GROWTH AND ACQUISITIONS IN THE CABLE SECTOR DRIVE COGECO’S FOURTH QUARTER AND 2008 YEAR-END RESULTS.
Press release
For immediate release
Growth and acquisitions in the cable sector drive
COGECO’s fourth quarter and 2008 year-end results
Montreal, October 30, 2008 – Today, COGECO Inc. (TSX: CGO) announced its financial results for the
fourth quarter and fiscal year 2008 ended August 31, 2008.
For the fourth quarter and fiscal year 2008:
• Consolidated revenue increased by 16.5% to $292.9 million and by 14.4% to $1,108.9 million,
respectively;
• Consolidated operating income before amortization
(1)
grew by 20.4% to reach $121.1 million and
by 20.9% to $448.9 million, respectively;
• Consolidated net income amounted to $9.7 million and $25.1 million compared to $30.4 million and
$74.8 million, respectively, a decrease for both periods compared to last year mainly due to gains
on dilution recorded in fiscal 2007;
• Free cash flow
(1)
reached $21 million in the fourth quarter compared to $9.1 million the year before.
For the fiscal year, it amounted to $100.4 million compared to $29.4 million the prior year;
• Operating margin
(1)
grew to 41.4% from 40% and to 40.5% from 38.3%, in the fourth quarter and
the fiscal year, respectively;
• In the cable sector, 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, the cable subsidiary, 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”).
“Our fourth-quarter was marked by the entry of Cogeco Cable 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. On the radio
side, we are pleased to report that our RYTHME FM network continues to be the favorite choice of the 25-54
year old female audience in Montréal. As for our fiscal year-end results, we are very pleased to report
continued growth with the generation of financial results above expectations. Our withdrawal from TQS was
(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.
(2)
Represent the sum of Basic Cable, High Speed Internet (HSI), Digital Television and Telephony service customers.
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done in the best interests of our shareholders. As for fiscal 2009, we have reviewed our guidelines in light of
the global economic climate, the competitive landscape in Portugal, and to include our projections for CDS,”
declared Louis Audet, Pres ident and CEO of COGECO.
Fiscal 2009 Preliminary Financial Guid elines:
The Company issued its 2009 financial guidelines, setting revenue outlook at about $1,243 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 $513 million, an improvement of $13 million
compared to our preliminary projections, and free cash flow should amount to approximately $95 million, a
decrease of $15 million due to an increase in capital expenditures driven by the recent acquisitions in the
cable sector. Please consult the fiscal 2009 projections in the “Fiscal 2009 Financial Guidelines” section for
further details.
FINANCIAL HIGHLIGHTS
Quarters ended August 31, Years ended August 31,
($000, except percentages and per
share data) 2008 2007
(1)
Change 2008 2007
(1)
Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Revenue 292,873 251,300 16.5 1,108,900 969,335 14.4
Operating income from contin ui ng
operations before amortization
(2)
121,135 100,595 20.4 448,894 371,235 20.9
Income from continuing operations 9,656 37,097 (74.0)
43,165 85,623 (49.6)
Loss from discontinued operations – (6,713)
– (18,057) (10,883) 65.9
Net income 9,656 30,384 (68.2)
25,108 74,740 (66.4)
Cash flow from operations
(2)
99,969 78,153 27.9 362,788 283,565 27.9
Less:
Capital expenditures and increase
in deferred charges 78,988 69,022 14.4 262,352 254,141 3.2
Free cash flow
(2)
20,981 9,131 – 100,436 29,424 –
Earnings (loss) per share
Basic
Income from continuing
operations 0.58 2.23 (74.0)
2.59 5.16 (49.8)
Loss from discontinued
operations – (0.40)
– (1.08) (0.66) 63.6
Net income 0.58 1.83 (68.3)
1.50 4.50 (66.7)
Diluted
Income from continuing
operations 0.58 2.21 (73.8)
2.58 5.13 (49.7)
Loss from discontinued
operations – (0.40)
– (1.08) (0.65) 66.2
Net income 0.58 1.81 (68.0)
1.50 4.48 (66.5)
(1)
The comparative figures reflect the reclas sification of discontin ued operations . Please ref er to note 1 5 of the cons olidated fi nanci al statements
for further details.
(2)
The indicated terms do not have standardized definitions prescribed by Canadian Generally Accepted Accounting Principles (“GAAP”) and
therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP
financial measures” section of the Management’s discussion and analysis.
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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’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 Company’s future operating
results and economic performance and its objectives and strategies are forward-looking statements. These
statements are based on certain factors and assumptions including expected growth, results of operations,
performance and business prospects and opportunities, which COGECO believes are reasonable as of the
current date. While management considers these assumptions to be reasonable based on information
currently available to the Company, 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 Company’s 2007 annual Management’s Discussion and Analysis (MD&A) that could
cause actual results to differ materially from what COGECO currently expects. These factors include
technological changes, changes in market and competition, governmental or regulatory developments,
general economic conditions, the development of new products and services, the enhancement of existing
products and services, and the introduction of competing products having technological or other advantages,
many of which are beyond the Company’s control. Therefore, future events and results may vary significantly
from what management currently foresees. The reader should not place undue importance on forward-
looking information and should not rely upon this information as of any other date. While management may
elect to, the Company 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 Company’s consolidated financial statements, and the
notes thereto, prepared in accordance with Canadian GAAP and the MD&A included in the Company’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 Inc.’s (“COGECO” or the “Company”) objectives are to maximize shareholder value by increasing
profitability and ensuring continued growth. The strategies employed to reach these objectives, supported by
tight cost control and business processes, are specific to each sector. For the cable sector, sustained
corporate growth and the continuous improvement of networks and equipment are the main strategies used.
The radio activities focus on continuous improvement of programming in order to increase market share,
and, thereby, profitability. COGECO uses growth of operating income before amortization
(1)
, free cash flow
(1)
and revenue-generating units (“RGU”)
(2)
growth in order to measure its performance against these objectives
for the cable sector. Below are the Company’s recent achievements in furthering the corporate objectives.
Tight control over costs and business processes
• For the fourth quarter of 2008, the Company’s operating costs increased over last year by 12.2%
compared to a revenue growth of 16.5%;
• 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 Company identified certain material
weaknesses in the design of internal controls over financial reporting have been working to improve
in design of internal controls on some significant processes during the quarter. The documentation
and remediation of internal controls weaknesses are progressing normally.
(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
(2)
Represent the sum of Basic Cable, High Speed Internet (HSI), Digital Television and Telephony service customers.
- 4 -
Cable sector
Sustained corporate growth
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 (“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, la unch of CBS College Sports on Digital Television services in Ontario;
o October 2, launch of TSN2 and TSN HD on Digital and HD Television se rvices 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 in Vineland, Stevensville and Port Robinson,
Ontario;
o October 3, la unch of Telephony service in Bromptonville, Richmond and Windsor, Québec;
o September 1 0, launch of Teleph ony service in Tecumseh and LaSalle, Ontario;
o During the fourth quarter, the Telephony service was launche d 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, and St-Prosper-de-Dorchester in Québec;
o Maitland, Prescott, Tillbury, Odessa, Bath and Millgrove in Ontario.
• HSI service:
o Expanded Wi-Fi services to non-cu stomers in Ontario;
o Phased laun ch of Wi-Fi service for Cogeco Cable customers 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 upl oading and downloading capacity for all services;
o Launch of fre e security services for all HSI customers.
Continuous improv ement of networks and equipment
• During fiscal 2008, the Company has invested approximately $103.9 million in its cable infrastructure
including head-ends and upgrades and rebuilds.
Other
• RYTHME FM network and the 93
3
station in Québec City continue to grow a dvertising reve nue.
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Discontinued Operations
In October 2007, the Board of Directors of TQS, an indirect subsidiary of the Company, engaged CIBC
World Markets to advise on and assess strategic options for the TQS network in the face of financial
difficulties. TQS’ position in the Québec Francophone over-the-air television market deteriorated markedly in
spite of the measures and investments initiated by the Company over the previous months. The gradual loss
of advertising revenue to specialty TV networks and content accessible over the Internet, combined with
increased production costs, the Canadian Radio-television and Telecommunications Com mission’s (“CRTC”)
refusal to grant general interest television networks the same ability to charge subscriber fees for signal
distribution as the speciality television networks, the programming strategy of Société Radio-Canada
(“SRC”), which acts like a commercial player rather than a publicly-owned television broadcaster and SRC’s
notice of disaffiliation in Saguenay, Sherbrooke and Trois-Rivières after a 50-year partnership all contributed
to this decision. After considering CIBC World Markets’ report, the Board of Directors of TQS concluded that
it was in the best interest of TQS, its employees and creditors to request court protection. On December 18,
2007, the Québec Superior Court issued an order under the Companies’ Creditors Arrangement Act
(Canada) protecting TQS, its subsidiaries and its parent 3947424 Canada Inc. (“TQS Group”) from claims by
their creditors for an initial suspension period ending on January 17, 2008, which period was afterwards
renewed. Under the order, RSM Richter Inc. was appointed as monitor, with a mandate to support the
applicants, under Court supervision, in preparing a creditors arrangement plan. On March 10, 2008, the
Québec Superior Court agreed with TQS’s Board of Director’s decision to accept the offer made by Remstar
Corporation Inc. (“Remstar”) to acquire all shares of the TQS Group held by Cogeco Radio-Television Inc.
and CTV Television Inc., the two shareholders of TQS. On May 22, 2008, the plan of arrangement proposed
by Remstar was approved by the creditors of the TQS Group and subsequently approved by the Superior
Court of Québec on June 4, 2008. On June 26, 2008, the CRTC approved the proposed transfer of
ownership and control of TQS to Remstar and on August 29, 2008, the transfer of ownership and control of
TQS to Remstar was completed. This new transaction allows a new ownership group to pursue the
broadcasting activities of TQS.
Effective December 18, 2007, the Company has ceased to consolidate the financial statements of the TQS
Group. Accordingly, the investment in the TQS Group as at August 31, 2007, as well as its results of
operations and its cash flow for the period of September 1, 2007 to December 18, 2007 and for the three
and twelve-month periods ende d August 31, 2007 have been reclassified as discontinued operations.
- 6 -
The Company has no investment in the TQS Group as at August 31, 2008. The assets and liabilities related
to the discontinued operations as at August 31, 2007, were as follows:
($000)
$
(audited)
Accounts receivable 23,611
Prepaid expenses 442
Broadcasting rights 14,647
Current assets 38,700
Broadcasting rights 17,456
Fixed assets 21,653
Broadcasting licenses 3,000
Non-current assets 42,109
Bank indebtedness 8,173
Accounts payable and ac c rued lia bilities 28,893
Broadcasting rights payable 8,531
Income tax liabilities 141
Deferred and prepaid income 42
Current portion of long-term debt 251
Current liabilities 46,031
Share in the partners’ deficiency of a general partnership 518
Broadcasting rights payable 4,408
Pension plan liabilities 1,444
Non-controlling interest 11,219
Long-term liabilities 17,589
- 7 -
The results of the discontinued operations were as follows:
Three months ended August 31, Years ended August 31,
($000)
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited)
(audited)
Revenue
– 18,071 38,499 102,972
Operating costs
– 20,486 35,822 108,496
Operating income (loss ) befor e amor tiz atio n
– (2,415)
2,677 (5,524)
Amortization
– 1,295 1,364 4,583
Operating income (loss)
– (3,710)
1,313 (10,107)
Financial expens e
– 266 291 925
Impairment of assets
– – 30,298 –
Loss before income taxes and the following items
– (3,976)
(29,276) (11,032)
Income taxes
– 7,112 – 7,011
Non-controlling interest
– (4,477)
(11,219) (7,257)
Share in the earnings of a general partnership
– 102 – 97
Loss from discontinued operations
– (6,713)
(18,057) (10,883)
The cash flows of the discontinued ope rations were as follows:
Three months ended August 31, Years ended August 31,
($000)
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited)
(audited) (audited)
Cash flows from operating activities
(703)
7,585 (4,676) (469)
Cash flows from investing activities
– (1,671)
(133) (2,926)
Cash flows from financing activities
– (6,754)
4,106 2,555
Cash flows from discontinued operations
(703)
(840)
(703) (840)
Continuing Operations
RGU growth in the cable sector
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 Cogeco Cable’s revis ed RGU growth projections of 225,000 RGU issued
on April 10, 2008, which represents growth of approximately 9%, for the fiscal year ended August 31, 2008.
- 8 -
Revenue and operating income from continuing operations before amortization growth
For the fourth quarter of fiscal 2008, revenue increased by $41.6 million, or 16.5%, to reach $292.9 million
while operating income before amortization grew by $20.5 million, or 20.4%, to reach $121.1 million. For
fiscal 2008, revenue increased by $139.6 million, or 14.4%, to reach $1,108.9 million, while operating
income before amortization grew by $77.7 million, or 20.9%, to reach $448.9 million. For fiscal 2008, the
Company exceeded revised projections of revenue and operating income before amortization expected to
reach $1,090 million and $445 million, respectively.
Free cash flow
In the fourth quarter of fiscal 2008, COGECO generated free cash flow of $21 million, compared to
$9.1 million for the same period last year. For the year ended August 31, 2008, the Company generated free
cash flow of $100.4 million compared to $29.4 million the year before. These increases result mainly from
the cable sector and are attributable to an increase in operating income before amortization and a reduction
in financial expense. Capital expenditures and deferred charges increased by $10 million and $8.2 million
respectively when compared to the corresponding period s of the prior year.
OPERATING RESULTS – CONSOLIDATED OVERVIEW
Quarters ended August 31, Years ended August 31,
($000, except percentages) 2008 2007 Change 2008 2007 Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Revenue 292,873 251,300 16.5 1,108,900 969,335 14.4
Operating costs 171,738 150,705 14.0 660,006 598,100 10.4
Operating income from
continuing operations
before amortization 121,135 100,595 20.4 448,894 371,235 20.9
Operating margin
(1)
41.4% 40.0% – 40.5% 38.3% –
(1)
Operating margin 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.
Revenue
Fiscal 2008 fourth-quarter revenue improved, mainly by its cable segment, by $41.6 million, or 16.5%, to
reach $292.9 million, and for fiscal 2008, by $139.6 million, or 14.4%, to reach $1,108.9 million. Cable
revenue, driven by an increased number of RGU combined with rate increases and the acquisitions of
Cogeco Data Services, FibreWired Burlington Hydro Communications and MaXess Networx® (the “recent
acquisitions”), went up by $40.6 million, or 16.6%, and by $137.9 million, or 14.7%, respectively, in the fourth
quarter and for the 2008 fiscal year.
Operating costs
For the fourth quarter and fiscal 2008, operating costs increased by $21 million or 14%, and $61.9 million or
10.4% compared to the prior year, to reach $171.7 million and $660 million, respectively. The increase in
operating costs for the fourth quarter and 2008 year was mainly attributable to the cable sector in servicing
additional RGU in Canada and Portugal, the impact of the 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 fiscal 2008, operating costs in the cable sector were impacted by the timing of 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.
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Operating income from continuing operation s before amortization
Operating income before amortization grew, essentially by its cable segment, by $20.5 million, or 20.4%, to
reach $121.1 million in the fourth quarter of fiscal 2008 and by $77.7 million or 20.9%, to reach $448.9 million
in fiscal 2008 compared to the corresponding periods of the prior year. The cable sector contributed to the
growth by $18.7 million and $74.7 million during the fourth quarter and fiscal 2008, respectively.
FIXED CHARGES
Quarters ended August 31, Years ended August 31
($000, except percentages) 2008 2007 Change 2008 2007 Change
$ $ % $ $ %
(unaudited) (unaudited) (audited) (audited)
Amortization 61,775 54,723 12.9 229,724 191,221 20.1
Financial expens e 18,182 18,924 (3.9)
70,669 86,056 (17.9)
2008 fourth-quarter and fiscal year amortization amounted to $61.8 million and $229.7 million compared to
$54.7 million and $191.1 million for the same periods the year before. Amortization expense increased for
both periods mainly due to the following factors in the cable sector: 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 recent acquisitions in the cable sector has also contributed to the increase in the amortization expense for
the 2008 fiscal year.
Fourth-quarter and 2008 fiscal year financial expense decreased by $0.7 million and $15.4 million,
respectively, compared to the same periods in fiscal 2007. During the year, the Company’s cable subsidiary
reduced its level of Indebtedness (defined as bank indebtedness, financial derivative instruments and long-
term debt) from the net proceeds of subordinate voting shares issued during fiscal 2007 as well as free cash
flow generated during those periods, net of the impact of increases in long-term debt in the second half of
fiscal 2008 to finance recent acquisitions in the cable sector. During fiscal 2007, Cogeco Cable also recorded
a one-time charge of $2.6 million related to the early repayment of its Second Secured Debentures, Series A.
INCOME TAXES
Fiscal 2008 fourth quarter income tax expense amounted to $9.8 million compared to a recovery of
$7.5 million in fiscal 2007. The increase is mainly due to the increase in operating income before
amortization surpassing that of the fixed charges in the cable sector. In addition, fiscal 2007 income tax
expense was reduced by $14.3 million, in the cable sector, due to the recognition of benefits stemming from
prior years’ income tax losses and minimum income tax paid, and a reduction of Canadian federal enacted
income tax rates to take effect in 2011.
For fiscal 2008, income tax expense amounted to $15 million compared to $11.3 million in 2007. Included in
the 2008 expense is a recovery of $24.1 million, mainly from the cable sector, 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 co nsidered substantively enacted on December 14,
2007. The income tax reductions also resulted from the amortization impact of the revaluation of tangible
and intangible assets upon the completion of the Cabovisão purchase price allocation in the fourth quarter of
fiscal 2007 in the cable sector. In addition, the 2007 expense in the cable sector was reduced by a non-cash
adjustment of $16.2 million due to the recognition of benefits stemming from prior years’ income tax losses
and minimum income tax paid, and a reduction of Canadian federal enacted income tax rates to take effect
in 2011.
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Excluding these adjustments, income taxes for the fourth quarter and fiscal 2008 would have amounted to
$9.8 million and $39.1 million, respectively, compared to $6.8 million and $27.5 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 increase in fixed charges.
LOSS (GAIN) ON DILUTION RESULTING FROM SHARES ISSUED BY A SUBSIDIA RY
During fiscal 2008, the Company’s subsidiary, Cogeco Cable Inc. issued 5,543 subordinate voting shares
pursuant to its Employee Stock Purchase Plan and 157,481 subordinate voting shares pursuant to its
Employee Stock Option Plan for cash consideration of $221,000 and $3,429,000, respectively. In addition,
during fiscal 2007, Cogeco Cable completed two public offerings totalling 8,000,000 subordinate voting
shares for gross proceeds of $346 million. The offerings resulted in net proceeds to Cogeco Cable of
approximately $331.1 million, which were used to reduce long-term indebtedness and working capital
deficiency. Cogeco Cable also issued 7,344 subordinate voting shares pursuant to its Employee Stock
Purchase Plan and 348,131 subordinate voting shares pursuant to its Employee Stock Option Plan for cash
consideration of $198,000 and $6,816,000, respectively. As a result of these share issuances in 2008 and
2007, COGECO’s interest in Cogeco Cable decreased from 39.2% to 32.3% and a loss on dilution of $0.1
million was recorded in fiscal 2008 compared to gains on dilution of $27 million and $57.9 million,
respectively, in the fourth quarter and fiscal 2007.
NON-CONTROLLING INTEREST
The non-controlling interest represents a participation of approximately 67.7% in Cogeco Cable’s results.
During the fourth quarter and 2008 year, the non-controlling interest amounted to $21.6 million and
$90.2 million, respectively, due to the cable sector’s strong results. The non-controlling interest for the
comparable periods of last year amo unted to $24.2 million and $54.8 million, respectively.
NET INCOME
Fiscal 2008 fourth-quarter net income amounted to $9.7 million, or $0.58 per share, compared to
$30.4 million, or $1.83 per share, for the same period last year. Net income decreased due to the following
factors: a gain on dilution of $27 million resulting from shares issued by Cogeco Cable and a reduction of
$4.8 million in income taxes, net of non-controlling interest, were recorded in fiscal 2007; partly offset by the
loss of $6.7 million from discontinued operations in the fourth quarter of fiscal 2007 and the increase in
operating income before amortization in the fourth quarter of fiscal 2008 in the cable sector.
Fiscal 2008 net income amounted to $25.1 million, or $1.50 per share, compared to $74.7 million, or
$4.50 per share for the same period last year. Net income decreased due to the following factors: a gain on
dilution amounting to $57.9 million was recorded in fiscal 2007, a loss from discontinued operations of
$18.1 million was recorded in fiscal 2008 compared to a loss from discontinued operations of $10.9 million in
2007, partially offset by positive income tax adjustments from the cable sector, net of non-controlling interest,
of $7.9 million in fiscal 2008 compared to $5.3 million in fiscal 2007.
Excluding the effect of the adjustments described above, net income for the fourth quarter of fiscal 2008
would have amounted to $9.7 million, or $0.58 per share, compared to $5.3 million, or $0.32 per share, for
the same period in 2007, improvements of 82.2% and 81.3%, respectively. For fiscal 2008, net income
excluding the adjustments described above would have amounted to $35.4 million, or $2.12 per share,
compared to $22.4 million, or $1.35 per share, in 2007, an increase of 57.6% and 57%, respectively. The
increase in net income, excluding all adjustments described above, is mainly due to the growth in operating
income before amortization exceeding those of the fixed charges in the cable sector. Please consult the
“Non-GAAP financial measures” section for further details.
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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)
99,969 78,153 362,788 283,565
Changes in non-cash operating items 46,083 29,002 35,703 (73,003)
146,052 107,155 398,491 210,562
Investing activities
(2)
(289,619) (69,029) (487,106) (248,904)
Financing activities
(2)
99,055 6,559 59,240 32,702
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 from continuing
operations (44,506) 44,442 (28,104) (4,397)
Net change in cash and cash equivalents from
discontinued operations (703) (840) (703) (840)
Cash and cash equivalents, beginning of period 82,681 22,677 66,279 71,516
Cash and cash equivalents, end of period 37,472 66,279 37,472 66,279
(1)
Cash flow from operations does not have a standardized definition prescribed by Canadian Generally Accepted Accounting Principles
(“GAAP”) and therefore , may not b e c omparable to similar meas ures pres ented by other companies . For m ore details, please c ons ul t the “Non-
GAAP financial measures” section.
(2)
Excludes assets acquired under capital leases.
Fiscal 2008 fourth quarter cash flow from operations reached $100 million, 27.9% higher than the
comparable period last year, primarily due to the increase in operating income before amortization in the
cable sector. 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 prepai d expenses.
Fiscal 2008 cash flow from operations reached $362.8 million, an increase of 27.9% compared to the same
period the year before, primarily due to the growth in operating income before amortization and to a
reduction in financial expense partly offset by the growth in current income taxes in the cable sector.
Changes in non-cash operating items generated cash inflows of $35.7 million compared to cash outflows of
$73 million for the same period last year, due to the cable sector, mainly as a result of increases in accounts
payable and accrued liabilities and in income tax liabilities, partly offset by increases in accounts receivable
and prepaid expenses. In fiscal 2007, the reduction in accounts payable and accrued liabilities was due to
non-recurring payments made by the Portuguese cable subsidiary in accordance with the terms of the
acquisition.
Business acquisitions
On March 31, 2008, the Company’s subsidiary, Cogeco Cable, 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 communication s.
On June 30, 2008, Cogeco Cable 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 othe r advanced communications.
- 12 -
On July 31, 2008, Cogeco Cable 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, Cogeco Cable 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 Area (“GTA”). This acquisition allows Cogeco Cable 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.
In the fourth quarter of fiscal 2008, investing activities, other than for business acquisitions, stood at
$76 million mainly due to capital expenditures of $68.9 million and from an increase of $7 million in deferred
charges in the cable sector. The capital expenditures stem essentially from the cable sector and increased
compared to the same period last year 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 decline in RGU in Portugal;
• An increase in scalable infrastructure capital spending mainly due to the timing of the expansion and
the head-end improvements, system powering and equipment reliability to sustain increased
customer demand for HSI and Telephony services;
- 13 -
• An increase in support capital due to the acquisition of vehicles and to leasehold improvements in
the Company’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.
In the 2008 year, investing activities, other than for business acquisitions, stood at $257.8 million mainly due
to capital expenditures of $233.9 million and an increase of $27.7 million in deferred charges in the cable
sector. The capital expenditures stem mainly from the cable sector and increased compared to the same
period last year due to the following factors:
• An increase in customer premise equipment capital spending in Portugal to support RGU growth
and the continued deployment of the Digital Television service in the second h alf of fiscal 2008;
• 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 Company’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 in the cable sector. 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 the cable sector
explained the lower increases recorded in 2008.
In the fourth quarter and for the 2008 year, the Company generated free cash flow amounting to $21 million
and $100.4 million, respectively, compared to $9.1 million and $29.4 million for the same periods of the
preceding year. The free cash flow improvements over the same periods last year are mainly due to the
cable sector and attributable 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 $10 million in the 2008 fourth-quarter and by $8.2 million
for the 2008 year compared to the corre spo nding periods of last year due to the factors explained above.
In the fourth quarter of 2008, Indebtedness affecting cash increased by $102.6 million. This increase is
primarily due to the increase, in the cable sector, in long-term debt to finance the 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 $46.1 million from the changes in non-cash operating items, the free cash flow of
$21 million, and the use of $45.2 million of cash and cash equivalents. During the fourth quarter of fiscal
2007, the level of Indebtedness affecting cash decreased by $138.1 million and was essentially due to the
repayment of Term Facility in the amount of $146.5 million using the public offering net proceeds of
$146.9 million in the cable sector. In addition, dividends of $0.07 per share for subordinate and multiple
voting shares, totalling $1.2 million, were paid by the Company during the fourth quarters of fiscal 2008 and
fiscal 2007. Dividends paid by a subsidiary to non-controlling interests were $3.3 million during the fourth
quarter of fiscal 2008, for consolidated dividend payments of $4.5 million.
During fiscal 2008, the level of Indebtedness affecting cash increased by $72.9 million mainly due to the
cable sector and attributable to the recent acquisitions, for an aggregate amount of $231 million offset by the
free cash flow of $100.4 million, a reduction of $28.8 million in cash and cash equivalents and from and
increase of $35.7 million in non-cash operating items. In addition, on March 5, 2008, Cogeco Cable 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 Cogeco Cable’s option at any time, in whole or in part, prior to maturity, at 100% of the
principal amount plus a make-wh ole premium and will mature on M arch 5, 2018.
For fiscal 2007, the level of Indebtedness decreased by $294.8 million, mainly due to the completion by
Cogeco Cable, 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 $29.4 million and a reduction of $4.4 million in cash and
cash equivalents, partly offset by a decline of $73 million in non -cash operating items.
- 14 -
In addition, quarterly dividends of $0.07 per share were paid to the holders of subordinate and multiple
voting shares totalling $4.7 million during 2008 compared to quarterly dividends of $0.0625 per share in the
first quarter and $0.07 per share in the last three quarters totalling $4.5 million in fiscal 2007. Dividends paid
by a subsidiary to non-controlling interests were $13.1 million during fiscal 2008, bringing the consolidated
dividend payments to $17.8 million.
As at August 31, 2008, the Company had a working capital deficiency of $611.8 million compared to
$127.3 million as at August 31, 2007. The increased deficiency is mainly attributable to the cable sector and
is due to the following factors: the expiry of Cogeco Cable’s 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 to 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 cable business, COGECO maintains a working capital deficiency due to a low level of
accounts receivable since the majority of the cable subsidiary’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 Cogeco Cable to use cash and cash equivalents to reduce
Indebtedness.
During fiscal 2008, the cable subsidiary 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, Cogeco Cable had used $467.6 million of its $885 million Term Facility for a remaining availability
of $417.4 million and the Company had drawn $19 million of its $50 million Term Facility.
Transfers of funds from non-wholly owned subsidiaries to COGECO are subject to approval by the
subsidiaries’ Board of Directors and may also be restricted under the terms and conditions of certain debt
instruments. In accordance with applicable corporate and securities laws, significant transfers of funds from
COGECO may be subject to approval by minority shareholders.
FINANCIAL POSITION
Since August 31, 2007, except for the changes in the presentation of assets and liabilities related to
discontinued operations, there have been major changes to the balance of Fixed assets, Cash and cash
equivalents, Accounts payable and accrued liabilities, Income tax liabilities, Future income tax assets, Future
income tax liabilities, Accounts receivable, Goodwill, Customer relationships, Accumulated other
comprehensive income (loss), Non-controlling interest, Derivative financial instruments and Indebted ness.
The $138.3 million increase in fixed assets is mainly related to the cable sector and attributable to increased
capital expenditures to sustain RGU growth, the fixed assets acquired through recent acquisitions and to the
appreciation of the Euro over the Canadian dollar. The $28.8 million decrease in cash and cash equivalents
is mainly due to the reduction of Indebtedness in the cable sector. The $38.6 million increase in accounts
payable and accrued liabilities is related to the timing of payments made to suppliers and the impact of the
recent acquisitions in the cable sector. The $19.6 million increase in income tax liabilities and the $2.1 million
net reduction in future income tax assets are mainly due to the utilization of most of Cogeco Cable’s
Canadian tax loss carry forwards before fiscal 2008, partly offset by the impact of the recent acquisitions.
The $11.3 million future income tax liabilities reduction, also attributable to the cable sector, 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 $12.2 million accounts receivable increase is essentially
due to the cable sector and attributable to the 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 $32.6 million in Customer relationships are due to the recent acquisitions as well as the
appreciation of the Euro over the Canadian dollar in the cable sector. The $6 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 in the cable sector.
The $95.4 million increase in non-controlling interest is mainly due to the improved results in the cable
sector. Indebtedness has increased by $110.4 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. Please consult “Accounting policies and
estimates” section for further details.
- 15 -
A description of COGECO’s share d ata as at September 30, 2008 is presented in the table below:
Number of shares/options Amount
($000)
Common shares
Multiple voting shares
Subordinate voting shares
1,842,860
14,897,586
12
120,037
Options to purchase Subordinate voting shares
Outstanding options
Exercisable options
123,758
123,758
In the normal course of business, COGECO has incurred financial obligations, primarily in the form of long-
term debt, operating and capital leases and guarantees. COGECO’s obligations, discussed in the 2007
annual MD&A, have not materially change d since August 31, 2007, except as follows:
The Term Facility and the operating line of credit of the Parent company are secured by a first fixed and
floating charge on certain assets of the Company and certain of its subsidiaries except for permitted
encumbrances, including funded obligations subject to a maximum amount. The provisions under these
facilities provide for restrictions on the operations and activities of the Company. Generally, the most
significant restrictions are related to permitted investments, dividends on multiple and subordinate voting
shares and reimbursement of long-term debt as well as incurrence and maintenance of certain financial
ratios primarily linked to financial expense, total indebtedness and shareholders’ equity.
On December 14, 2007, the Company concluded an amended and restated credit agreement with a group of
Canadian banks led by the Canadian Imperial Bank of Commerce (“CIBC”), which will now act as agent for
the banking syndicate. The Term Facility of $50 million, including a swingline limit of $5 million, is renewable
on an annual basis, subject to lenders’ approval, and if not renewed it matures three years after its issuance
or the last renewal, as the case may be. The Term Facility is secured by all assets of COGECO Inc. and its
subsidiaries, excluding the capital stock of Cogeco Cable Inc. and guaranteed by its subsidiaries Cogeco
Radio-Television Inc. and Cogeco Diffusion Inc. (“CDI”). Under the terms and conditions of the amended and
restated credit agreement, the Company must comply with certain restrictive covenants, including the
requirement to maintain certain financial ratios. The Term Facility bears interest rates based, at the
Company’s option, on bankers’ acceptance, Libor, Euribor, bank prime rate or U.S. base rate plus fees, and
commitment fees are payable on the unused portio n.
Prior to December 14, 2007, the Company benefited from a Term Facility of $40 million, provided by a
syndicate of financial institutions. The Term Facility could be extended for an additional year at each
anniversary date of the facility, subject to the lenders’ approval.
On October 1, 2008, Cogeco Cable 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 cable subsidiary 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.
DIVIDEND DECLARATION
At its October 29, 2008 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of
$0.08 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 financial results in the cable sector explains
the dividend increase of 14% to $0.08 per share from $0.07 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 Company
based upon the Company’s financial condition, results of operations, capital requirements and such other
- 16 -
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 amount and timing may vary.
FOREIGN EXCHANGE MANAGEMENT
The Company’s subsidiary, Cogeco Cable, has entered into cross-currency swap agreements to set the
liability for interest and principal payments on its US$150 million Senior Secured Notes. These agreements
have the effect of converting the U.S. interest coupon rate of 6.83% per annum to an average 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
appreciation. The fair value of cross-currency swap agreements decreased by a net amount of $3.7 million,
of which $0.9 million offset the foreign exchange gain on the US$ debt. The difference of $2.8 million was
recorded as an increase of other comprehensive income, net of income taxes of $0.9 million and non-
controlling interest of $1.3 million. Cogeco Cable has also entered into cross-currency swap agreements to
set the liability for interest and principal on its new US$190 million financing closed on October 1, 2008 as
previously discussed.
As noted in the MD&A of the 2007 Annual Report, Cogeco Cable’s investment in the Portuguese subsidiary,
Cabovisão, is exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily
changes in the value 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, Cogeco Cable realized a foreign
exchange gain of $18.8 million in 2008, which is presented net of non-controlling interest of $12.7 million in
other comprehensive income. The exchange rate used to convert the Euro into Canadian dollars for the
balance sheet accounts as at August 31, 2008 was $1.5580 per Euro compared to $1.4390 per Euro as at
August 31, 2007. The average exchange rates prevailing during the fourth quarter and 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.
CABLE SECTOR
CUSTOMER STATISTICS
Net additions (losses) % of Penetration
(1)
Quarters ended
August 31,
Years ended
August 31, August 31,
2008 2008 2007 2008 2007 2008 2007
RGU 2,716,874 41,100 49,576 231,209 300,688 – –
Basic Cable service
customers 1,153,229 (5,932) 2,129 10,069 40,289 – –
HSI service
customers
(2)
632,768 3,790 15,299 56,909 96,501 56.7 52.8
Digital Television
service customers
466,198 26,132 8,747 86,319 52,515 40.9 33.8
Telephony service
customers
(3)
464,679 17,110 23,401 77,912 111,383 45.7 40.4
(1)
As a percentage of Basic Cable service customers in areas served.
(2)
Customers subscribing only to HSI services totalled 83,609 as at August 31, 2008 compared to 75,955 at August 31, 2007.
(3)
Customers subscribing only to Telephony services totalled 11,512 as at August 31, 2008 compared to 8,901 at August 31, 2007
In Canada, fourth-quarter 2008 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 net loss of customers for Basic
Cable in the Canadian market 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. The
- 17 -
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, HSI customer net additions continue to stem from
the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection) of
Television, HSI and Telephony services, and promotional activities. Telephony customers grew in Canada,
with net additions of 19,436 to reach 219,601 compared to a growth of 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.
Canadian net additions of Digital Television service stood at 16,150 customers compared to
8,747 customers for the same period last year due to targeted marketing initiatives in 2008 to improve the
penetration rate and the continuing strong interest for HD technolo gy.
In Portugal, 2008 fourth-quarter and fiscal year were marked by an unfavourable economic climate 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.
OPERATING RESULTS
Quarters ended August 31, Years ended August 31,
($000, except percentages) 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 from contin ui ng
operations before amortization 121,116 102,426 18.2 445,424 370,753 20.1
Operating margin 42.5% 41.9% 41.4% 39.5%
Revenue
Fiscal 2008 fourth-quarter consolidated revenue improved by $40.6 million, or 16.6%, to reach
$284.9 million, and for the year, 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 recent acquisitions, 2008 fourth-quarter Canadian
operations revenue went up by $32.3 million, or 17.1%, and for the year 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 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 transla t ed to Canadian dollars.
Operating costs
For the fourth quarter and the 2008 year, 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 last year, to reach
$163.8 million and $622.7 million, respectively. The increase in operating costs for the fourth quarter and
- 18 -
fiscal 2008 was mainly attributable to servicing additional RGU in Canada and Portugal as well as to the
impact of recent acquisitions. 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 from continuing operation s 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, the recent acquisitions, and RGU growth generating additional revenue
which outpaced operating cost increases as well as the impact of the recent acquisitions. 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.
FISCAL 2009 FINANCIAL GUIDELINES
Consolidated
The Company has revised its preliminary consolidated projections to take into consideration its revised
projections in the cable sector described below. As a result, the Company now expects revenue to increase
by $45 million to reach $1,243 million, operating income before amortization should increase by $13 million
to reach $513 million and net income and free cash flow should stand at $35 million and $95 million,
respectively.
Cable sector
Cogeco Cable 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 providers in the Portug uese market.
Taking into account 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%.
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
$15 million from the preliminary projections.
- 19 -
Consolidated
($ million, except customer data and operating margin)
Projections
October 29, 2008
Fiscal 2009
Preliminary Projections
July 9, 2008
Fiscal 2009
$ $
Consolidated Financial Guidelines
Revenue 1,243 1,198
Operating income before amortization 513 500
Net income 35 42
Free cash flow 95 110
Cable sector–
Financial Guidelines
Revenue 1,210 1,165
Operating income before amortization 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
UNCERTAINTIES AND M AIN RISK FACTORS
This section outlines general and specific risks faced by COGECO and its subsidiaries which could
significantly affect the financial condition, operating results or business of the Company. It does not purport
to cover all contingencies, or to describe all possible factors that might have an influence on the Company 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 applies an on-going risk management process that includes a quarterly assessment of risks for
the Company and its subsidiaries, under the oversight of the Audit Committee. As part of this process, the
Company endeavours to identify risks that are liable to have a major impact on the Company’s financial
situation, revenue or activities, and to mitigate such risks proactively as may be reasonable and appropriate
in the circumstances. This section reflects management’s current views on uncertainties and main risk
factors.
Risks pertaining to markets an d competition
Cable sector
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. 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
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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 services of Cogeco Cabl e.
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”), 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 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.
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The level of piracy of video signals and the actual penetration of illicit reception of video distribution services
in households within Cogeco Cable’s service areas may also have a significant effect on Cogeco Cable’s
business and the competitiveness of its service offerings.
Other sector
CDI conducts all its commercial radio activities in the francophone market of the Province of Québec. CDI’s
radio stations compete for audience and advertising revenue with networks and stations controlled
respectively by broadcasting groups Astral Media Inc., Corus Entertainment Inc. and Groupe Radio Nord
Inc., and with other local radio stations. CDI also competes for audience with the networks and radio stations
of the SRC and with satellite radio. The method used for audience measurements in the Montréal radio
market will change with the use of portable people meters (“PPM”), starting with the fall 2008 survey; this
change may cause a significant variation in the measured audience share of stations broadcasting in the
Montréal market. The CRTC issued on October 3, 2008 a call for applications for a new commercial FM
station in the Québec City market; this may result in the licensing of yet another commercial radio station in
that market, with a possible competitive impact starting in fiscal year 2010.
Technological risks
Cable sector
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.
Cogeco Cable 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.
Cogeco Cable’s management 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 environme nt.
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 Cogeco Cable and
gradual disintermediation through direct transactions between video content suppliers and Cogeco Cable’s
customers. In this context, revenue and margins derived from Cogeco Cable’s HSI access services may not
entirely compensate for the loss of revenue or margin derived from Cogeco Cable’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 Cogeco Cable’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, Cogeco Cable 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.
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Regulatory risks
Cable sector
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 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 Cogeco Cable’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 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 Cogeco Cable 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 within Cogeco Cable’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 pro v ision of electronic communications in Portugal.
Risks pertaining to operating cos ts
Cable sector
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 connectivity 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 arra ngements is under way, but is not concluded as yet.
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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, Cogeco Cable may not be able to secure 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 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 Respondent filed its response on September 29,
2008 and the matter is currently pending. COGECO has accrued the full amount with respect to these fees
for fiscal years 2007 and 2008.
Risks 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. Cogeco Cable 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 disaster s and other contingencies
Cogeco Cable 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 Cogeco Cable’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. Cogeco Cable also 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 Cogeco Cable’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 Cogeco Cable 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,
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currency exchange and other legal requirements applicable to Cogeco Cable, or to its direct or indirect
subsidiaries could adversely affect such upstream flows of funds or the effectiveness of Cogeco Cable’s
existing debt financing structure.
Cogeco Cable’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 Cogeco Cable completes
further business acquisitions domestically or abroad, and the risk profile may differ from one acquisition to
the 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 otherwise.
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). The remainder of the purchase price is assumed liabilities.
There are no financial hedging arrangements in effect at this time for currency fluctuation risk on interest
payments resulting from these borrowings, but there is a natural hedging effect 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. Cogeco Cable is still considering various options
to extend the term loan with alternate sources of Euro-denominated financing.
Human resources
COGECO 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 maintains, as well, appropriate relations with its key personnel.
COGECO’s success depends to a significant extent on its ability to attract and retain its managers and
skilled employees in an increasingly competitive market. COGECO’s inability or failure to recruit, retain or
adequately train its human resources may have a materially adverse effect on COGECO’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’s accounting policies and estimates and future
accounting pronouncements since August 31, 2007, except as described below. A description of the
Company’s policies and estimates can b e found in the 2007 annual MD&A.
Financial instruments
Effective September 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants
(“CICA”) Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments –
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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 Company’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 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 Company the option to designate
certain financial instrument s, on initial re cognition, as held-for-trading.
All of the Company's financial assets are classified as held-for-trading or loans and receivables. The
Company has classified its cash and cash equivalents as held-for-trading. Accounts receivable have been
classified as loans and receivables. All of the Company’s financial liabilities were classified as other
liabilities, except for the Company’s subsidiary’s 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 statement 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
Company 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, 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,
increased non-controlling intere st by $0.9 million and i ncreased retained earnings by $0.4 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 statement of income.
Any hedge ineffectiveness is recognized in the consolidated statement of income immediately. Accordingly,
the Company’s subsidiary’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 U.S. 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 instruments liabilities by $83.5 million, decreased
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deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by
$1.1 million, decreased non-controlling interest by $1.5 million and decreased opening accumulated other
comprehensive income by $0.7 million. The impact of measuring the cross-currency swap agreements at fair
value on the interim consolidated financial statements for the fourth quarter decreased derivative financial
instruments liabilities by $11.5 million, increased future income tax liabilities by $0.4 million, increased non-
controlling interest by $0.5 million and increased accumulated other comprehensive income by $0.3 million.
The impact of measuring the cross-currency swap agreements at fair value on the consolidated financial
statements for the year ended August 31, 2008 decreased derivative financial instruments liabilities by
$3.7 million, increased future income tax liabilities by $0.9 million, increased non-controlling interest by
$1.3 million and increased accumulated other comprehensive income by $0.6 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 and non-controlling interest.
As a result, an amount of $1.4 million was reclassified as at September 1, 2006 from the foreign currency
translation adjustment to accumulated other comprehensive income and the Company’s comparative
financial statements were restated in accordan ce with transition rules.
Embedded derivatives
All embedded derivatives that are not closely related to the host contracts, are measured at fair value, and
with changes in fair value recorded in the consolidated statement 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 Company 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 Company adopted this new standard
and concluded that it had no significant impact on these consolidated financial statements.
Future accounting pronouncemen ts
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 Company 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 ca pital.
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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
Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial
statements.
Harmonization of Canadian and International accounting standards
In March 2006, the Accounting Standards Board of the CICA released its new strategic plan, which propo sed
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
Company 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 accordan ce 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 Company 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 Company has selected an external advisor to assist with the
project and is currently in the process of assessing the differences between IFRS and the Company’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
Company’s current accounting policies and IFRS. Changes in accounting policies are likely. These changes
may materially impact the Company’s consolidated financial statements.
NON-GAAP FINANCI AL MEASURES
This section describes non-GAAP financial measures used by COGECO throughout this MD&A. It also
provides reconciliations between these non-GAAP measures and the most comparable GAAP financial
measures. These financial measures do not have standard definitions prescribed by Canadian GAAP and
may not be comparable with similar measures presented by other companies. These measures include
“cash flow from operations”, “free cash flow”, “operating income before amortization”, “operating margin” and
“net income, excluding loss (gain) on dilution, loss from discontinued operations and income tax adjustments
net of non-controlling interest”.
Cash flow from operations and fr ee cash flow
Cash flow from operations is used by COGECO’s management and investors to evaluate cash flows
generated by operating activities excluding the impact of changes in non-cash operating items. This allows
the Company 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’s management and investors to measure COGECO’s ability to
repay debt, distribute capital to its share holders and finance its growth.
- 28 -
The most comparable Canadian GAAP financial measure is cash flow from operating activities. Cash flow
from operations is calculated as follows:
Quarters ended August 31, Years ended August 31,
($000) 2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Cash flow from operating activities 146,052 398,491 107,155 210,562
Changes in non-cash operating items (46,083) (35,703) (29,002) 73,003
Cash flow from operations 99,969 362,788 78,153 283,565
Free cash flow is calculated as follows:
Quarters ended August 31, Years ended August 31,
($000) 2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Cash flow from operations 99,969 78,153 362,788 283,565
Acquisition of fixed assets (68,895) (57,948) (229,181) (221,015)
Increase in deferred charges (7,035) (10,784) (27,696) (30,042)
Assets acquired under capital leases – as per Note 13b) (3,058) (290) (5,475) (3,084)
Free cash flow 20,981 9,131 100,436 29,424
Operating income from continuing operation s before amortization and operating margin
Operating income before amortization is used by COGECO’s management and investors to assess the
Company’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 Company'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 from
continuing operations befo re 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 from continuing operations 59,360 45,872 219,170 180,014
Amortization 61,775 54,723 229,724 191,221
Operating income from continuing operations before
amortization
121,135 100,595 448,894 371,235
Revenue 292,873 251,300 1,108,900 969,335
Operatin Margin 41.4% 40.0% 40.5% 38.3%
- 29 -
Net income excluding loss (gain) on dilution, loss from discontinued operations and income tax
adjustments net of non-controlling interes t
Net income excluding loss (gain) on dilution, loss from discontinued operations and income tax adjustments
net of non-controlling interest, is used by COGECO’s management and investors in order to evaluate what
would have been the net income excluding loss (gain) on dilution, loss from discontinued operations and
income tax adjustments net of non-controlling interest. This allows the Company to isolate the one time
adjustments in order to evaluate the net income from continuing operations.
The most comparable Canadian GAAP financial measure is net income. Net income excluding loss (gain) on
dilution, loss from discontinued operations and income tax adjustments net of non-controlling interest is
calculated as follows:
Quarters ended August 31, Years ended August 31,
($000) 2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Net income 9,656 30,384 25,108 74,740
Adjustments:
Loss (gain) on dilution 19 (27,011) 104 (57,930)
Loss from discontinued operations – 6,713 18,057 10,883
Income tax adjustments net of non-c ontro lli ng interest – (4,777) (7,909) (5,256)
Net income excluding above adjustments 9,675 5,309 35,360 22,437
ADDITIONAL INFORMATION
This MD&A was prepared on October 29, 2008. Additional information relating to the Company, including its
Annual Information Form, is available on the SEDAR website at www.sedar.com.
ABOUT COGECO
COGECO is a diversified communications company. Through its Cogeco Cable subsidiary, COGECO
provides approximately 2,717,000 revenue-generating units (RGU) to 2,428,000 homes passed in its
Canadian and Portuguese service territories. Through its two-way broadband cable networks, Cogeco Cable
provides its residential and commercial customers with Analogue and Digital Television, HSI, as well as
Telephony services. Through its Cogeco Radio-Television subsidiary, COGECO owns and operates the
RYTHME FM radio stations in Montréal, Québec City, Trois-Rivières and Sherbrooke, as well as the 93
3
station in Québec City. COGECO’s subordinate voting shares are listed on the Toronto Stock Exchange
(TSX: CGO). The subordinate voting shares of Cogeco Cable are also listed on the Toronto Stock Exchange
(TSX: CCA).
– 30 –
- 30 -
Source: COGECO 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 acce ss to the conference
call by dialing in 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
- 31 -
Supplementary Quarterly Financial Information
(unaudited)
Quarters ended August 31, May 31, February 29 / 28, November 30,
2008 2007
(1)
2008
2007
(1)
2008 2007
(1)
2007
(1)
2006
(1)
($000, except percentages and
per share data) $ $ $
$ $ $ $
$
Revenue 292,873 251,300 283,878 249,424 271,894 238,378 260,255
230,233
Operating income from
continuing operations before
amortization
(2)
121,135 100,595 117,204 95,791 109,346 87,478 101,209
87,371
Operating margin
(2)
41.4% 40.0% 41.3% 38.4% 40.2% 36.7% 38.9%
37.9%
Amortization 61,775 54,723 58,564 47,725 56,346 44,018 53,039
44,755
Financial expens e 18,182 18,924 17,746 21,603 17,373 23,915 17,368
21,614
Income taxes 9,849 (7,480)
10,285 8,055 (14,426) 4,233 9,277
6,535
Loss (gain) on dilution 19 (27,011) 3 64 (25) (30,990) 107
7
Non-controlling interest 21,559 24,240 21,068 13,318 33,763 9,647 13,762
7,619
Income from continuing
operations
9,656 37,097 9,538 5,025 16,315 36,655 7,656
6,846
Loss from discontinued
operations – (6,713)
–
(1,966)
(425) (2,109) (17,632)
(95)
Net income (l oss) 9,656 30,384 9,538 3,059 15,890 34,546 (9,976)
6,751
Cash flow from operations
(2)
99,969 78,153 96,068 76,862 85,374 63,353 81,377
65,197
Earnings (loss ) per share
Basic
Income from continuing
operations 0.58 2.23 0.57 0.30 0.98 2.21 0.46
0.41
Loss from discontinued
operations – (0.40)
– (0.12)
(0.03) (0.13) (1.06)
(0.01)
Net income (l oss) 0.58 1.82 0.57 0.18 0.95 2.08 (0.60)
0.41
Diluted
Income from continuing
operations 0.58 2.21 0.57 0.30 0.97 2.20 0.46
0.41
Loss from discontinued
operations – (0.40)
– (0.12)
(0.03) (0.13) (1.06)
(0.01)
Net income (l oss) 0.58 1.81 0.57 0.18 0.95 2.07 (0.60)
0.41
(1)
The results for the first quarter o f fiscal 2008 and all c omparative figures reflect the r eclassification of dis continued opera tions. Please refer to
note 15 of the consolidated financial statements for further details.
(2)
The indicated terms do not have standardized definitions prescribed by Canadian Generally Accepted Accounting Principles (“GAAP”) and
therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP
financial measures” section of the Management’s discussion and analysis.
The cable sector’s operating results are not generally subject to material seasonal fluctuations. However, the
loss in Basic Cable service customers is usually greater, and the addition of HSI service customers is
generally lower in the third quarter, mainly because students leave their campus 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.
The other sector’s operating results may be subject to significant seasonal variations. Advertising revenue
depends on audience ratings and the market for radio advertising expenditures in the Province of Québec.
Audience ratings may vary due to a number of factors, including on-air personalities, programming content
and promotional activities. Advertising level may also vary due to many factors, including general economic
and consumer retail market conditions and cycles. Advertising sales, mainly for national advertising, are
normally weaker in the second and fourth quarters and, accordingly, the operating margin is generally lower
in those quarters.
COGECO INC. - 32 -
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
- 33 -
COGECO 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 292,873
251,300
1,108,900
969,335
Operating costs 171,738
150,705
660,006
598,100
Operating income from continuing operations before
amortization
121,135
100,595
448,894
371,235
Amortization (note 4) 61,775
54,723
229,724
191,221
Operating income from continuing operations 59,360
45,872
219,170
180,014
Financial expense (note 5) 18,182
18,924
70,669
86,056
Income from continuing operations before income taxes and
the following items
41,178
26,948
148,501
93,958
Income taxes (note 6) 9,849
(7,480)
14,985
11,343
Loss (gain) on dilution resulting from shares issued by a
subsidiary (note 7)
19
(27,011)
104
(57,930)
Non-controlling interest 21,559
24,240
90,152
54,824
Share in the loss of a general partnership 95
102
95
98
Income from continuing operations 9,656
37,097
43,165
85,623
Loss from discontinued operations (note 15) –
(6,713)
(18,057)
(10,883)
Net income 9,656
30,384
25,108
74,740
Earnings (loss) per share (note 8)
Basic
Income from continuing operations 0.58
2.23
2.59
5.16
Loss from discontinued operations –
(0.40)
(1.08)
(0.66)
Net income 0.58
1.83
1.50
4.50
Diluted
Income from continuing operations 0.58
2.21
2.58
5.13
Loss from discontinued operations –
(0.40)
(1.08)
(0.65)
Net income 0.58
1.81
1.50
4.48
- 34 -
COGECO 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 9,656
30,384
25,108
74,740
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 and non-controlling interest of
$6,453,000 and $1,800,000
3,087
–
861
–
Reclassification of realized gains to net in come on derivative
financial instruments designated as cash flow hedges, net of
income taxes recovery of $1,599,000 and $134,000 and non-
controlling interest of $5,920,000 and $499,000
(2,831)
–
(237)
–
Unrealized gains (losses) on translation of net investments in
self-sustaining foreign subsidiaries, net of non-controlling
interest of $ 3,891,000 and $35,978,000 ($462,000 and
$6,012,000 in 2007)
1,861
(222)
17,206
2,888
Unrealized gains (losses) on translation of long-term debts
designated as hedges of net investments in self-sustaining
foreign subsidiaries, net of non-controlling interest of
$2,119,000 and $23,281,000 (net of income taxes expenses
of $18,000 and income taxes recovery of $1,685,000, and
non-controlling int eres t of $540, 000 and $5, 106,000 in 2007)
(1,013)
259
(11,133)
(2,452)
1,104
37
6,697
436
Comprehensive income 10,760
30,421
31,805
75,176
- 35 -
COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Twelve months ended August 31,
(In thousands of dollars) 2008 2007
$ $
(audited) (audited)
Balance at beginning, as reported 274,946 204,734
Changes in accounting policies (note 1) 424 –
Balance at beginning, as restated 275,370 204,734
Net income 25,108 74,740
Dividends on multiple vot ing shares (516) (503)
Dividends on subordinate voting shares (4,154) (4,025)
Balance at end 295,808 274,946
- 36 -
COGECO INC.
CONSOLIDATED BALANCE SHEET S
(In thousands of dollars) August 31, 2008 August 31, 2007
$ $
(audited) (audited)
Assets
Current
Cash and cash equivalents 37,472 66,279
Accounts receivable 64,910 52,734
Income taxes receivable 3,569 3,138
Prepaid expenses 13,271 8,675
Future income tax assets 8,661 17,986
Current assets related to discontinued operations (note 15) – 38,700
127,883 187,512
Income taxes receivable – 1,345
Investments 739 739
Fixed assets 1,261,610 1,123,270
Deferred charges 57,841 55,450
Intangible assets (note 9) 1,116,382 1,083,750
Goodwill (note 9) 487,805 342,584
Future income tax assets 7,221 –
Non-current assets related to discontinued operations (note 15) – 42,109
3,059,481 2,836,759
Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness 10,302 –
Accounts payable and accrued liabilities 259,038 220,450
Income tax liabilities 20,793 1,209
Deferred and prepaid income 32,859 29,837
Derivative financial instruments 79,791 –
Current portion of long-term debt (note 10) 336,858 17,327
Current liabilities related to discontinued operations (note 15) – 46,031
739,641 314,854
Long-term debt (note 10) 737,055 1,036,256
Share in the partners’ deficiency of a general partnership – 518
Deferred and prepaid income and other liabilities 11,859 11,501
Pension plan liabilities and accrued employees benefits 9,645 7,378
Future income tax liabilities 256,307 267,646
Non-controlling interest 883,948 788,557
Long-term liabilities related to discontinued operations (note 15) – 17,589
2,638,455 2,444,299
Shareholders' equity
Capital stock (note 11) 120,049 119,078
Treasury shares (note 11) (1,522) (1,054)
Contributed surplus 1,727 499
Retained earnings 295,808 274,946
Accumulated other comprehensive income (loss) (note 12) 4,964 (1,009)
421,026 392,460
3,059,481 2,836,759
- 37 -
COGECO 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
Income from continuing operations 9,656 37,097 43,165 85,623
Adjustments for:
Amortization (note 4)
61,775 54,723 229,724 191,221
Amortization of deferred transacti on c os ts
1,095 513 3,310 2,226
Future income taxes (note 6)
3,599 (4,597) (9,451) 7,945
Non-controlling interest
21,559 24,240 90,152 54,824
Loss (gain) on dilution resulting from shares issued by a
subsidiary (note 7)
19
(27,011)
104
(57,930)
Stock-based compensation
709 (7,066) 2,801 (988)
Loss on disposal of fixed assets
936 389 1,324 220
Other
621 (135) 1,659 424
99,969 78,153 362,788 283,565
Changes in non-cash operating ite m s (note 13 a)) 46,083 29,002 35,703 (73,003)
146,052 107,155 398,491 210,562
Cash flow from investing activities
Acquisition of fixed assets (note 13 b)) (68,895) (57,948) (229,181) (221,015)
Increase in deferred charges (7,035) (10,784) (27,696) (30,042)
Business acquisitions and related adjustments, net of cash and cash
equivalent acquired (note 2)
(213,618)
(629)
(229,723)
1,265
Decrease in restricted cash – 503 – 591
Other (71) (171) (506) 297
(289,619) (69,029) (487,106) (248,904)
Cash flow from financing activities
Increase (decrease) in bank indebtedness 8,212 (612) 10,302 (1,724)
Increase in long-term debt, net of issue costs 95,087 9,038 194,897 6,538
Repayment of long-term debt (734) (146,481) (132,327) (299,598)
Issue of subordinate voting shares 644 95 971 1,526
Acquisition of treasury shares – – (468) (1,054)
Dividends on multiple vot ing shares (129) (129) (516) (503)
Dividends on subordinate voting shares (1,040) (1,038) (4,154) (4,025)
Issue of shares by a subsidiary to non-controlling interest, net of
issue costs
296
148,058
3,650
338,124
Dividends paid by a subsidiary to non-controlling interest (3,281) (2,372) (13,115) (6,582)
99,055 6,559 59,240 32,702
Effect of exchange rate changes on cash and cash equivalents
denominated in foreign currencies
6
(243)
1,271
1,243
Cash flow from continuing operations (44,506) 44,442 (28,104) (4,397)
Cash flow from discontinued operations (note 15) (703) (840) (703) (840)
Net change in cash and cash equivalents (45,209) 43,602 (28,807) (5,237)
Cash and cash equivalents at beginning 82,681 22,677 66,279 71,516
Cash and cash equivalents at end 37,472 66,279 37,472 66,279
See supplemental cash flow information in note 13.
- 38 -
COGECO 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, contain all adjustments necessary to present
fairly the financial position of COGECO Inc. (“the Company”) as at August 31, 2008 and 2007 as well as its results of
operations and its cash flows 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 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 and the presentation of the investment in the
discontinued operations (see note 15).
Financial instrume nts
Effective September 1, 2007, the Company 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 Company’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 h edging 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 Company the option to designate certain financial instruments, on initial recognition, as held-
for-trading.
All of the Company's financial assets are classified as held-for-trading or loans and receivables. The Company has
classified its cash and cash equivalents as held-for-trading. Accounts receivable have been classified as loans and
receivables. All of the Company’s financial liabilities were classified as other liabilities, except for the Company’s
subsidiary’s cross-currency swaps, 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 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 rate method. Upon
adoption, the Company 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.
- 39 -
COGECO 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, increased non-controlling interest by $0.9 million and increased retained earnings
by $0.4 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 Company’s subsidiary’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 US 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 instruments 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, decreased
non-controlling interest by $1.5 million and decreased opening accumulated other comprehensive income by
$0.7 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 instruments liabilities by
$11.5 million, increased future income tax liabilities by $0.4 million, increased non-controlling interest by $0.5 million
and increased accumulated other comprehensive income by $0.3 million. The impact of measuring the cross-currency
swaps at fair value on the interim consolidated financial statements for the twelve month period ended
August 31, 2008 decreased derivative financial instruments liabilities by $3.7 million, increased future income tax
liabilities by $0.9 million, increased non-controlling interest by $1.3 million and increased accumulated other
comprehensive income by $0.6 million.
Net investment hedge
Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet
date for asset and liability items, and using the average exchange rates during the period for revenue and expenses.
Adjustments arising from this translation are deferred and recorded as foreign currency translation adjustment in
accumulated other comprehensive income and are included in income only when a reduction in the investment in
these foreign subsidiaries is realized. Unrealized foreign exchange gains and losses on long-term debt denominated
in foreign currency, that is designated as a hedge of net investments in self-sustaining foreign subsidiaries are
recorded as foreign currency translation adjustments in accumulated other comprehensive income, net of income
taxes and non-controlling interest. As a result, an amount of $1.4 million was reclassified as at September 1, 2006
from the foreign currency translation adjustment to accumulated other comprehensive income and the Company’s
comparative financial statements were restated in accordance with tran sitional provisions.
- 40 -
COGECO 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 Company selected
September 1, 2002, as its tran sition date for adopting the standard related to embedde d 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 Company 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 Company 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 Company is currently
evaluating the impact of the adoption of this new Section on its consolidated financial statements.
- 41 -
COGECO 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 Company 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 twelve-month period ended August 3 1, 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 Company 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 Company has selected an external advisor to assist with the project and is currently in the process of assessing
the differences between IFRS and the Company’s current accounting poli cie s.
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 Company’s
current accounting policies and IFRS. Changes in accounting policies are likely. These changes may materially
impact the Company’s consolidated fin ancial statements.
2. Business acquisitions
On March 31, 2008, the Company’s subsidiary, Cogeco Cable Inc., 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 applications, video conferencing and other advanced
communications.
On June 30, 2008, the Company’s subsidiary, Cogeco Cable Inc., 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 com m unications.
- 42 -
COGECO 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 Company’s subsidiary, Cogeco Cable Inc., 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 Company’s subsidiary 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 organizations 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 accrued liabilities assumed (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 liabilities (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.
- 43 -
COGECO 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 principal financi al information per business segment is presented in the tables below:
Cable Other
(1)
Consolidated
Three months ended August 31,
(unaudited)
2008
2007
2008
2007
2008
2007
$
$
$
$
$
$
Revenue 284,908
244,314
7,965
6,986
292,873
251,300
Operating costs 163,792
141,888
7,946
8,817
171,738
150,705
Operating income from continuin g
operations before amortization
121,116
102,426
19
(1,831)
121,135
100,595
Amortization 61,414
54,164
361
559
61,775
54,723
Operating income from continuin g
operations
59,702
48,262
(342)
(2,390)
59,360
45,872
Financial expense 17,868
18,524
314
400
18,182
18,924
Income taxes 9,968
(6,630)
(119)
(850)
9,849
(7,480)
Loss (gain) on dilution resulting from
shares issued by a subsidiary
–
–
19
(27,011)
19
(27,011)
Non-controlling interest –
–
21,559
24,240
21,559
24,240
Share in the loss of a general partnership –
–
95
102
95
102
Income (loss) from continuing operations 31,866
36,368
(22,210)
729
9,656
37,097
Loss from discontinued operations –
–
–
(6,713)
–
(6,713)
Total assets 3,019,155
2,714,339
40,326
122,420
3,059,481
2,836,759
Total assets related to discontinued
operations
–
–
–
80,809
–
80,809
Fixed assets 1,257,965
1,119,498
3,645
3,772
1,261,610
1,123,270
Intangible assets 1,091,042
1,058,410
25,340
25,340
1,116,382
1,083,750
Goodwill 487,805
342,584
–
–
487,805
342,584
Acquisition of fixed assets
(2)
71,437
58,180
516
59
71,953
58,239
(1)
Includes radio operations, head office activities and eliminations.
(2)
Includes capital leases that are excluded from the consolidated statements of cash flows.
- 44 -
COGECO 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)
Cable Other
(1)
Consolidated
Twelve months ended August 31,
(unaudited)
2008
2007
2008
2007
2008
2007
$
$
$
$
$
$
Revenue 1,076,787
938,880
32,113
30,455
1,108,900
969,335
Operating costs 631,363
568,127
28,643
29,973
660,006
598,100
Operating income from continuin g
operations before amortization
445,424
370,753
3,470
482
448,894
371,235
Amortization 228,299
189,323
1,425
1,898
229,724
191,221
Operating income from continuin g
operations
217,125
181,430
2,045
(1,416)
219,170
180,014
Financial expense 69,111
84,569
1,558
1,487
70,669
86,056
Income taxes 14,732
12,170
253
(827)
14,985
11,343
Loss (gain) on dilution resulting from
shares issues by a subsidiary
–
–
104
(57,930)
104
(57,930)
Non-controlling interest –
–
90,152
54,824
90,152
54,824
Share in the loss of a general partnership –
–
95
98
95
98
Income (loss) from continuing operations 133,282
84,691
(90,117)
932
43,165
85,623
Loss from discontinued operations –
–
(18,057)
(10,883)
(18,057)
(10,883)
Total assets 3,019,155
2,714,339
40,326
122,420
3,059,481
2,836,759
Total assets related to discontinued
operations
–
–
–
80,809
–
80,809
Fixed assets 1,257,965
1,119,498
3,645
3,772
1,261,610
1,123,270
Intangible assets 1,091,042
1,058,410
25,340
25,340
1,116,382
1,083,750
Goodwill 487,805
342,584
–
–
487,805
342,584
Acquisition of fixed assets
(2)
233,916
223,966
740
133
234,656
224,099
(1)
Includes radio operations, head office activities and eliminations.
(2)
Includes capital leases that are excluded from the consolidated statements of cash flows.
The following tables set out certain geog raphic market information base d on client location:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited)
(audited)
Revenue
Canada 228,725 195,436 865,210 744,525
Europe 64,148 55,864 243,690 224,810
292,873 251,300 1,108,900 969,335
- 45 -
COGECO 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)
August 31, 2008 August 31, 2007
$ $
(audited)
(audited)
Fixed assets
Canada 944,328 815,754
Europe 317,282 307,516
1,261,610 1,123,270
Intangible assets
Canada 1,052,608 1,014,892
Europe 63,774 68,858
1,116,382 1,083,750
Goodwill
Canada 116,890 –
Europe 370,915 342,584
487,805 342,584
4. Amortization
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited)
(audited)
Fixed assets 53,098 46,424 196,197 166,895
Deferred charges 5,511 5,738 22,595 21,765
Intangible assets 3,166 2,561 10,932 2,561
61,775 54,723 229,724 191,221
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 18,055 18,258 69,675 79,667
Amortization of deferred transacti on c os ts 407 513 1,629 2,226
Other (280) 153 (635) 4,163
18,182 18,924 70,669 86,056
- 46 -
COGECO 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)
6. Income Taxes
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Current 6,250 (2,883) 24,436 3,398
Future 3,599 (4,597) (9,451) 7,945
9,849 (7,480) 14,985 11,343
The following table provides the reconciliation between Canadian statutory federal and provincial income taxes and
the consolidated income ta x expense:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Income before income tax es 41,083 26,846 148,406 93,860
Combined income tax rate 33.38% 34.80% 33.39% 34.80%
Income taxes at com bi ned income tax rate 13,713 9,342 49,553 32,663
Adjustments for lo sses or income subject to lower or hi gher
tax rates
(946) (787) (2,240) (1,035)
Decrease in future income taxes as a result of
decreases in substantively enacted tax rates
–
(6,318)
(24,146)
(6,318)
Income taxes arising form non-deductible expenses 223 219 825 757
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 carryforwards
–
(8,403)
–
(9,878)
Other (146) 533 186 257
Income taxes at effective income tax rate 9,849 (7,480) 14,985 11,343
7. Loss (gain) on dilution resulting from shares issued by a subsidiary
During fiscal 2008, The Company’s subsidiary, Cogeco Cable Inc. issued 5,543 subordinate voting shares (7,344
shares in 2007) pursuant to its Employee Stock Purchase Plan and 157,481 subordinate voting shares (348,131
shares in 2007) pursuant to its Employee Stock Option Plan for cash consideration of $221,000 ($198,000 in 2007)
and $3,429,000 ($6,816,000 in 2007), respectively. In addition, during fiscal 2007, the Company’s subsidiary, Cogeco
Cable Inc., completed two public offerings totalling 8,000,000 subordinate voting shares. The offerings resulted in
gross proceeds of $345,950,000 and net proceeds of $331,110,000. As a result, the Company’s interest in Cogeco
Cable Inc. decrease from 32.5% to 32.3% (39.2% to 32.5% in 2007) and a losses on dilution of $19,000 and $104,000
(gain on dilution of $27,011,000 and $57,930,000 in 2007) were recorded for the three and twelve month periods
ended August 31, 2008, respectively.
- 47 -
COGECO 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. Earnings (Loss) per Share
The following table provides a reconciliation between basic and dilu ted earnings (loss) per share:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited)
(unaudited) (audited)
(audited)
Income from continuing operations 9,656 37,097 43,165 85,623
Loss from discontinued operations – (6,713) (18,057) (10,883)
Net income 9,656 30,384 25,108 74,740
Weighted average number of multiple voting and
subordinate voting shares outstanding
16,709,946
16,671,043
16,684,809
16,605,828
Effect of dilutive stock options
(1)
30,427 88,392 60,299 97,168
Weighted average number of dil uted mult ipl e voti ng an d
subordinate voting shares outstanding
16,740,373
16,759,435
16,745,108
16,702,996
Earnings (loss) per share
Basic
Income from continuing operations 0.58 2.23 2.59 5.16
Loss from discontinued operations – (0.40) (1.08) (0.66)
Net income 0.58 1.83 1.50 4.50
Diluted
Income from continuing operations 0.58 2.21 2.58 5.13
Loss from discontinued operations – (0.40) (1.08) (0.65)
Net income 0.58 1.81 1.50 4.48
(1)
For the three and twelve month periods ended August 31, 2008, 33,182 stock options (none and 18,222 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.
9. Goodwill and Other Intangible Assets
August 31, 2008 August 31, 2007
$ $
(audited) (audited)
Customer relationships 101,490 68,858
Broadcasting licenses
25,120 25,120
Customer base
989,772 989,772
1,116,382 1,083,750
Goodwill
487,805 342,584
1,604,187 1,426,334
- 48 -
COGECO 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. Goodwill and Other Intangible Assets (continued)
a) Intangible assets
During fiscal years 2008, intangible asset variations were as follows:
Customer
relationships
Broadcasting
licenses
Customer
Base
Total
$ $ $ $
(audited) (audited) (audited) (audited)
Balance at beginning 68,858 25,120 989,772 1,083,530
Business acquisitions (note 2) 38,203 – – 38,203
Amortization (10,932) – – (10,932)
Foreign currency translation adjustment 5,361 – – 5,361
Balance at end 101,490 25,120 989,772 1,116,382
At August 31, 2008 and 2007 the Company and its subsidiaries tested the value of broadcasting licenses and
customer base for impairm ent and concluded that no impairment existed.
b) Goodwill
During fiscal years 2008 and 2007, goodwill variation was as follows:
August 31, 2008 Augus t 31, 200 7
$ $
(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 Company’s subsidiary, Cogeco Cable Inc., tested the value of goodwill for
impairment and concluded that no impairment existed.
- 49 -
COGECO 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. Long-Term Debt
Maturity Interest rate August 31, 2008 August 31, 2007
% $ $
(audited) (audited)
Parent company
Term Facility 2011
(1)
4.93
(2)
18,748 25,538
Obligations under capital leases 2010 6.49 – 6.61 77 108
Subsidiaries
Term Facility
Term loan – €94,096,350 (€104,551,500 as at August 31, 2007) 2011 5.31
(2)
145,832 150,450
Term loan – €17,358,700 2011 5.25
(2)
26,881 24,979
Revolving loan – €126,000,000 (€196,725,000 as at August 31, 2007) 2011 5.25
(2)
196,308 283,087
Revolving loan 2011 3.99
(2)
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
(3)
159,233 158,430
Series B 2011 7.73 174,338 175,000
Senior Unsecured Debenture
(4)
2018 5.94 99,768 –
Deferred credit
(5)
2008 – – 80,220
Obligations under capital leases 2013 6.42 – 8.30 8,492 5,760
Other – – 47 11
1,073,913 1,053,583
Less current portion 336,858 17,327
737,055 1,036,256
(1)
On December 14, 2007, the Company concluded an amended and restated credit agreement with a group of four Canadian banks led by the Canadian
Imperial Bank of Commerce (“ CIBC”), which will now act as agent for the banking syndicate. The annually renewable three-year amended c redit agreement
establishes a revolving credit of $50 million to which may be added a further credit of $25 million under certain conditions. The amended credit agreement
maintains certain f inancial commit ments with the same s ecurity by the Company, its subsidiary Cogeco Rad io-Television Inc . and indirect s ubsidiary, Cogeco
Diffusion Inc.
(2)
Av erage int eres t r ate on deb t as at Augus t 31, 200 8, i nc ludi ng sta mpi ng fees.
(3)
Cros s-currency swap agreements have resulted in a n effective interest rat e of 7.254% on the Canadian dollar equiv alent of the U S denominated debt of the
Company’s subsidiary, Cogeco Cable Inc.
(4)
On Marc h 5, 2008, the Com pany’s subsidi ary, Cogeco Cable Inc., issued a $100 million Senior Unsecured Debenture by way of a priva te placement, subject
to usual market conditions. The debenture bears interes t at a fixed rate of 5.936%, per annum, payable semi-annually. The debenture matures on March 5,
2018 and is redeemable at the Company’s option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole
premium.
(5)
The d eferr ed c r ed i t repres e nts the a mou nt th at was d e ferred for hedge acc ounting purpose as at Au gus t 3 1, 200 7 un der c ros s - c urr enc y s waps entered into by
the Company’s subsidiary, Cogeco Cable Inc., to hedge Senior Secured Notes Series A denominated in US dollars. In accordance with the standards on
financial instruments, the Company’s subsidiary’s cross-currency swaps are now presented as derivative financial instrument liabilities (see note 1).
- 50 -
COGECO 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. Capital Stock
Authorized, an unlimited number
Preferred shares of first and second rank, could be issued in series and non-voting, except when specified in the
Articles of Incorporation of the Company or in the Law.
Multiple voting shares, 20 votes per share.
Subordinate voting share, 1 vote per share.
August 31, 2008 August 31, 2007
$ $
(audited) (audited)
Issued
1,842,860 multiple voting shares 12 12
14,897,586 subordinate voting shares (14,829,792 as at August 31, 2007) 120,037 119,066
120,049 119,078
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 14,829,792 119,066 14,702,556 117,540
Shares issued for cash under the Employee Stock Purchase Plan and
the Stock Option Plan
67,794
971
120,196
1,526
Conversion of multiple voting shares into subordinate voting shares –
– 7,040 –
Balance at end 14,897,586 120,037 14,829,792 119,066
- 51 -
COGECO 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. Capital Stock (continued)
Stock-based plans
The Company 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 Company’s annual consolidated financial
statements. During the year, no stock options were granted to employees by COGECO Inc. However, the
Company’s subsidiary, Cogeco Cable Inc., 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 Company’s subsidiary 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 were 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. The Company records compensation expense for options granted on or after September 1, 2003. As a result,
a compensation expense of $599,000 and $2,101,000 ($538,000 and $1,977,000 in 2007) was recorded for the three
and twelve month periods ended August 31, 2008.
The fair value of stock options granted by the Company’s subsidiary, Cogeco Cable Inc., for the year ended
August 31, 2008 was $12.59 ($7.39 in 2007) per option. The fair value was estimated at the grant date for purposes of
determining the stock-based compensation expense using the binomial option pricing model based on the following
assumptions:
2008 2007
% %
(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 Company had outstanding stock options providing for the subscription of 123,758
subordinate voting shares. These stock options can be exercised at various prices ranging from $20.95 to $37.50 an d
at various dates up to October 1 9, 2011.
The Company and its subsidiary, Cogeco Cable Inc., also had Performance Unit Plans for key employees which
were terminated in June 2007. A compensation expense of $70,000 and $4,659,000 was recorded for the three and
twelve month periods ended Augu st 31, 2007 related to these plans.
Effective October 13, 2006, the Company established a senior executives and designated employee incentive unit
plan (the “Incentive Share Unit Plan”) which is described in the Company’s annual consolidated financial statements.
During the year, the Company granted 12,852 Incentive Share Units (25,895 in 2007). These shares were purchased
for a cash consideration of $468,000 ($1,054,000 in 2007) and are held in trust for participants until they are
completely vested. The trust, considered as a variable interest entity, is consolidated in the Company’s financial
statements with the value of the acquired shares presented as treasury shares in reduction of capital stock. A
compensation expense of $96,000 and $354,000 ($53,000 and $181,000 in 2007) was recorded for the three and
twelve month periods ended Augu st 31, 2008 related to this plan.
In April 2007, the Company and its subsidiary, Cogeco Cable Inc., established deferred share unit plans (“DSU
Plans”) which are described in the Company’s annual consolidated financial statements. During the year, 5,891 and
3,559 deferred share units were awarded to the participants in connection with the DSU Plans by the Company and
its subsidiary, respectively. Compensation expense of $9,000 and $153,000 was recorded for the three and twelve
month periods ended August 31, 200 8 related to these plans.
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COGECO 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)
12. Accumulated Other Comprehensive Income (Loss)
Translation of net
investments in self-
sustaining foreign
subsidiaries
Cash flow hedges
Total
$ $ $
(audited) (audited) (audited)
Balance at beginning (1,009) – (1,009)
Cumulative effect of changes in accounting policies (note 1) – (724) (724)
Other comprehensive income 6,073 624 6,697
Balance at end 5,064 (100) 4,964
13. 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 (250) 1,770 (6,398) (3,203)
Income taxes receivable (284) (1,851) 1,122 (4,554)
Prepaid expenses (6,091) 12 (3,673) (1,968)
Accounts payable and ac c rued liabilities 47,971 28,012 26,976 (68,130)
Income tax liabilities 5,729 (96) 19,562 663
Deferred and prepaid income and other liabilities (992) 1,155 (1,886) 4,189
46,083 29,002 35,703 (73,003)
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 expense paid 12,545 13,947 65,608 84,154
Income taxes paid (recei ve d) 690 (726) 3,585 6,864
- 53 -
COGECO 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)
14. Employee Future Benefits
The Company and its Canadian subsidiaries offer their employees contributory defined benefit pension plans, a
defined contribution pension plan or collective registered retirement savings plans, which are described in the
Company’s annual con solidated 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 plan s 684 864 2,657 2,685
Defined contribution pension plan and collective registered
retirement savings plans
827
774
3,110
2,393
1,511 1,638 5,767 5,078
15. Discontinued Operations
In October 2007, the Board of Directors of TQS, an indirect subsidiary of the Company, engaged CIBC World Markets
to advise on and assess strategic options for the TQS network in the face of financial difficulties. TQS’ position in the
Quebec Francophone over-the-air television market deteriorated markedly in spite of the measures and investments
initiated by the Company over the previous months. The gradual loss of advertising revenue to specialty TV networks
and content accessible over the Internet, combined with increased production costs, the Canadian Radio-television
and Telecommunications Commission’s (“CRTC”) refusal to grant general interest television networks the same ability
to charge subscriber fees for signal distribution as the speciality television networks, the programming strategy of
Société Radio-Canada (“SRC”), which acts like a commercial player rather than a publicly-owned television
broadcaster and SRC’s notice of disaffiliation in Saguenay, Sherbrooke and Trois-Rivières after a 50-year partnership
all contributed to this decision. After considering CIBC World Markets’ report, the Board of Directors of TQS
concluded that it was in the best interest of TQS, its employees and creditors to request court protection. On
December 18, 2007, the Quebec Superior Court issued an order under the Companies’ Creditors Arrangement Act
(Canada) protecting TQS, its subsidiaries and its parent 3947424 Canada Inc. (“TQS Group”) from claims by their
creditors for an initial suspension period ending on January 17, 2008, which period was afterwards renewed. Under
the order, RSM Richter Inc. was appointed as monitor, with a mandate to support the applicants, under Court
supervision, in preparing a creditors arrangement plan. On March 10, 2008, the Quebec Superior Court agreed with
TQS’s Board of Director’s decision to accept the offer made by Remstar Corporation Inc. (“Remstar”) to acquire all
shares of the TQS Group held by Cogeco Radio-Television Inc. and CTV Television Inc., the two shareholders of
TQS. On May 22, 2008, the plan of arrangement proposed by Remstar was approved by the creditors of the TQS
Group and subsequently approved by the Superior Court of Quebec on June 4, 2008. On June 26, 2008, the CRTC
approved the proposed transfer of ownership and control of TQS to Remstar and on August 29, 2008, the transfer of
ownership and control of TQS to Remstar was completed. This new transaction allows a new ownership group to
pursue the broadcasting activities of TQS.
Effective December 18, 2007, the Company has ceased to consolidate the financial statements of the TQS Group.
Accordingly, the investment in the TQS Group as at August 31, 2007, as well as its results of operations and its cash
flow for the period of September 1, 2007 to December 18, 2007 and for the three and twelve month periods ended
August 31, 2007, have been reclassified as discontinued operations.
- 54 -
COGECO 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)
15. Discontinued Operations (continued)
The Company has no investment in the TQS Group as at August 31, 2008. The assets and liabilities related to the
discontinued operations a s at August 31, 2007, were as follows:
$
(audited)
Accounts receivable 23,611
Prepaid expenses
442
Broadcasting rights
14,647
Current assets
38,700
Broadcasting rights
17,456
Fixed assets
21,653
Broadcasting licenses
3,000
Non-current assets
42,109
Bank indebtedness
8,173
Accounts payable and ac c rued liabilities
28,893
Broadcasting rights payable
8,531
Income tax liabilities
141
Deferred and prepaid income
42
Current portion of long-term debt
251
Current liabilities
46,031
Share in the partner’s deficiency of a general partnership
518
Broadcasting rights payable
4,408
Pension plan liabilities
1,444
Non-controlling interest
11,219
Long-term liabilities
17,589
- 55 -
COGECO 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)
15. Discontinued Operations (continued)
The results of the discontinued op erations were as follows:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Revenue – 18 071 38,499 102,972
Operating costs – 20 486 35,822 108,496
Operating income (loss) before amor tiz atio n – (2 415) 2,677 (5,524)
Amortization – 1 295 1,364 4,583
Operating income (loss) – (3,710) 1,313 (10,107)
Financial expense – 266 291 925
Impairment of assets –
– 30,298 –
Loss before income taxes and the following items – (3,976) (29,276) (11,032)
Income taxes – 7,112 – 7,011
Non-controlling interest – (4,477) (11,219) (7,257)
Shares in the earnings of a general partnership – 102 – 97
Loss from discontinued operations – (6,713) (18,057) (10,883)
The cash flow of the discontinued operations were as follows:
Three months ended August 31, Twelve months ended August 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (audited) (audited)
Cash flow from operating activities (703) 7,585 (4,676) (469)
Cash flow from investing activities – (1,671) (133) (2,926)
Cash flow from financing activities – (6,754) 4,106 2,555
Cash flow from discontinued operations (703) (840) (703) (840)
- 56 -
COGECO 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)
16. Guarantees
During fiscal 2008, the Company’s subsidiary, Cogeco Cable Inc., guaranteed the payment by 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 Company’s
subsidiary 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.
17. Subsequent event
On October 1, 2008, the Company’s subsidiary, Cogeco Cable Inc., 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 cable subsidiary 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.
18. Comparative figures
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information
for previous periods has been restated to reflect the termination of our investment in the TQS Group, which is no
longer consolidated since December 18, 2007 (see note 15).