meet its corporate debt obligations. Future changes to corporate tax, currency
exchange and other legal requirements applicable to the Corporation, or to its direct or indirect subsidiaries
could adversely affect such upstream flows of funds or the effectiveness of the Corporation’s existing debt
financing structure.
The Corporation’s leverage and corporate risk profile is liable to vary from time to time as a result of new
developments in its business activities and the investments required to support internal growth as well as
external growth through acquisitions. More particularly, leverage may fluctuate as the Corporation completes
further business acquisitions domestically or abroad, and the risk profile may differ from one acquisition to the
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other depending on the characteristics of the acquired business and its relevant market. The development of
new services or additional lines of business, and the acquisition of new business properties, may not
necessarily generate the anticipated results or benefits. There is no assurance that Cogeco Cable will be able
to maintain or increase distributions to shareholders by way of dividends or othe rwise.
The acquisition of Cabovisão has been financed through corporate credit facilities of Cogeco Cable. The major
part of the purchase price for the shares of Cabovisão (approximately €461.8 million) was borrowed directly in
Euros and a second tranche of $150 million was initially borrowed in Canadian dollars and subsequently drawn
in Euros (€104.6 million). There are no financial hedging arrangements in effect at this time for currency
fluctuation risk on interest payments resulting from these borrowings, however there is a partially offsetting
relationship between the borrowings in Euros and the inter-corporate debt interest payments and cash
distributions in Euros originating from the European subsidiaries. Also, for the purposes of this acquisition,
Cogeco Cable has set up an acquisition structure involving one of its operating Canadian subsidiaries and
intermediate holding and financing entities located in Luxembourg with a view to maximizing returns. The
Corporation is still considering various options to extend the term loan with alternate sources of Euro-
denominated financing.
HUMAN RESOURCES
Cogeco Cable maintains appropriate labour relations both in Canada and in Portugal, but there is no assurance
that requisite collective agreements will be established or renewed without conflict or disruption to the provision
of its services. Cogeco Cable maintains, as well, appropriate relations with its key personnel. The Corporation’s
success depends to a significant extent on its ability to attract and retain its managers and skilled employees in
an increasingly competitive market. The Corporation’s inability or failure to recruit, retain or adequately train its
human resources may have a materially adverse effect on the Corporation’s business and future prospects.
CONTROLLING SHAREHOLDER AND HOLDING STRUCTURE
Cogeco Cable is controlled by COGECO Inc. through the holding of multiple voting shares of Cogeco Cable,
and COGECO Inc. is in turn controlled by Gestion Audem Inc., a company controlled by Mr. Henri Audet and
members of his family (the Audet Family), through the holding of multiple and subordinate voting shares of
COGECO Inc. Both Cogeco Cable and COGECO Inc. are reporting issuers with subordinate voting shares
listed on the Toronto Stock Exchange. Pursuant to the Conflicts Agreement in effect between Cogeco Cable
and COGECO Inc., all cable properties must be owned or controlled by Cogeco Cable. COGECO Inc. is
otherwise free to own and operate any other business or invest as it deems appropriate. It is possible that
situations could arise where the respective interests of the controlling shareholder COGECO Inc. and other
shareholders of Cogeco Cable, or the respective interests of the Audet Family and other shareholders of
COGECO Inc., could differ.
ACCOUNTING POLICIES AND ESTIMATES
There has been no significant change in Cogeco Cable’s accounting policies, estimates and future accounting
pronouncements since August 31, 2007, except as described below. A description of the Corporation’s policies
and estimates can be found in the 2007 annual MD&A.
Financial instruments
Effective September 1, 2007, the Corporation adopted the Canadian Institute of Chartered Accountants
(“CICA”) Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments – Recognition
and Measurement, Section 3861, Financial Instruments – Disclosure and Presentation, Section 3865, Hedges
and Section 3251, Equity.
Statements of comprehensive income
A new statement entitled consolidated statements of comprehensive income was added to the Corporation’s
consolidated financial statements and includes net income as well as other comprehensive income. Other
comprehensive income represents changes in shareholders’ equity arising from transactions and events from
non-owner sources, such as changes in foreign currency translation adjustments of net investments in self-
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sustaining foreign subsidiaries, long-term debt designated as a hedge of net investments in self-sustaining
foreign subsidiaries, and changes in the fair value of effective cash flow hedging instruments.
Recognition and Measu rement of Financial Instruments
Under these new standards, all financial assets, including derivatives, must be classified as available-for-sale,
held-for-trading, held-to-maturity, or loans and receivables. All financial liabilities, including derivatives, must be
classified as held-for-trading or other liabilities. All financial instruments classified as available-for-sale or held-
for-trading are recognized at fair value on the consolidated balance sheet while financial instruments classified
as loans and receivables or other liabilities will continue to be measured at amortized cost using the effective
interest rate method. The standards allow the Corporation the option to designate certain financial instruments,
on initial recognition, as held-for-trading.
All of the Corporation's financial assets are classified as held-for-trading or loans and receivables. The
Corporation has classified its cash and cash equivalents as held-for-trading. Accounts receivable have been
classified as loans and receivables. All of the Corporation’s financial liabilities were classified as other liabilities,
except for the cross-currency swaps, which were classified as held-for-trading. Held-for-trading assets and
liabilities are carried at fair value on the balance sheet, with changes in fair value recorded in the consolidated
statement of income, except for the changes in fair value of the cross-currency swaps, which are designated as
cash flow hedges of the Senior Secured Notes, Series A and are recorded in other comprehensive income.
Loans and receivables and all financial liabilities are carried at amortized cost using the effective interest
method. Upon adoption, the Corporation determined that none of its financial assets are classified as available-
for-sale or held-to-maturity. Except for the treatment of transaction costs and derivative financial instruments
mentioned below, the provisions of the new accounting standards had no impact on the consolidated financial
statements on September 1, 2007 and August 31, 2008.
Transaction cost s
Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a
reduction of the related financing, except for transaction costs on the revolving loan and the swingline facility,
which are presented as deferred charges. These costs are amortized over the term of the related financing
using the effective interest rate method, except for transaction costs on the revolving loan and the swingline
facility, which are amortized over the term of the related financing on a straight-line basis. Previously, all
transaction costs were capitalized and amortized on a straight-line basis over the term of the related financing,
over a period not exceeding five years. The impact of these adjustments reduced deferred charges by
$1.2 million, reduced long-term debt by $3.1 million, increased future income tax liabilities by $0.6 million and
increased retained earnings by $1.3 million.
Cash flow hedge
All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of
income unless they are effective cash flow hedging instruments. The changes in fair value of cash flow hedging
derivatives are recorded in other comprehensive income, to the extent effective, until the variability of cash
flows relating to the hedged asset or liability is recognized in the consolidated statements of income. Any hedge
ineffectiveness is recognized in the consolidated statement of income immediately. Accordingly, the
Corporation’s cross-currency swaps must be measured at fair value in the consolidated financial statements.
Since these cross-currency swaps are used to hedge cash flows on Senior Secured Notes, Series A
denominated in U.S. dollars, the changes in fair value are recorded in other comprehensive income. The
impact of measuring the cross-currency swaps at fair value on September 1, 2007, increased derivative
financial instrument liabilities by $83.5 million, decreased deferred credit presented in long-term debt by $80.2
million, decreased future income tax liabilities by $1.1 million and decreased opening accumulated other
comprehensive income by $2.2 million. The impact of measuring the cross-currency swaps at fair value on the
interim consolidated financial statements for the three month period ended August 31, 2008 decreased
derivative financial instrument liabilities by $11.5 million, increased future income tax liabilities by $0.4 million
and increased accumulated other comprehensive income by $0.8 million. The impact of measuring the cross-
currency swaps at fair value on the interim consolidated financial statements for the year ended
August 31, 2008 decreased derivative financial instrument liabilities by $3.7 million, increased future income tax
liabilities by $0.9 million and increased accumulated other comprehensive income by $1.9 million.
Net investment hedge
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Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance
sheet date for asset and liability items, and using the average exchange rates during the period for revenue
and expenses. Adjustments arising from this translation are deferred and recorded as foreign currency
translation adjustments in accumulated other comprehensive income and are included in income only when a
reduction in the investment in these foreign subsidiaries is realized. Unrealized foreign exchange gains and
losses on long-term debt denominated in foreign currencies that is designated as a hedge of net investments in
self-sustaining foreign subsidiaries are recorded as foreign currency translation adjustments in accumulated
other comprehensive income, net of income taxes. As a result, an amount of $3.1 million was reclassified as at
August 31, 2007 from the foreign currency translation adjustment to the accumulated other comprehensive
income and the Corporation’s comparative financial statements were restated in accordance with transitional
provisions.
Embedded derivatives
All embedded derivatives that are not closely related to the host contracts, are measured at fair value, with
changes in fair value recorded in the consolidated statement of income. On September 1, 2007, and at August
31, 2008, there were no significant embedded derivatives or non-financial derivatives that require separate fair
value recognition on the consolidated balance sheets. In accordance with the new standards, the Corporation
selected September 1, 2002, as its transition date for adopting the standard related to embedded derivatives.
Accounting changes
In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the
previous standard. A reporting entity may not change its accounting method unless required by a primary
source of GAAP or to provide a more reliable and relevant presentation of the financial statements. In addition,
changes in accounting methods must be applied retroactively and additional information must be disclosed.
This Section applies to interim and annual financial statements relating to fiscal years beginning on or after
January 1, 2007. During the first quarter of fiscal 2008, the Corporation adopted this new standard and
concluded that it had no significant impact on these consolidated financi al statements.
FUTURE ACCOUNTING PRO NOUN CEMENTS
Financial instruments
In December 2006, the CICA issued Section 3862, Financial Instruments – Disclosures, Section 3863,
Financial Instruments – Presentation, and Section 1535, Capital Disclosures. All three Sections will be
applicable to financial statements relating to fiscal years beginning on or after October 1, 2007. Accordingly,
the Corporation will adopt the new standards for its fiscal year beginning September 1, 2008. Section 3862 on
financial instruments 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 on the presentation of financial instruments is unchanged from
the presentation requirements included in Section 3861. Section 1535 on capital disclosures requires the
disclosure of information about an entity's objectives, policies and proce sses for managing capital.
Goodwill and intangible assets
In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062,
Goodwill and other intangible assets and Section 3450, Research and development costs. The new Section
establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to
its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062. The new Section will be applicable to
interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The
Corporation is currently evaluating the impact of the adoption of this new Section on its consolidated financial
statements.
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Harmonization of Canadian and International accounting stan dards
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”).
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 ended November 30, 2011, and its first annual consolidated financial statements presented in
accordance with IFRS will be for the year ended 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 will be
assessed. Similarly, impacts on business activities will be assessed as differences are identified between the
Corporation’s current accounting policies and IFRS. Changes in accounting policies are likely. These changes
may materially impact the Corporation’s consolidated financial statements.
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 August 31, Years ended August 31,
2008 2007 2008 2007
($000) $ $ $ $
(unaudited) (unaudited) (audited) (audited)
Cash flow from operating activities 143,748 112,615 392,883 211,810
Changes in non-cash operating items (44,201)
(28,790)
(32,481) 72,755
Cash flow from operations 99,547 83,825 360,402 284,565
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Free cash flow is calculated as follows:
Quarters ended August 31, Years ended August 31,
2008 2007 2008 2007
($000) $ $ $ $
(unaudited) (unaudited) (audited) (audited)
Cash flow from operations 99,547 83,825 360,402 284,565
Acquisition of fixed assets (68,379)
(57,889)
(228,441) (220,882)
Increase in deferred charges (7,035)
(10,784)
(27,596) (30,042)
Assets acquired under capital leases – as per
Note 12b)
(3,058)
(291)
(5,475) (3,084)
Free cash flow 21,075 14,861 98,890 30,557
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 generated 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.
The most comparable Canadian GAAP financial measure is operating income. Operating income before
amortization and operating margin are calculated as follows:
Quarters ended August 31, Years ended August 31,
($000, except percentages) 2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Operating income 59,702 48,262 217,125 181,430
Amortization 61,414 54,164 228,299 189,323
Operating income before amortization 121,116 102,426 445,424 370,753
Revenue 284,908 244,314 1,076,787 938,880
Operatin Margin 42.5% 41.9% 41.4% 39.5%
ADDITIONAL INFORMATION
This MD&A was prepared on October 29, 2008. 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), a telecommunications company offering a diverse range of services to its
customers in Canada and Portugal, is the second largest cable operator in Ontario, Québec and Portugal, in
terms of the number of Basic Cable service customers served. Through its two-way broadband cable networks,
Cogeco Cable provides its residential and commercial customers with Analogue and Digital Television, HSI and
Telephony services. The Corporation provides approximately 2,717,000 revenue generating units (RGU) to
2,428,000 homes passed in its Canadian and Portuguese service territories. Cogeco Cable’s subordinate
voting shares are listed on the Toronto Stock Exchange (TSX: CCA).
– 30 –
- 27 -
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: Thursday, October 30, 2008 at 11:00 A.M. (EDT)
Media representatives may attend as listeners only.
Please use the following dial-in number to have access to the conference call
by 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: 6502493
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until November 6, by
dialing:
Canada and USA access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 6502493
- 28 -
Supplementary Quarterly Financial Information
(unaudited)
Quarters ended August 31, May 31, February 29 / 28, November 30,
2008 2007 2008 2007 2008 2007 2007 2006
($000, except percentages and
per share data) $ $ $ $ $ $ $ $
Revenue 284,908 244,314 274,944 240,612 265,102 231,952 251,833 222,002
Operating income before
amortization
(1)
121,116 102,426 117,490 97,874 108,481 86,791 98,337 83,662
Operating margin
(1)
42.5% 41.9% 42.7% 40.7% 40.9% 37.4% 39.0% 37.7%
Amortization 61,414 54,164 58,209 47,278 55,989 43,572 52,687 44,309
Financial expens e 17,868 18,524 17,372 21,273 16,959 23,551 16,912 21,221
Income taxes 9,968 (6,630)
10,767 8,942 (14,378)
4,261 8,375 5,597
Net income 31,866 36,368 31,142 20,381 49,911 15,407 20,363 12,535
Cash flow from operations
(1)
99,547 83,825 95,829 76,416 85,273 62,264 79,753 62,060
Earnings per share
Basic 0.66 0.79 0.64 0.45 1.03 0.37 0.42 0.31
Diluted 0.65 0.78 0.64 0.45 1.02 0.37 0.42 0.31
(1)
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. - 29 -
Customer Statistics
A
ugust 31, August 31,
2008 2007
Homes Passe
d
Ontario
(1)
1 029 121 997 498
Québec 502 490 486 592
Canada 1 531 611 1 484 090
Portugal 895 923 859 376
Total 2 427 53
4
2 343 466
Revenue Generating Unit
s
Ontario 1 387 05
4
1 256 244
Québec 604 854 532 264
Canada 1 991 908 1 788 508
Portugal 724 966 697 157
Total 2 716 87
4
2 485 66
5
Basic Cable Service Customer
s
Ontario 596 229 594 889
Québec 260 86
5
254 268
Canada 857 09
4
849 157
Portugal 296 13
5
294 003
Total 1 153 229 1 143 160
Discretionnary Service Customer
s
Ontario 493 858 468 764
Québec 215 820 204 585
Canada 709 678 673 349
Portugal - -
Total 709 678 673 349
Pay TV Service Customer
s
Ontario 97 753 88 835
Québec 47 075 42 180
Canada 144 828 131 015
Portugal 57 715 54 723
Total 202 543 185 738
High Speed Internet Service Customer
s
Ontario 352 553 316 363
Québec 120 91
4
99 473
Canada 473 467 415 836
Portugal 159 301 160 023
Total 632 768 575 859
Digital Television Service Customers
Ontario 288 345 246 267
Québec 153 401 133 612
Canada 441 746 379 879
Portugal 24 452 -
Total 466 198 379 879
Telephony Service Customer
s
Ontario 149 927 98 725
Québec 69 67
4
44 911
Canada 219 601 143 636
Portugal 245 078 243 131
Total 464 679 386 767
- 30 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended August 31,
Twelve months ended August 31,
(In thousands of dollars, except per share data) 2008
2007
2008
2007
$
$
$
$
(unaudited)
(unaudited) (audited)
(audited)
Revenue
Service 283,856
243,544
1,070,676
935,390
Equipment 1,052
770
6,111
3,490
284,908
244,314
1,076,787
938,880
Operating costs 163,792
141,888
622,649
559,559
Management fees – COGECO Inc. –
–
8,714
8,568
Operating income before amortization 121,116
102,426
445,424
370,753
Amortization (note 4) 61,414
54,164
228,299
189,323
Operating income 59,702
48,262
217,125
181,430
Financial expense (note 5) 17,868
18,524
69,111
84,569
Income before income taxes 41,834
29,738
148,014
96,861
Income taxes (note 6) 9,968
(6,630
)
14,732
12,170
Net income 31,866
36,368
133,282
84,691
Earnings per share (note 7)
Basic 0.66
0.79
2.75
1.96
Diluted 0.65
0.78
2.73
1.94
- 31 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended August 31,
Twelve months ended August 31,
(In thousands of dollars) 2008
2007 2008
2007
$
$
$
$
(unaudited)
(unaudited)
(audited)
(audited)
Net income 31,866
36,368
133,282
84,691
Other comprehensive income
Unrealized gains on derivative financial instruments designated
as cash flow hedges, net of income taxes expense of
$1,953,000 and $1,045,000
9,540
–
2,661
–
Reclassification of realized gains to net income on derivative
financial instruments designated as cash flow hedges, net of
income taxes recovery of $1,599,000 and $134,000
(8,751)
–
(736)
–
Unrealized gains (losses) on translation of net investments in
self-sustaining foreign subsidiaries
5,752
(684)
53,184
8,900
Unrealized gains (losses) on translation of long-term debts
designated as hedges of net investments in self-sustaining
foreign subsidiaries (net of income taxes expenses of $18,000
and income taxes recovery of $1,685,000 in 2007)
(3,132)
799
(34,414)
(7,558)
3,409
115
20,695
1,342
Comprehensive income 35,275
36,483
153,977
86,033
- 32 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Twelve months ended August 31,
(In thousands of dollars) 2008
2007
$
$
(audited)
(audited)
Balance at beginning, as reported 181,952
117,760
Changes in accounting policies (note 1) 1,307
–
Balance at beginning, as restated 183,259
117,760
Net income 133,282
84,691
Subordinate voting shares issue costs (net of income taxes of $4,689,000 in 2007) –
(10,151)
Dividends on multiple voting shares (6,276)
(3,766)
Dividends on subordinate voting shares (13,115)
(6,582)
Balance at end 297,150
181,952
- 33 -
COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
August 31, 2008
August 31, 2007
$
$
(audited) (audited)
Assets
Current
Cash and cash equivalents 36,371
64,208
Accounts receivable 59,582
46,945
Income taxes receivable 2,267
1,112
Prepaid expenses 12,892
7,606
Future income tax assets 8,661
17,986
119,773
137,857
Income taxes receivable –
1,345
Fixed assets 1,257,965
1,119,498
Deferred charges 57,751
54,645
Intangible assets (note 8) 1,091,042
1,058,410
Goodwill (note 8) 487,805
342,584
Future income tax assets 4,819
–
3,019,155
2,714,339
Liabilities and Shareholders’ equity
Liabilities
Current
Bank indebtedness 10,302
–
Accounts payable and accrued liabilities 247,638
210,496
Income tax liabilities 20,212
953
Deferred and prepaid income 32,859
29,837
Derivative financial instruments 79,791
–
Current portion of long-term debt (note 9) 336,807
17,292
727,609
258,578
Long-term debt (note 9) 718,234
1,010,634
Deferred and prepaid income and ot her liab ili ties 11,859
11,501
Pension plan liabilities and accrued employees benefits 3,139
1,918
Future income tax liabili ties 253,235
266,042
1,714,076
1,548,673
Shareholders’ equity
Capital stock (note 10) 988,889
984,405
Contributed surplus 3,686
2,419
Retained earnings 297,150
181,952
Accumulated other comprehensive income (loss) (note 11) 15,354
(3,110)
1,305,079
1,165,666
3,019,155
2,714,339
- 34 -
COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended August 31,
Twelve months ended August 31,
(In thousands of dollars)
2008
2007
2008
2007
$
$
$
$
(unaudited) (unaudited) (audited)
(audited)
Cash flow from operating activities
Net income 31,866
36,368
133,282
84,691
Adjustments for:
Amortization (note 4) 61,414
54,164
228,299
189,323
Amortization of deferred transaction costs 1,035
513
3,218
2,226
Future income taxes (note 6) 3,725
(6,024)
(8,755)
7,511
Stock-based compensation 608
(891)
2,569
1,145
Loss on disposal of fixed assets 686
389
1,077
220
Other 213
(694)
712
(551)
99,547
83,825
360,402
284,565
Changes in non-cash operating items (note 12 a)) 44,201
28,790
32,481
(72,755)
143,748
112,615
392,883
211,810
Cash flow from investing activities
Acquisition of fixed assets (note 12 b)) (68,379)
(57,889)
(228,441)
(220,882)
Increase in deferred charges (7,035)
(10,784)
(27,596)
(30,042)
Business acquisitions and related adjustments, net of cash and
cash equivalents acquired (note 2)
(213,618)
(629)
(229,723)
1,265
Decrease in restricted cash –
503
–
591
Other 24
21
97
489
(289,008)
(68,778)
(485,663)
(248,579)
Cash flow from financing activities
Increase in bank indebtedness 10,302
–
10,302
–
Increase in long-term debt, net of issue costs 95,087
–
194,846
–
Repayment of long-term debt (697)
(146,472)
(125,735)
(299,558)
Issue of subordinate voting shares 296
154,609
3,650
352,964
Subordinate voting shares issue costs –
(6,551)
–
(14,840)
Dividends on multiple voting shares (1,569)
(1,256)
(6,276)
(3,766)
Dividends on subordinate voting shares (3,281)
(2,372)
(13,115)
(6,582)
100,138
(2,042)
63,672
28,218
Effect of exchange rate changes on cash and cash equivalents
denominated in foreign currencies
6
(243)
1,271
1,243
Net change in cash and cash equivalents (45,116)
41,552
(27,837)
(7,308)
Cash and cash equivalents at beginning 81,487
22,656
64,208
71,516
Cash and cash equivalents at end 36,371
64,208
36,371
64,208
See supplemental cash flow information in note 12.
- 35 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 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”), contain all adjustments necessary to
present fairly the financial position of Cogeco Cable Inc. (“the Corporation”) as at August 31, 2008 and
August 31, 2007 as well as its results of operations and its cash flow for the three and twelve month periods ended
August 31, 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, 2007. These unaudited interim consolidated financial statements follow the
same accounting policies as the most recent annual consolidated financial statements, except for the adoption of the
new accounting policies on financial instruments described below.
Financial instruments
Effective September 1, 2007, the Corporation adopted the Canadian Institute of Chartered Accountants (“CICA”)
Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments – Recognition and
Measurement, Section 3861, Financial Instruments – Disclosure and Presentation, Section 3865, Hedges, and
Section 3251, Equity.
Statements of comprehensive income
A new statement, entitled consolidated statements of comprehensive income, was added to the Corporation’s
consolidated financial statements and includes net income as well as other comprehensive income. Other
comprehensive income represents changes in shareholders’ equity arising from transactions and events from non-
owner sources, such as changes in foreign currency translation adjustments of net investments in self-sustaining
foreign subsidiaries, long-term debt designated as a hedge of net investments in self-sustaining foreign subsidiaries,
and changes in the fair value of effective cash flow hedging instruments.
Recognition and Measurement of Financial Instruments
Under these new standards, all financial assets, including derivatives, must be classified as available-for-sale, held-
for-trading, held-to-maturity, or loans and receivables. All financial liabilities, including derivatives, must be classified
as held-for-trading or other liabilities. All financial instruments classified as available-for-sale or held-for-trading are
recognized at fair value on the consolidated balance sheet while financial instruments classified as loans and
receivables or other liabilities will continue to be measured at amortized cost using the effective interest rate method.
The standards allow the Corporation the option to designate certain financial instruments, on initial recognition, as
held-for-trading.
All of the Corporation's financial assets are classified as held-for-trading or loans and receivables. The Corporation
has classified its cash and cash equivalents as held-for-trading. Accounts receivable have been classified as loans
and receivables. All of the Corporation’s financial liabilities were classified as other liabilities, except for the cross-
currency swap agreements, which were classified as held-for-trading. Held-for-trading assets and liabilities are carried
at fair value on the consolidated balance sheet, with changes in fair value recorded in the consolidated statements of
income, except for the changes in fair value of the cross-currency swap agreements, which are designated as cash
flow hedges of the Senior Secured Notes Series A and are recorded in other comprehensive income. Loans and
receivables and all financial liabilities are carried at amortized cost using the effective interest rate method. Upon
adoption, the Corporation determined that none of its financial assets are classified as available-for-sale or held-to-
maturity. Except for the treatment of transaction costs and derivative financial instruments mentioned below, the
provisions of the new accounting standards had no impact on the consolidated financial statements on
September 1, 2007 and August 31, 2008.
- 36 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
1. Basis of Presentation (continued)
Transaction costs
Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a reduction of
the related financing, except for transaction costs on the revolving loan and the swingline facility, which are presented
as deferred charges. These costs are amortized over the term of the related financing using the effective interest rate
method, except for transaction costs on the revolving loan and the swingline facility, which are amortized over the
term of the related financing on a straight-line basis. Previously, all transaction costs were capitalized and amortized
on a straight-line basis over the term of the related financing, a period not exceeding five years. The impact of these
adjustments reduced deferred charges by $1.2 million, reduced long-term debt by $3.1 million, increased future
income tax liabilities by $0.6 million and increased retained earnings by $1.3 million.
Cash flow hedge
All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of income
unless they are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives
are recorded in other comprehensive income, to the extent effective, until the variability of cash flows relating to the
hedged asset or liability is recognized in the consolidated statements of income. Any hedge ineffectiveness is
recognized in the consolidated statements of income immediately. Accordingly, the Corporation’s cross-currency swap
agreements must be measured at fair value in the consolidated financial statements. Since these cross-currency swap
agreements are used to hedge cash flows on Senior Secured Notes Series A denominated in US dollars, the changes
in fair value are recorded in other comprehensive income. The impact of measuring the cross-currency swap
agreements at fair value on September 1, 2007, increased derivative financial instrument liabilities by $83.5 million,
decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by
$1.1 million and decreased opening accumulated other comprehensive income by $2.2 million. The impact of
measuring the cross-currency swap agreements at fair value on the interim consolidated financial statements for the
three-month period ended August 31, 2008 decreased derivative financial instrument liabilities by $11.5 million,
increased future income tax liabilities by $0.4 million and increased accumulated other comprehensive income by
$0.8 million. The impact of measuring the cross-currency swap agreements at fair value on the interim consolidated
financial statements for the year ended August 31, 2008 decreased derivative financial instrument liabilities by
$3.7 million, increased future income tax liabilities by $0.9 million and increased accumulated other comprehensive
income by $1.9 million.
Net investment hedge
Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet
date for asset and liability items, and using the average exchange rates during the period for revenue and expenses.
Adjustments arising from this translation are deferred and recorded as foreign currency translation adjustments in
accumulated other comprehensive income and are included in income only when a reduction in the investment in
these foreign subsidiaries is realized. Unrealized foreign exchange gains and losses on long-term debt denominated
in foreign currency that is designated as a hedge of net investments in self-sustaining foreign subsidiaries are
recorded as foreign currency translation adjustments in accumulated other comprehensive income, net of income
taxes. As a result, an amount of $4.5 million was reclassified as at September 1, 2006 from the foreign currency
translation adjustment to accumulated other comprehensive income and the Corporation’s comparative financial
statements were restated in accordance with transitional provisions.
- 37 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
1. Basis of Presentation (continued)
Embedded derivatives
All embedded derivatives that are not closely related to the host contracts are measured at fair value, with changes in
fair value recorded in the consolidated statements of income. On September 1, 2007 and as at August 31, 2008, there
were no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on
the consolidated balance sheets. In accordance with the new standards, the Corporation selected September 1, 2002,
as its transition date for adopting the standard related to embedded derivatives.
Accounting changes
In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous
standard. A reporting entity may not change its accounting method unless required by a primary source of GAAP or to
provide a reliable and more relevant presentation of the financial statements. In addition, changes in accounting
methods must be applied retroactively and additional information must be disclosed. This Section applies to interim
and annual financial statements relating to fiscal years beginning on or after January 1, 2007. During the first quarter
of fiscal 2008, the Corporation adopted this new standard and concluded that it had no significant impact on these
consolidated financial statements.
Future accounting pronouncements
Financial instruments
In December 2006, the CICA issued Section 3862, Financial Instruments – Disclosures, Section 3863, Financial
Instruments – Presentation, and Section 1535, Capital Disclosures. All three Sections will be applicable to financial
statements relating to fiscal years beginning on or after October 1, 2007. Accordingly, the Corporation will adopt the
new standards for its fiscal year beginning September 1, 2008. Section 3862 on financial instruments 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 on the
presentation of financial instruments is unchanged from the presentation requirements included in Section 3861.
Section 1535 on capital disclosures requires the disclosure of information about an entity's objectives, policies and
processes for managing capital.
Goodwill and intangible assets
In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill
and other intangible assets and Section 3450, Research and development costs. The new Section establishes
standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. The new Section will be applicable to interim and annual
financial statements relating to fiscal years beginning on or after October 1, 2008. The Corporation is currently
evaluating the impact of the adoption of this new Section on its consolid ated financial statements.
- 38 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
1. Basis of Presentation (continued)
Harmonization of Canadian and International Standards
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”).
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 ended
November 30, 2011, and its first annual consolidated financial statements presented in accordance with IFRS will be
for the twelve-month period ended 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 will be assessed.
Similarly, impacts on business activities will be assessed as differences are identified between the Corporation’s
current accounting policies and IFRS. Changes in accounting policies are likely. These changes may materially impact
the Corporation’s consolidated financial statements.
2. Business acquisitions
On March 31, 2008, the Corporation completed the acquisition of all the assets of MaXess Networx®, ENWIN Energy
Ltd.’s telecommunications division (City of Windsor’s energy company) for a total consideration of $15.6 million.
MaXess Networx® operates a broadband network equipped with next generation ATM and Ethernet technology and
provides organizations in south-western Ontario with the broadband capacity required for data networking, High
Speed Internet access, e-business appl ications, video conferencing and other advanced communications.
On June 30, 2008, the Corporation completed the acquisition of all the assets of FibreWired Burlington Hydro
Communications, Burlington Hydro Electric's telecommunications division (City of Burlington’s energy company) for a
total consideration of $12.6 million. FibreWired Burlington Hydro Communications operates a broadband network
equipped with next generation ATM and Ethernet technology, provides Burlington’s organizations with the broadband
capacity required for data networking, High Speed Internet access, hosting services, e-business applications, video
conferencing and other advanced communications.
- 39 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
2. Business acquisitions (continued)
On July 31, 2008 the Corporation completed the acquisition of all of the shares of Toronto Hydro Telecom Inc., the
telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto’s energy company) for a total
consideration of $200 million. In addition, the Corporation assumed a working capital deficiency and liabilities of
approximately $4 million.
Toronto Hydro Telecom Inc., which now operates under the name Cogeco Data Services
Inc., offers data communications and other telecommunications services such as Ethernet, private line, Voice-over-
Internet protocol (“VoIP”), High Speed Internet access, dark fibre, data storage, data security and co-location to a
wide range of business customers and organizatio ns throughout the Greater Toronto Area (“GTA”).
These acquisitions were accounted for using the purchase method. The results have been consolidated as of the
acquisition dates. The allocation of the purcha se price of the acquisitions is as follows:
Cogeco Data
Services Inc.
(1)
Other
Total
$ $ $
(audited) (audited) (audited)
Consideration paid
Purchase price of shares or assets 200,000 28,113 228,113
Acquisition costs 1,988 852 2,840
201,988 28,965 230,953
Net assets acquired
Cash and cash equivalents 1,230 – 1,230
Accounts receivable 4,575 968 5,543
Prepaid expenses 535 612 1,147
Fixed assets 57,098 19,102 76,200
Deferred charges – 24 24
Customer relationships 33,983 4,220 38,203
Goodwill 112,228 4,662 116,890
Future income tax assets 2,335 – 2,335
Accounts payable and ac c rued lia bilities assume d (4,380) (361) (4,741)
Deferred and prepaid income and other liabilities assumed (4,958) (262) (5,220)
Pension plan liabilities and accrued employee benefits (356) – (356)
Future income tax liabili ties (302) – (302)
201,988 28,965 230,953
(1)
The purchase price allocation of Cogeco Data Services Inc. is preliminary and will be finalized during the 2009 fiscal year.
- 40 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
3. Segmented Information
The Corporation’s activities are comprised of Cable Television, High Speed Internet and Telephony services. The
Corporation considers its Cable Television, High Speed Internet and Telephony activities as a single operating
segment. The Corporation’s activities are carried out in Canada and Europe.
The principal financi al information per business segment is presented in the tables below:
Canada Europe Consolidated
Three months ended August 31,
(unaudited)
2008
2007
2008
2007
2008
2007
$
$
$
$
$
$
Revenue 220,760
188,450
64,148
55,864
284,908
244,314
Operating costs 124,505
106,869
39,287
35,019
163,792
141,888
Operating income before amort iz ati o n 96,255
81,581
24,861
20,845
121,116
102,426
Amortization 40,379
34,992
21,035
19,172
61,414
54,164
Operating income 55,876
46,589
3,826
1,673
59,702
48,262
Financial expens e (revenu e) 17,941
18,458
(73)
66
17,868
18,524
Income taxes 11,657
(4,036)
(1,689)
(2,594)
9,968
(6,630)
Net income 26,278
32,167
5,588
4,201
31,866
36,368
Total assets 2,214,840
1,955,218
804,315
759,121
3,019,155
2,714,339
Fixed assets 940,683
811,982
317,282
307,516
1,257,965
1,119,498
Intangible assets 1,027,268
989,552
63,774
68,858
1,091,042
1,058,410
Goodwill 116,890
–
370,915
342,584
487,805
342,584
Acquisition of fixed assets
(1)
57,677
45,559
13,760
12,621
71,437
58,180
(1)
Includes capital leases that are excluded from the statements of cash flows.
- 41 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
3. Segmented Information (continued)
Canada Europe Consolidated
Twelve months ended August 31,
(audited)
2008
2007
2008
2007
2008
2007
$
$
$
$
$
$
Revenue 833,097
714,070
243,690
224,810
1,076,787
938,880
Operating costs 467,454
412,602
155,195
146,957
622,649
559,559
Management fees – COGECO Inc. 8,714
8,568
–
–
8,714
8,568
Operating income before amort iz ati o n 356,929
292,900
88,495
77,853
445,424
370,753
Amortization 151,369
131,383
76,930
57,940
228,299
189,323
Operating income 205,560
161,517
11,565
19,913
217,125
181,430
Financial expens e (revenu e) 69,268
82,714
(157)
1,855
69,111
84,569
Income taxes 19,998
12,050
(5,266)
120
14,732
12,170
Net income 116,294
66,753
16,988
17,938
133,282
84,691
Total assets 2,214,840
1,955,218
804,315
759,121
3,019,155
2,714,339
Fixed assets 940,683
811,982
317,282
307,516
1,257,965
1,119,498
Intangible assets 1,027,268
989,552
63,774
68,858
1,091,042
1,058,410
Goodwill 116,890
–
370,915
342,584
487,805
342,584
Acquisition of fixed assets
(1)
182,719
182,374
51,197
41,592
233,916
223,966
(1)
Includes capital leases that are excluded from the statements of cash flows.
4. Amortization
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited) (audited)
Fixed assets 52,941 46,272 195,587 166,298
Deferred charges 5,307 5,331 21,780 20,464
Intangible assets 3,166 2,561 10,932 2,561
61,414 54,164 228,299 189,323
- 42 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
5. Financial expense
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited) (audited)
Interest on long-term debt 17,770 18,163 68,304 80,066
Amortization of deferred transaction costs 407 513 1,629 2,226
Other (309) (152) (822) 2,277
17,868 18,524 69,111 84,569
6. Income Taxes
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited) (audited)
Current 6,243 (606) 23,487 4,659
Future 3,725 (6,024) (8,755) 7,511
9,968 (6,630) 14,732 12,170
The following table provides the reconciliation between Canadian statutory federal and provincial income taxes and
the consolidated income tax expense:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited) (audited)
Income before income taxes 41,834 29,738 148,014 96,861
Combined income tax rate 33.48% 34.99% 33.50% 34.97%
Income taxes at combined income tax rate 14,004 10,406 49,585 33,872
Adjustment for losses or income subject to lower or
higher tax rates
(993) (812) (2,681) (1,285)
Decrease in future income taxes as a result of decreases
in substantively enacted tax rates
–
(6,318)
(24,002)
(6,318)
Income taxes arising from non-deductible expenses 218 636 803 636
Effect of foreign income tax rate differences (2,995) (2,066) (9,193) (5,103)
Benefits related to prior years’ minimum income taxes paid
and non-capital loss carry forwards
–
(8,403)
–
(9,878)
Other (266) (73) 220 246
Income taxes at effective income tax rate 9,968 (6,630) 14,732 12,170
- 43 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
7. Earnings per Share
The following table provides the recon ciliation between basic and diluted earnings per share:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Net income 31,866 36,368 133,282 84,691
Weighted average number of multiple voting and subordinate
voting shares outstanding
48,506,369
46,080,398
48,472,364
43,246,025
Effect of dilutive stock options
(1)
265,925 427,920 287,694 349,854
Weighted average number of diluted multiple voting and
subordinate voting shares outstanding
48,772,294
46,508,318
48,760,058
43,595,879
Earnings per share
Basic 0.66 0.79 2.75 1.96
Diluted 0.65 0.78 2.73 1.94
(1)
For the three and twelve month periods ended August 31, 2008, 112,505 and 106,099 stock options (none and 35,884 in 2007) 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.
8. Goodwill and Other Intangible Assets
August 31, 2008 August 31, 2007
$ $
(audited) (audited)
Customer relationships 101,490 68,858
Customer base
989,552 989,552
1,091,042 1,058,410
Goodwill
487,805 342,584
1,578,847 1,400,994
- 44 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
8. Goodwill and Other Intangible Assets (continued)
a) Intangible assets
During fiscal years 2008 and 2007, intangible assets variations were as follo ws:
2008 2007
Customer
relationships
Customer
base
Total
Customer
relationships
Customer
base
Total
$ $ $ $ $ $
(audited) (audited) (audited) (audited)
(audited) (audited)
Balance at beginning 68,858 989,552 1,058,410 – 989,552 989,552
Business acquisitions and related adjustments (note 2) 38,203 – 38,203 71,684 – 71,684
Amortization (10,932) – (10,932) (2,561) – (2,561)
Foreign currency translation adjustment 5,361 – 5,361 (265) – (265)
Balance at end 101,490 989,552 1,091,042 68,858 989,552 1,058,410
At August 31, 2008 and 2007 the Corporation tested the value of customer base for impairment and concluded that no
impairment existed.
b) Goodwill
During fiscal years 2008 and 2007, goodwill variation was as follows:
August 31, 2008 August 31, 2007
$ $
(audited) (audited)
Balance at beginning 342,584 422,108
Business acquisitions (note 2) 116,890 –
Adjustment to the allocation of the purchase price – (87,020)
Foreign currency translation adjustment 28,331 7,496
Balance at end 487,805 342,584
At August 31, 2008 and 2007 the Corporation tested the value of goodwill for impairment and concluded that no
impairment existed.
- 45 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
9. Long-Term Debt
Maturity Interest rate August 31, 2008 August 31, 2007
% $
$
(audited) (audited)
Parent company
Term Facility
Term loan – €94,096,350 (€104,551,500 as at August 31, 2007) 2011 5.31
(1)
145,832
150,450
Term loan – €17,358,700 2011 5.25
(1)
26,881
24,979
Revolving loan – €126,000,000 (€196,725,000 as at August 31, 2007) 2011 5.25
(1)
196,308
283,087
Revolving loan 2011 3.99
(1)
94,375
–
Senior Secured Debentures Series 1 2009 6.75 149,814
150,000
Senior Secured Notes
Series A – US$150 million 2008 6.83
(2)
159,233
158,430
Series B 2011 7.73 174,338
175,000
Senior Unsecured Debenture
(3)
2018 5.94 99,768
–
Deferred credit
(4)
2008 – –
80,220
Subsidiaries
Obligations under capital leases 2013 6.42 – 8.30 8,492
5,760
1,055,041
1,027,926
Less current portion 336,807
17,292
718,234
1,010,634
(1)
Av erage interest rate on debt as at August 31, 20 08, i nc ludi ng st amp ing 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 Marc h 5, 2008 , the Corporation issued a $10 0 million Se nior Unsecured De benture by way of a private pl acement, su bject to usua l market condit ions.
The debenture bears interest at a fixed rate of 5.936%, per annum, payable semi-annually. The debenture matures on March 5, 2018 and is redeemable at
the Corporation’s option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium.
(4)
The deferred credit represents the amount that was deferred for hedge accounting purposes as at August 31, 2007 under cross-currency swap
agreements entered into by the Corporation to hedge Senior Secured Notes Series A denominated in US dollars. In accordance with the standards on
financial instruments, the Corporation’s cross-currency swap agreements are now presented as derivative financial instrument liabilities (see note 1).
- 46 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
10. Capital Stock
Authorized, an unlimited number
Class A Preference shares, without voting rights, redeemable by the Corporation and retractable at the option of the
holder at any time at a price of $1 per share, carrying a cumulative preferential cash dividend at a rate of 11% of the
redemption price per year.
Class B Preference shares, without voting rights, could be issued in series.
Multiple voting shares, 10 votes per share.
Subordinate voting shares, 1 vote per share.
August 31, 2008 Augus t 31, 20 07
$ $
(audited) (audited)
Issued
15,691,100 multiple voting shares 98,346 98,346
32,826,611 subordinate voting shares (32,663,587 as at August 31, 2007) 890,543 886,059
988,889 984,405
During the period, subordinate voting share transactions were as follows:
Twelve months ended Twelve months ended
August 31, 2008 August 31, 2007
Number of shares Amount Number of shares Amount
$ $
(audited) (audited) (audited) (audited)
Balance at beginning 32,663,587 886,059 24,308,112 532,112
Shares issued for cash consideration – – 8,000,000 345,950
Shares issued for cash under the Employee Stock Purchase Plan and
the Stock Option Plan
163,024
3,650
355,475
7,014
Compensation expense previously recorded in contributed surplus for
options exercised
–
834
–
983
Balance at end 32,826,611 890,543 32,663,587 886,059
- 47 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
10. 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 year, the Corporation granted 113,084 stock options (201,587 in 2007) with an
exercise price of $41.45 to $49.82 ($26.63 to $44.54 in 2007) of which 22,683 stock options (57,247 in 2007) were
granted to COGECO Inc.’s employees. In 2007, the Corporation also granted 376,000 conditional stock options with
an exercise price of $26.63, of which 262,400 stock options were granted to COGECO Inc.’s employees. These
conditional options vest over a period of three years beginning one year after the day such options are granted and
are exercisable over ten years. The vesting of these options is conditional to the achievement of certain yearly
financial objectives by the Portuguese subsidiary, Cabovisão — Televisão por Cabo, S.A., over a period of three
years. During the three and twelve month periods ended August 31, 2008, the Corporation charged an amount of
$100,000 and $380,000 ($315,000 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 $499,000 and $1,721,000 ($223,000 and $1,662,000 in 2007) was recorded for the
three and twelve month periods ended Augu st 31, 2008.
The fair value of stock options granted for the year ended August 31, 2008 was $12.59 ($7.39 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 u sing the binomial option pricing model based on the following assumptions:
2008 2007
% %
(audited) (audited)
Expected dividend yield
0.90 1.27
Expected volatility
27 32
Risk-free interest rate
4.25 4.05
Expected life in years
4.0 4.0
As at August 31, 2008, the Corporation had outstanding stock options providing for the subscription of 844,724
subordinate voting shares. These stock options, which include 250,667 conditional stock options, can be exercised at
various prices ranging from $7.05 to $4 9.82 and at various dates up to May 17, 2018.
The Corporation also had a Performance Unit Plan for key employees, which was terminated in June 2007. A
compensation expense of $11,000 and $608,000 was recorded for the three and twelve month periods ended August
31, 2007 related to this plan.
In April 2007, the Corporation established a deferred share unit plan (“DSU Plan”) which is described in the
Corporation’s annual consolidated financial statements. During the year, the Corporation awarded 3,559 deferred
share units to the participants in connection with the DSU Plan. A compensation expense of $9,000 and $153,000
was recorded for the three and twelve month periods ended August 31, 2008 related to this plan.
- 48 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
11. Accumulated Other Comprehensive Income (Loss)
Translation of net
investments in self-
sustaining foreign
subsidiaries
Cash flow hedges
Total
$ $ $
(audited) (audited) (audited)
Balance at beginning (3,110) – (3,110)
Cumulative effect of changes in accounting policies (note 1) – (2,231) (2,231)
Other comprehensive income 18,770 1,925 20,695
Balance at end 15,660 (306) 15,354
12. Statements of Cash Flow
a) Changes in non-cash operating items
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Accounts receivable (2,513) 582 (7,107) (3,792)
Income taxes receivable 394 58 398 (2,528)
Prepaid expenses (5,805) (738) (4,027) (1,324)
Accounts payable and ac c rued lia bilities 48,232 27,575 25,866 (69,807)
Income tax liabilities 4,885 158 19,237 507
Deferred and prepaid income and ot her liab ili ties (992) 1,155 (1,886) 4,189
44,201 28,790 32,481 (72,755)
b) Other information
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Fixed asset acquisitions through capital leases 3,058 291 5,475 3,084
Financial expenses paid 12,335 13,705 64,434 82,787
Income taxes paid (received) 849 (728) 3,846 6,255
- 49 -
COGECO CABLE INC.
Notes to Consolidated Financial Statements
August 31, 2008
(unaudited)
(amounts in tables are in thousands of dollars, except number of shares and per share data)
13. Employee Future Benefits
The Corporation and its Canadian subsidiaries offer their employees contributory defined benefit pension plans, a
defined contribution pension plan or a collective registered retirement savings plan, which are described in the
Corporation’s annual consolidated financial statements. The total expenses related to these plans are as follows:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Contributory defined benefit pension plans 282 413 1,129 1,103
Defined contribution pension plan and collective registered
retirement savings plan
794
604
3,000
2,307
1,076 1,017 4,129 3,410
14. Guarantees
During fiscal 2008, the Corporation guaranteed the payment by Cabovisão-Televisão por Cabo, S.A. (“Cabovisão”) of
stamp taxes for the 2000 through 2002 years amounting to €1.7 million and withholding taxes for the 2004 year
amounting to €2 million assessed by the Portuguese tax authorities, which are currently being challenged by
Cabovisão. Even though the principal amounts in dispute are fully recorded in the books of its subsidiary, Cabovisão,
the Corporation may be required to pay the amounts following final judgements, up to a maximum aggregate amount
of €3.7 million ($5,7 million), should Cabovisão fail to pay such required amounts.
15. Subsequent event
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. In addition, the Corporation has also entered into cross-currency swap agreements to fix the liability for
interest and principal payments on US$190 million of its Senior Secured Notes Series A, which bear interest at the
coupon rate of 7.00% per annum, payable semi-annually. Taking into account these agreements, the effective
interest rate of 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.
16. Comparative figures
Certain comparative figures have been reclassified to conform to the current year’s presentation.