STRONG FISCAL 2010 RESULTS FOR COGECO
PRESS RELEASE
For immediate release
Strong fiscal 2010 results for COGECO
Montréal, October 28, 2010 – Today, COGECO I nc. ( T SX : CGO) (“COGEC O” or the “C ompany”) an nou nc e d its financia l
results for the fourth quarter and 2010 f is c al year ended August 31, 2010.
For the fourth quarter and fiscal 2010:
• Fiscal 2010 fourth-quarter consolidated revenue increased b y 5.5% to reach $333.7 million, when compared to
the corresponding period of the prior year. Revenue in the cable subsidiary, Cogeco Cable Inc. (“Cogeco
Cable”) w ent u p by $16.5 million , or 5.4%. For the fis cal year 2010, cons o li dat ed r evenue gr e w by 5.5% to reach
$1,321.7 million;
• Fiscal 2010 fourth-quarter operating income before amortization
(1)
decreased by $6.9 million, or 4.7%, to reach
$137.8 million. The cable s ector contrib uted to the decrease by $5.7 m illio n as a result of the favourable impact
on operating costs, in fiscal 2009, of $19.8 million from the settlement of the Part II licence fees payable to the
Canadian Radio-television Commission (“CRTC”) for the 2007 to 2009 fiscal years (the “Part II licence fee
favourable settlement agreement”), partly offset by the revenue increase described above. For fiscal 2010,
consolidated operating income before amortization grew by 0.7% to reach $519.3 million;
• Operating m argin
(1)
decreased at 41.3% for the f ourth quarter com pared to 45.7%
(2)
in the correspond ing period
of the prior year, and decreased at 39.3% during fiscal 2010 from 41.1%
(2)
the year before;
• Fourth quarter of 2010 consolidated net income amounted to $12.3 million, or $0.73 per share compared to
$14.6 million, or $0.87 per share for the corresponding period of the prior year. Excluding, in 2009, the
favourable impacts from the reduction of withholding and stamp tax contingent liabilities in the amount of
$1.7 million in Europe and from the $5.3 million with respect to the Part II licence fee favourable settlement
agreement in Canada, both net of related income taxes and non-controlling interest, fourth-quarter fiscal 2009
adjusted net incom e
(1)
would have amounted to $7.6 million, or $0.46 per share
(1
)
. When compared to adjusted
net income for the prior year, fourth-quarter fiscal 2010 net income increased by $4.6 million, or 60.4%;
• Fiscal 2010 net income amounted to $56.3 million, or $3.36 per share. Fiscal 2010 net income includes a
favourab le inc ome tax adj ustm ent of $29.8 million re lat ed to th e r eduction of O ntar io pro vi ncia l c orpor at e inco me
tax rates for the Canadian operations of the cable sector. This adjustment, net of non-controlling interest,
amounts to $9.6 m illion. The fis cal 2009 net loss of $79 m illion, or $4.73 per s hare, incl uded an im pairment loss
of $399. 6 million recor ded on Cogec o Cab le’s investm ent in C abovisã o-Televisão por Cabo, S.A. ( “Cabovisão”).
Net of related income taxes and non-controlling interest, the impairment loss reduced net income by $124 million
in fiscal 2009. Furtherm ore, the 2009 net loss in the cable sector included an unfavourable impact of $2 million
from the utilization of Cabovisão’s pre-acquisition tax losses and a favourable impact from the reduction of
withholdi ng an d s tamp tax contingen t li ab il ities in th e a mount of $5.2 millio n d e s c r ibed abo ve, a ls o in C abo v isão,
both net of non-controlling interest, and a favourable impact of $5.3 million from the Part II lic e nce fee favourable
settlement agreement net of related income taxes and non-controlling interest. Excluding the effect of these
items for both fiscal years, adjusted net income for fiscal 2010 would have amounted to $46.6 million, or $2.79
per share
com pared to $3 6.4 million , or $2.18 per sh are for the previ ous year , representing i ncreases of 28.1%
and 28%, respectively;
(1)
The indicated terms do 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 further details, please consult the “Non-GAAP financial measures” section of the Results
overview.
(2)
Includes the favourable impact from the Part II licence fee settlement agreement of $21.3 million, $19.8 million of which stems from the cable sector.
- 2 -
• Free cash flow
(1
)
reached $18.7 million for the fourth quarter, representing an increase of 27% over the prior
year. The increase in free cash flow is the result of an increase in cash flow from operations
(1)
outpacing the
increase in ca pital expen ditures . Free cash f low s tand s at $181.3 m illion f or fis cal 20 10, a sign ific ant increas e of
$80.2 million, o r 79.4% over fiscal 2009;
• In the cable sector, Revenue-Generating Units (“RGU”)
(2
)
grew by 64,303 net additions in the quarter and
287,111 net add itions in the fiscal year, for a total of 3,179,349 RGU at August 31, 2010.
“Despite the slow stabilization of the global economic environment in fiscal 2010, COGECO managed to achieve strong
results, surpassing ne arly all of our k ey performance indicators, n otably RGU gr owth, both in Canada and Portugal. This
is attributable to our focus on improving our service offering in Canada and the acquisition and retention strategies
implemented in the second half of fis c al 2009 in Por tug al. Our radio o per at ions ha ve also d one ver y well, w ith number one
stations in the Québec and Montréal adult 25-54 markets. Furthermore, we announced in April 2010 an agreement to
purchase the Corus Entertainment Inc.’s radio stations in Québec, which will make COGECO the second radio
broadcaster in importance in the province of Québec. The transaction, which is subject to regulatory approval, should be
closed in the first half of fiscal 2011. It is a promising source of growth for our shareholders. Our fiscal 2011 financial
guidelines currently do not include these new stations, but will be adjusted when the transaction is finalized. For fiscal
2011, we anticipate continued growth in most of our performance indicators, including an increase in financial results of
our European cable operations”, declared Louis Audet, President and CEO of COGECO.
Fiscal 2011 Financial Guidelines
For fis cal 2011, COGECO maintains its prelim inary projec tions issued on Jul y 7, 2010 . The Company expects to achieve
revenue of $1,380 million, representing growth of $58 million, or 4.4% when compared to fiscal 2010 results. Operating
income before amortization should amount to $538 million, an increase of $19 million, or 3.7%, when compared to 2010
actuals. Capital expenditures and the increase in deferred charges should incre ase by $20 m illion, reaching $341 million
for the 2011 fiscal year. Fiscal 2011 free cash flow is expected to decline to $60 million. The decrease of approximately
$121 million, when compared to the results for the 2010 fiscal year, is primarily due to the projected fiscal 2011 income
tax payme nts of approx imatel y $65 million compared to the exp ec ted f is cal 20 10 i nc ome tax rec overies of $39 million a s a
result of modifications to t h e cor porat e str uc ture and t o the i nc reas e of appr oximatel y $20 million in capi tal e x pend itures in
the cable sector. Please consult the “Fiscal 2011 financial guidelines” section of the Company’s 2010 Annual Report for
further details.
(1)
The indicated terms do not have a standardized definition prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by
other companies. For further details, please consult the “Non-GAAP financial measures” section of the Results overview.
(2)
Represents the sum of Basic Cable, High Speed Internet (“HSI”), Digital Television and Telephony service customers.
- 3 -
FINANCIAL HIGHLIGHTS
Quarters ended August 31, Years ended August 31,
($000, except percentages, RGU growth and per
share data)
2010 2009
(1)
Change 2010 2009
(1)
Change
$
$
%
$
$
%
(unaudited)
(unaudited)
(audited)
(audited)
Operations
Revenue
333,671
316,284
5.5
1,321,694
1,252,794
5.5
Operating income operations before amortization
(2)
137,785
144,654
(4.7)
519,339
515,494
0.7
Operating margin
(2)
41.3%
45.7%
–
39.3%
41.1%
–
Operating income
73,942
76,244
(3.0)
259,882
258,867
0.4
Impairment of goodwill and intangible assets
–
–
–
–
399,648
–
Net income (loss)
12,265
14,631
(16.2)
56,264
(79,014)
–
Adjusted net income
(2)
12,265 7,647 60.4 46,644 36,406 28.1
Cash Flow
Cash flow from operating activities
198,492
177,032
12.1
425,336
420,704
1.1
Cash flow from operations
(2)
127,230
108,744
17.0
502,219
390,288
28.7
Capital expenditures and increase in deferred charges 108,515 94,002 15.4 320,962 289,270 11.0
Free cash flow
(2)
18,715 14,742 27.0 181,257 101,018 79.4
Financial Condition
Total assets
–
–
–
2,744,656
2,670,128
2.8
Indebtedness
(3)
–
–
–
961,354 1,064,542 (9.7)
Shareholders’ equity
– – – 381,635 332,122 14.9
RGU growth
64,303
48,170
33.5
287,111
175,364
63.7
Per Share Data
(4)
Earnings (loss) per share
Basic
0.73
0.87
(16.1)
3.36
(4.73)
–
Diluted
0.73
0.87
(16.1)
3.35
(4.73)
–
Adjusted earnings per share
(2)
Basic
0.73
0.46
58.7
2.79
2.18
28.0
Diluted
0.73
0.46
58.7
2.78
2.18
27.5
(1)
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
applicati on of the Canadian Institute of Chartered Account ants (“CICA ”) H andbook Section 3064. Please refer t o the “Critical account ing policies and estimates”
section of the Company’s 2010 Annual Report for more details.
(2)
The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by
other companies. For more details, please consult the “Non-GAAP financial measures” section of the Results overview.
(3)
Indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments.
(4)
Per multiple and subordinate voting shares.
- 4 -
FORWARD-LOO KI NG ST AT EMENT S
Certain s tatements in th is press release may const itute forw ard-look ing infor mation w ithin th e meanin g of s ecurities l aws.
Forward-looking information may relate to COGECO’s future outlook and anticipated events, business, operations,
financia l performa nce, financ ial conditi on or resu lts and, in s ome cases, c an be ident ified by term inology 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 dat e. While manag ement consider s these ass umptions to be reas onable based o n information c urrently available
to the Company, they may prove to be incorrect. The Company cautions the reader that the economic downturn
experienc ed over the pas t two year s make forwar d-look ing informati on and the un derlying as sumptions subjec t to greater
uncertainty and that, consequently, they may not materialize, or the results may significantly differ from the Company’s
expectations. It is impossible for COGECO to pre dict with certainty the impact that th is economic environment may have
on future results. 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 2010 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
servic es, and t h e intr oduc t i on of c om pet in g prod uc ts hav ing t echno lo gic a l or oth er advant a ges, many of w hic h ar e beyo nd
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 obli gation), and d oes not undert ake to update or alter this i nformation bef ore the next q uarter, ex cept
as required by Law.
This press release 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 2010 Annual Report.
Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.
- 5 -
RESULTS OVERVIEW
This analysis should be read in conjunction with the Company’s 2010 Annual Report available on SEDAR at
www.sedar.com. Please refer to the Company’s 2010 Annual Report for more details on annual results.
CUSTOMER STATISTICS
Net additions
August 31, 2010
Quarters ended August 31, 2010
Canada
Europe
Consolidated
Canada
Europe
Consolidated
RGU
2,350,577
828,772
3,179,349
43,707
20,596
64,303
Basic Cable service customers
874,505
260,267
1,134,772
433
1,591
2,024
HSI service customers
559,057
163,187
722,244
8,904
2,778
11,682
Digital Television service customers
559,418
159,852
719,270
17,472
12,017
29,489
Telephony service customers
357,597
245,466
603,063
16,898
4,210
21,108
Net additions (losses)
August 31, 2009
Quarters ended August 31, 2009
Canada
Europe
Consolidated
Canada
Europe
Consolidated
RGU
2,159,863
732,375
2,892,238
27,740
20,430
48,170
Basic Cable service customers
864,805
259,480
1,124,285
(924)
(5,318)
(6,242)
HSI service customers
515,052
143,614
658,666
5,619
1,430
7,049
Digital Television service customers
498,398
102,753
601,151
9,674
23,456
33,130
Telephony service customers
281,608
226,528
508,136
13,371
862
14,233
In the cable s ector, Can adian oper atio ns’ fis cal 2010 fourth-quarter RGU net ad ditions was higher tha n in the com parable
period of the prior year, a nd the C anadian operatio ns contin ue to gen erate RG U growth despite ear ly sig ns of maturation
of some of its services. The net customer additions for Basic Cable service customers stood at 433 for the quarter,
compar ed to a net cus tomer loss of 924 in the f our th quarter of the pr ior year. In the quar t er , T elephony servic e c us tom ers
grew by 16,898 compared to 13,371 for the same period last year, and the number of net additions to the HSI service
stood at 8,904 c ustom ers for the qu arter, c om pared to 5,619 cus tom ers for the sam e period last year. HSI and T elephon y
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. The Digital Television
service net additions stood at 17,472 customers compared to 9,674 customers for the three month period of the prior
year. Digital Television service net additions are due to targeted marketing initiatives to improve penetration and to the
continuing interest for High Definition (“HD”) telev is io n s er vic e.
In the European operations of the Cable sector, 2010 fourth-quarter net additions show a return to customer growth for
Cogeco C able, and the Ba sic Cab le service custom er base has begun to stabi lize and r eflect the benef its of C abovisão ’s
custom er retention and acq uisition strateg ies launched at the end of the 20 09 fiscal year i n order to reduc e the cus tomer
attrition bro ught on b y t he diff icult competit ive landsc ape in Portugal a nd the econom ic environm ent in Europe thr oughout
the prev ious fiscal year. In the f ourth quarter of fisc al 2010, the num ber of Bas ic Cable ser vice custom ers gre w b y 1,591
customers compared to a loss of 5,318 customers in the comparable period of the prior year. HSI service customers
increased by 2,778 customers for the quarter, compared to 1,430 customers in the fourth quarter of fiscal 2009. The
number of Digital Television service customers grew by 12,017 customers in the fourth quarter ended August 31, 2010,
compared to 23,456 customers in the comparable period of the previous fiscal year mainly due to the extensive Digital
roll-o ut period dur ing fisc al 2009. T he Telephon y servic e custom ers gained 4, 210 custom ers in the four th quart er of fis cal
2010, compared to 862 customers for the comparable period of the preceding year.
- 6 -
OPERATING RESULTS – CONSOLIDATED OVERVIEW
Quarters ended August 31, Years ended August 31,
2010
2009
(1)
Change
2010
2009
(1)
Change
($000, except percentages)
$
$
%
$
$
%
(unaudited)
(unaudited)
(audited)
(audited)
Revenue
333,671
316,284
5.5
1,321,694
1,252,794
5.5
Operating costs
195,866
171,630
14.1
802,355
737,300
8.8
Operating income before amortization
(2)
137,785
144,654
(4.7)
519,339
515,494
0.7
Operating margin
(2)
41.3%
45.7%
39.3%
41.1%
(1)
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
applicati on of the CICA Handbook S ection 3064. Please refer to the “Crit ical accounti ng policies and esti mates” section of the Company’s 2010 A nnual Report
for more details.
(2)
The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by
other companies. For more details, please consult the “Non-GAAP financial measures” section.
Consolidated revenue for the fourth quarter rose by $17.4 million, or 5.5% compared to the corresponding period last
year. Cabl e revenue, drive n by incr eased RGU, the intr oduction of HSI usage b illing, various rate increases im plemented
at the end of fiscal 2009 and in fiscal 2010 and the revenue related to the new Local Programming Improvement Fund
(“LPIF”) in the Cana dian operations, increased b y $16.5 million, or 5.4%. Other sector revenue increased b y $0 .9 million,
or 10.3%, in the fourth quarter of 2010 due to favourable ratings for the Company’s radio stations.
Operating costs increased by $24.3 million, or 14.1%, at $195.9 million compared to the fourth quarter of fiscal 2009
mainly due to the cable sector. The increase in operating costs in the cable sector is mainly attributable to servicing
additional RGU, the launch of new HD channels, additional marketing initiatives and the new levy amounting to 1.5% of
gross Cable Television service revenue imposed by the CRTC in order to finance the LPIF in Canada. Fourth-quarter
operating costs were also favourably affected by the decline of the value of the Euro over the Canadian dollar, which
surpassed increases in operating costs related to additional marketing initiatives and the launch of new channels, net of
the impact of cost reduction initiatives implemented by Cabovisão in the European operations. On a consolidated basis,
fiscal 2009 operating costs also included an impact of $21.3 million from the Part II licence fee favourable settlement
agreement.
Operating income before amortization decreased by $6.9 million, or 4.7%, at $137.8 m illion in the fourth quarter of 2010,
compared to $144.7 million for the corresponding period last year. Fiscal 2009 operating income before amortization
included the impac t of the Part I I licence fee f avourable set tlement agreem ent. As a result, the Company’s f ourth-quarter
operating margin decreased to 41.3% from 45.7% for the corresponding period of the prior year. Nothwithstanding the
Part II licence fee favourable settlement agreement, the operating margin increased year over year as a result of rate
increases, partly offset by the launch of new services which generate lower margins, the migration of customers from
Analogue to Digital Television services and the revenue from the new LPIF which does not generate operating income
before amortization, all in the Canadian operations. The reduction in the operating margin also reflects a decrease in
revenue in the European operations which outpaced the decrease in operating costs.
- 7 -
CA SH FLOW ANALYSIS
Quarters ended August 31, Years ended August 31,
2010
2009
(1)
2010
2009
(1)
($000)
$
$
$
$
(unaudited)
(unaudited)
(audited)
(audited)
Operating activities
Cash flow from operations
(2)
127,230
108,744
502,219
390,288
Changes in non-cash operating items
71,262
68,288
(76,883)
30,416
198,492
177,032
425,336
420,704
Investing activities
(3)
(108,492)
(91,529)
(320,653)
(284,112)
Financing activities
(3)
(75,671)
(92,348)
(106,955)
(134,614)
Effect of exchange rate changes on cash and cash equivalents denominated
in a foreign currency
402
546
(1,344)
8
Net change in cash and cash equivalents
14,731
(6,299)
(3,616)
1,986
Cash and cash equivalents, beginning of period
21,111 45,757 39,458 37,472
Cash and cash equivalents, end of period
35,842 39,458 35,842 39,458
(1)
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
applicati on of the CICA Handbook Section 3064. P lease refer to the “Critical accounting polici es and estimates ” section of the Company’ s 2010 Annual Report
for more details.
(2)
The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by
other companies. For more details, please consult the “Non-GAAP financial measures” section.
(3)
Excludes assets acquired under capital leases.
During the fourth quarter of 2010, cash flow from operations reached $127.2 million, 17% higher than the comparable
period last year, primarily due to the reduction in income tax payments stemming from modifications to the corporate
structure in the cable sector. Changes in non-cash operating items generated cash inflows of $71.3 million, mainly as a
result of an inc rease in ac counts pa yable and accrue d liabilit ies. In the f ourth quarter of the prior year, the c ash inflo ws of
$68.3 million mainly stemmed from increases in accounts payable and accrued liabilities which were partly offset by the
Part II licence fee favourable sett lem ent agreement, an increase in income tax liabilities and a decrease in incom e taxes
receivable.
Investing activities in the fourth quarter of fiscal 2010 rose to $108.5 million compared to $91.5 million in the prior year,
primarily due to an increase in customer premise equipment spending to support RGU growth in the cable sector, partly
offset by depreciation of the Euro over the Canadian dollar.
In the fourth quarter of 2010, the Company generated free cash flow
(
amounting to $18.7 million, compared to
$14.7 m illion f or the s am e period of th e prec eding year . T he increase in f ree cas h f low is the res ult of an increas e in cas h
flow from operations outpacing the increase in capital expenditures.
In the f ourth quar ter of 201 0, Indebt ednes s af fec ting cash dec rease d b y $63.8 million m ainl y due to the inf lows g enerated
by changes in non-cash operating items of $71.3 million and the free cash flow of $18.7 million, partly offset by the
increase in cash an d cash equiv alents of $1 4.7 million and the payment of divid e nds tot al ling $ 6.3 millio n de s c ribed b elo w
and an increase in deferred transaction costs of $5.8 million. Indebtedness mainly reduced through a decrease of
$52.2 million in bank indebtednes s an d net r e payments on Cogeco C ab le’s t er m and revolving lo ans of $7.6 m illion. I n t he
fourth quarter of fiscal 2009, Indebtedness affecting cash decreased by $87.1 million mainly due to the increase in non-
cash operat ing items of $68.3 million, t he free cash f lows of $14.7 million an d the decrease in cas h and cash equivalen ts
of $6.3 million, net of the dividend payment of $5.3 million described below. Indebtedness m ainly decreased through the
net repayments, in the cable sector, on Cogeco Cable’s term and revolving loans of $175.4 million, the repayment of
Cogeco Cable’s $150 million Senior Secured Debentures Series 1 at maturity on June 4, 2009, and by a decrease of
$55 mill ion in bank inde btednes s, part ly of fset b y the issuanc e by the c able su bsi diar y on June 9, 2009 of Seni or Secur ed
Debentures Series 1 for $300 million maturing June 9, 2014.
During the f our th qu arter of f is c al 2010, the C ompany paid a di vi den d of $0.10 p e r shar e to the ho lder s of s ubor di nat e and
multiple voting shares totalling $1.7 million, compared to a quarterly dividend of $0.08 per share totalling $1.3 million in
fiscal 2009. Dividends paid by a subsidiary to non-con trolling interests amounted to $4.6 million during the fourth quarter
of f iscal 2010 com pared to $3.9 m illion in t he four th quar ter of f isc al 2009, bring ing the c onso lidated d ividend pa yments to
$6.3 million in the current year compared to $5.3 million in the prior year.
- 8 -
NON-GAAP FINANCIAL MEASURES
This section describes non-GAAP financial measures used by COGECO throughout this Press release. It also provides
reconcil iations between these non-GAAP m easures and t he most c omparable GAA P financial m easures. Thes e financial
measures do not have standard definitions prescribed by Canadian GAAP and therefore, may not be comparable to
similar measures presented by other companies. These measures include “cash flow from operations”, “free cash flow”,
“operating income before amortization”, “operating margin”, “adjusted net income”, and “adjusted earnings per share”.
Cash flow from operations and free cash flow
Cash flow from operations is used by COGECO’s management and investors to evaluate cash flows generated by
operating activities excluding the im pact of changes in non-cash operating item s. This allows the Company to isolate the
cash flow from operating activities from the impact of cash management decisions. Cash flow from operations is
subsequently used in calculating the non-GAAP measure “free cash flow”. Free cash flow is used by COGECO’s
managem ent and investors to m easure C OGECO’s abilit y to repa y debt, dis tribute capit al to its s hareholder s and fin ance
its growth.
The m os t com par able Can adi an G AAP f in anc i al measure is c as h f lo w from operating ac tivit ies. C as h f lo w fr om operati ons
is calculated as follows:
Quarters ended August 31, Years ended August 31,
2010
2009
(1)
2010
2009
(1)
($000)
$
$
$
$
(unaudited)
(unaudited)
(audited)
(audited)
Cash flow from operating activities
198,492
177,032
425,336
420,704
Changes in non-cash operating items
(71,262)
(68,288)
76,883
(30,416)
Cash flow from ope rations
127,230
108,744
502,219
390,288
(1)
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
applicati on of the CICA Handbook Section 3064. P lease refer to the “Critical accounting polici es and estimates ” section of the Company’ s 2010 Annual Report
for more details.
Free cash flow is calculated as follows:
Quarters ended August 31, Years ended August 31,
2010
2009
(1)
2010
2009
(1)
($000)
$
$
$
$
(unaudited)
(unaudited)
(audited)
(audited)
Cash flow from ope rations 127,230 108,744 502,219 390,288
Acquisition of fixed assets
(105,513)
(89,199)
(309,752)
(273,733)
Increase in deferred charges
(3,002)
(2,462)
(11,069)
(10,773)
Assets acquired under capital leases
–
(2,341)
(141)
(4,764)
Free cash flow
18,715
14,742
181,257
101,018
(1)
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
applicati on of the CICA Handbook Section 3064. P lease refer to the “Critical accounting polici es and estimates ” section of the Company’ s 2010 Annual Report
for more details.
- 9 -
Operating income before amortization and operating margin
Operating inc ome bef ore am ortization is used b y COGECO’s m anagem ent and investors to assess the Compan y’s ability
to seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt.
Operating income before amortization is a proxy for cash flows from operations excluding the impact of the capital
structure chosen, and is one of the key metrics used by the financial community to value the business and its financial
strength. Operating margin is a measure of the proportion of the Company's revenue which is left over, before income
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 m ost comparable Ca nadian GA AP financia l measure is oper ating incom e. Oper ating incom e befor e amortization and
operating margin are calculated as follows:
Quarters ended August 31, Years ended August 31,
2010
2009
(1)
2010
2009
(1)
($000, except percentages)
$
$
$
$
(unaudited)
(unaudited)
(audited)
(audited)
Operating income
73,942
76,244
259,882
258,867
Amortization
63,843
68,410
259,457
256,627
Operating income before amortization
137,785
144,654
519,339
515,494
Revenue
333,671
316,284
1,321,694
1,252,794
Operating margin 41.3% 45.7% 39.3% 41.1%
(1)
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
applicati on of the CICA Handbook Section 3064. P lease refer to the “Critical accounting polici es and estimates ” section of the Company’ s 2010 Annual Report
for more details.
- 10 -
Adjusted net income and adjusted earni n g s per share
Adjusted net income and adjusted earnings per share are used by COGECO’s management and investors to evaluate
what would h ave been t he net incom e and ear nings p er shar e excludi ng the im pairm ent of goodw ill and inta ngible ass ets ,
non-recurring tax adjustments and the Part II licence fee favourable settlement agreement, all net of non-controlling
interest. This allows the Company to isolate the unusual adjustments in order to evaluate net income and earnings per
share from ongoing activities.
The most comparable Canadian GAAP financial measures are net income and earnings per share. Adjusted net incom e
and adjusted earn ings per s har e are calculated as follows:
Quarters ended August 31,
Years ended August 31,
2010
2009
(1)
2010
2009
(1)
($000, except number of shares and per share data)
$
$
$
$
(unaudited)
(unaudited)
(audited)
(audited)
Net income (loss)
12,265
14,631
56,264
(79,014)
Adjustments:
Impairment of goodwill and intangible assets net of related income
taxes and non-controlling interest
–
–
–
123,951
Non-recurring tax adjustments net of non-controlling interest:
Reduction of Ontario provincial income tax rates
–
–
(9,620)
–
Reduction of withholding and stamp tax contingent liabilities
–
(1,680)
–
(5,211)
Utilization of pre-acquisition tax losses
–
–
–
1,984
Part II licence fee favourable settlement agreement net of related
income taxes and non-controlling interest
–
(5,304)
–
(5,304)
Adjusted net income
12,265
7,647
46,644
36,406
Weighted average number of multiple voting and subordinate voting
shares outstanding
16,730,336
16,728,881
16,726,135
16,704,962
Effect of dilutive stock options
9,299
730
10,681
8,757
Effect of dil uti ve s ubordinate v oti ng shares held i n trust under the Inc enti v e
Share Unit Plan
71,862
56,449
67,837
51,648
Weighted average number of diluted multiple voting and subordinate
voting shares outstanding 16,811,497 16,786,060 16,804,653 16,765,367
Adjusted earnings per share
Basic
0.73
0.46
2.79
2.18
Diluted
0.73
0.46
2.78
2.17
(1)
Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
applicati on of the CICA Handbook Section 3064. P lease refer to the “Critical accounting polici es and estimates ” section of the Company’ s 2010 A nnual Report
for more details.
- 11 -
ADDITIONAL INFORMATION
Additional information relating to the Company, including its 2010 Annual Report and 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 its
residential customers with Audio, Analogue and Digital Television, as well as HSI and Telephony services using its two-
way broadband cable networks. Cogeco Cable also provides, to its commercial customers, data networking, e-business
applications, video conferencing, hosting services, Ethernet, private line, Voice over Internet Protocol (“VoIP”), HSI
access, dark fibre, data storage, data security and co-location services and other advanced communication solutions.
Through its Cogeco Diffusion Inc. subsidiary, COGECO owns and operates the Rythme FM radio stations in Montréal,
Québec City, Trois-Ri vières and Sherbrooke, as well as the FM 93 radio s tation in Qu ébec Cit y. C OGECO’s subordinate
voting s hares are listed o n the Toronto S toc k Exchang e (TSX: CGO ) . T he s ubor dinate voting s h ares of C o ge co C ab le are
also listed on the Toronto Stock Exchange (TSX: CCA)
– 30 –
Source: Cogeco Cable Inc.
Pierre Gagné
Senior Vice President and Chief Financial Officer
Tel.: 514-764-4700
Information: Media
Alex Tessier
Vice President and Treasurer
Tel.: 514-764-4700
Analyst Conference Call: Thursday, October 28, 2010 at 11:00 A.M. (EDT)
Media representatives may attend as listeners only.
Please use the following dial-in number to have access to the conference call by dialing
ten minutes before the start of the conference:
Canada/USA Access Number: 1 888 300-0053
International Access Number: + 1 647 427-3420
Confirmation Code: 97583458
A rebroadcast of the conference call will be available until November 4, by dialing:
Canada and US Access Number: 1 800 642-1687
International Access Number: + 1 706 645-9291
Confirmation code: 97583458
- 12 -
Supplementar y Quarterly Financial Information
(unaudited)
Fiscal 2010
Fiscal 2009
Quarters ended
(1)
Nov. 30
Feb. 28
May 31
Aug. 31
Nov. 30
(2)
Feb. 28
(2)
May 31
(2)
Aug. 31
(2)
($000, except percentages and per share data)
$
$
$
$
$
$
$
$
Revenue
328,003
329,087
330,933
333,671
308,375 311,825 316,310
316,284
Operating income before amortization
(3)
129,263
124,363
127,928
137,785
120,711 123,505 126,624
144,654
Operating margin
(3)
39.4%
37.8%
38.7%
41.3%
39.1% 39.6% 40.0%
45.7%
Operating income
63,562
58,370
64,008
73,942
59,829 60,171 62,623
76,244
Impairment of goodwill and intangible assets
–
–
–
–
– (399,648) – –
Net income (loss)
22,748
10,511
10,740
12,265
10,861 (115,210) 10,704
14,631
Adjusted net income
(3)
13,128
10,511
10,740
12,265
10,861 8,741 9,157
7,647
Cash flow from operating activities
(1,410)
117,498
110,756
198,492
26,477 117,322 99,873
177,032
Cash flow from operations
(3)
135,518
120,331
119,140
127,230
91,633 97,193 92,718
108,744
Capital expenditures and increase in deferred charges
68,387
74,549
69,511
108,515
69,862 65,104 60,302 94,002
Free cash flow
(3)
67,131
45,782
49,629
18,715
21,771 32,089 32,416
14,742
Earnings (loss) per share
(4)
Basic
1.36
0.63
0.64
0.73
0.65 (6.90)
0.64 0.87
Diluted
1.35
0.63
0.64
0.73
0.65 (6.90)
0.64 0.87
Adjusted earnings per share
(3)(4)
Basic
0.79
0.63
0.64
0.73
0.65 0.52 0.55 0.46
Diluted
0.78
0.63
0.64
0.73
0.65 0.52 0.55 0.46
(1)
The addition of quarterly information may not correspond to the annual total given rounding.
(2)
Certai n compara tive f igures have been reclas sifi ed to conform to t he curre nt yea r’s prese ntation. Financ ial i nformati on has been rest ated to refle ct the a pplic ation
of the CICA Handbook Section 3064. Please refer to the “Critical accounting policies and estimates” section of the Company’s 2010 Annual Report for more
details.
(3)
T he indic ated terms do not have s tandardiz ed definiti ons prescribed by Canadian G AAP and the refore, may not be com parabl e to similar me asu res presented by
other companies. For more details, please consult the “Non-GAAP financial measures” section of the Results overview.
(4)
Per multiple and subordinate voting share
SEAS ONAL VARIATI ON S
Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations. However, the customer
growth in the Basic Cable and HSI service are generally lower in the second half of the fiscal year as a result of a
decrease in econom ic ac tivity due to t he begi nning of the vacati on per iod, the en d of the televisi on seaso ns, and s tudents
leaving their campuses at the end of the school year. Cogeco Cable offers its services in several university and college
towns such as Kingston, Windsor, St. Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski in Canada, and
Aveiro, Covilhã, Evora, Guarda and Coimbra in Portugal. Furthermore, the operating margin in the third and fourth
quarters is generally higher as the maximum amount payable to COGECO under the management agreement is usually
reached in the sec ond q uart er of the year. As part of the m anagem ent agr eem ent bet ween C ogeco C abl e and COG ECO,
Cogeco Cable pays management fees to COGECO equivalent to 2% of its revenue subject to an annual maximum
amount, which is adjusted annually to reflect the increase in the Canadian Consumer Price index. Since the maximum
amount was r eached in the s econd quarters of fiscal 2010 an d 2009, Cogec o Cable has paid no managem ent fees in the
second halves of either fiscal year.
- 13 -
Cable Customer Statistics
(unaudited)
August 31, 2010 August 31, 2009
Homes Passed
Canada 1,593,743 1,565,145
Portugal
(1)
905,359
905,129
Total
2,499,102
2,470,274
Homes Connected
(2)
Canada
979,590
944,634
Portugal
269,194
269,022
Total
1,248,784
1,213,656
RGU
Canada
2,350,577
2,159,863
Portugal
828,772
732,375
Total
3,179,349
2,892,238
Basic Cable service customers
Canada
874,505
864,805
Portugal
260,267
259,480
Total 1,134,772 1,124,285
HSI service customers
Canada
559,057
515,052
Portugal
163,187
143,614
Total
722,244
658,666
Digital Television service customers
Canada
559,418
498,398
Portugal 159,852 102,753
Total
719,270
601,151
Telephony service customers
Canada
357,597
281,608
Portugal
245,466
226,528
Total
603,063
508,136
(1)
Cogeco Cable is currently assessing the number of homes passed.
(2)
Represents the sum of Basic Cable service customer and HSI and Telephony service customers who do not subscribe to the Basic Cable service.