GROWTH IN CABLE AND RADIO FUELS COGECO RESULTS.
Page 1
Press release
For immediate release
Growth in cable and radio fuels COGECO results
Montréal, January 12, 2006 – Today, COGECO Inc. (TSX: CGO.SV) announced its financial
results for the first quarter ended November 30, 2005.
In the first quarter, net income is up by 47.4% to $4.6 million compared to the same period last
year. This increase is mainly attributable to the cable sector, which benefits from increased digital
video services, high-speed Internet (HSI) and digital telephony penetration as well as rate
increases. On the media side, the increase is due to higher radio advertising revenue.
Cogeco Cable demonstrates strong internal growth
For the first quarter of 2006, net additions of Cogeco Cable basic customers were approximately
10,900 compared to about 7,700 for the same period last year. The sustained appetite for digital
video and HSI services continues to prevail as shown by over 21,000 digital video customer
additions and close to 23,000 HSI customer additions during the quarter. As for digital telephony,
at the end of the first quarter, 6,900 clients subscribed to this new service and 2,200 installations
were pending.
Furthermore, with the addition of current and classic movie titles from Warner Bros. International
Television Distribution, Cogeco Cable’s video-on-demand subscribers now enjoy access to movies
representing about 60% of domestic box office receipts.
“In our cable subsidiary, the first quarter showed strong marks in attracting customers and
improving financial results. Demand for Cogeco Cable’s products and services continues to prevail
in our markets as customers show increasing interest for our triple-play bundled offer,” explained
Mr. Audet, President and Chief Executive Officer of COGECO Inc.
Cogeco Radio-Television Inc.
The first quarter shows progress in the media sector. All COGECO radio stations show notable
improvement in advertising revenue, while the advertising market remains difficult for conventional
television in the Francophone market. “Our RYTHME FM station in Montréal continues to lead the
market and we are very proud of that. Furthermore, the other Company’s radio stations performed
according to our expectations. As for the television side, TQS continues to be a challenge, but we
foresee improvements as a result of an increase in programming investments,” concluded Mr.
Audet.
Page 2
FINANCIAL HIGHLIGHTS
Quarters ended November 30,
(unaudited)
($000s, except percentages and per share data)
2005 2004
%
Change
Revenue $ 180,478 $ 171,411 5.3
Operating income before amortization 60,593 58,928 2.8
Net income 4,593 3,117 47.4
Cash flow from operations 46,842 44,503 5.3
Less:
Capital expenditures and
increase in deferred charges
34,043
25,038 36.0
Free Cash Flow
(1)
12,799 19,465 (34.2)
Per share data
Basic net income $ 0.28 $ 0.19
Cash flow from operations 2.85 2.72
(1) Free Cash Flow is defined as cash flow from operations less capital expenditures and increase in deferred charges. Free Cash Flow is
not a defined term under Canadian Generally Accepted Accounting Principles (GAAP) and should be treated accordingly.
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
Certain statements in this press release may constitute forward-looking information within the meaning of
securities laws. Forward-looking information may relate to our future outlook and anticipated events, our
business, our operations, our financial performance, our financial condition or our results and, in some
cases, can be identified by terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "intend," "estimate," "predict," "potential," "continue," “foresee” or other similar expressions
concerning matters that are not historical facts. In particular, statements regarding our future operating
results and economic performance and our objectives and strategies are forward-looking statements. These
statements are based on certain factors and assumptions including expected growth, results of operations,
performance and business prospects and opportunities, which we believe are reasonable as of the current
date. While we consider these assumptions to be reasonable based on information currently available to us,
they may prove to be incorrect. Forward-looking information is also subject to certain factors, including risks
and uncertainties (described in the section “Uncertainty and main risk factors” of the Company’s 2005 annual
MD&A) that could cause actual results to differ materially from what we currently expect. These factors
include technological changes, changes in market and competition, governmental or regulatory
developments, general economic conditions, the development of new products and services, the
enhancement of existing products and services, and the introduction of competing products having
technological or other advantages, many of which are beyond our control. Therefore, future events and
results may vary significantly from what we currently foresee. You should not place undue importance on
forward-looking information and should not rely upon this information as of any other date. While we may
elect to, we are under no obligation (and expressly disclaim any such obligation) and do not undertake to
update or alter this information before next quarter.
This analysis should be read in conjunction with the Company’s financial statements and the notes thereto
prepared in accordance with Canadian GAAP and the MD&A included in the Company’s Annual Report.
Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.
Page 3
ACCOUNTING POLICIES AND ESTIMATES
There has been no significant change in COGECO’s accounting policies and estimates since
August 31, 2005. A description of these policies and estimates can be found in the Company’s
2005 annual MD&A.
OPERATING RESULTS
Revenue for the first quarter rose by $9.1 million, or 5.3%, compared to the same period last year.
Cable revenue, driven by higher penetration rates in digital video, HSI and digital telephony
services as well as rate increases, went up by $7.7 million or 5.6%. Media revenue increased by
$1.4 million, or 4%, due to higher radio advertising revenue.
Operating income before amortization grew 2.8% for the first quarter compared to the same period
last year. The cable sector contributed to an increase of $4.1 million, while the media sector had a
negative impact of $2.4 million.
FIXED CHARGES
Quarters ended November 30,
($000s except percentages)
2005
2004
%
Change
Amortization $ 29,883 $ 33,616 (11.1)
Financial expense
$
13,961
$
14,240
(2.0)
Amortization expense amounted to $29.9 million during the first quarter of fiscal 2006 compared to
$33.6 million for the same period last year. Amortization expense declined during the first quarter
as many cable modems and digital terminals in the cable sector were fully amortized.
During the first quarter of fiscal 2006, the decline in financial expense was mainly related to lower
levels of Indebtedness (defined as bank indebtedness and long-term debt), partially offset by
increases in short-term interest rates on the Term Facilities.
INCOME TAXES
Income taxes for the first quarter amounted to $6.6 million compared to $4.6 million for the same
period last year. This increase was mainly attributable to the cable sector’s growth in operating
income before amortization and the decline in fixed charges as discussed above.
NON-CONTROLLING INTEREST
The non-controlling interest represents an interest of approximately 61% in Cogeco Cable’s results
and a 40% interest in TQS Inc. During the first quarter of fiscal 2006, the non-controlling interest
increased by $2.2 million as a result of the growth in the cable sector’s net income.
Page 4
NET INCOME
Net income for the first quarter amounted to $4.6 million, or $0.28 per share, compared to
$3.1 million, or $0.19 per share for the same period last year. This increase was attributable to the
cable sector’s net income growth.
CASH FLOW AND LIQUIDITY
Quarters ended November 30,
($000s)
2005 2004
Operating Activities
Cash flow from operations $ 46,842 $ 44,503
Changes in non-cash operating items
(51,913)
(44,512)
$ (5,071) $ (9)
Investing Activities $
(34,043)
$
(25,016)
Financing Activities $ 59,797 $ 25,025
Net change in cash and cash equivalents $ 20,683 $ –
For the first quarter, cash flow from operations was $46.8 million, or 5.3%, higher than last year,
due primarily to operating income before amortization growth in the cable sector, partly offset by a
decline in operating income before amortization recorded in the media sector. Changes in non-
cash operating items generated greater cash outflow than last year mainly as a result of a larger
decrease in accounts payable and accrued liabilities caused by increased capital expenditures
incurred late in fiscal 2005.
Investing activities related to capital expenditures and the increase in deferred charges rose by $9
million during the first quarter. The $1 million increase in deferred charges is mainly attributable to
higher reconnect costs given the significant level of revenue-generating units (RGU) including the
growth of digital telephony in the cable sector.
During the first quarter, capital expenditures increased by $8 million, due mainly to the following
factors:
¾ The increase in customer premise equipment results primarily from a rise in the number of
digital terminals rented to customers. This increase is explained by higher customer growth
in the first quarter, by more customers renting their digital terminals fuelled by a reduction
in rental rates for digital terminals in August 2005 and by a higher ratio of digital terminals
per digital home.
¾ The growth in scalable infrastructure is mainly attributable to the additional capital
expenditures to support the rollout of digital telephony.
¾ Expenditures associated with the network upgrade and rebuild program rose by
$2.5 million in the first quarter due to the acceleration of the program to expand the
bandwidth to 750 MHz and 550 MHz for the Ontario and Québec networks, respectively,
and to improve network reliability. An increase in the number of households with access to
two-way service was also a factor. The percentage of customers with access to two-way
service rose from 87% as at November 30, 2004 to 90% as at November 30, 2005.
Page 5
Free Cash Flow of $12.8 million was generated during the first quarter of fiscal 2006 as a result of
increased cash flow from operations in the cable sector, partly offset by the increased capital
expenditures and deferred charges in that sector. In the first quarter, Free Cash Flow declined
compared to the same period last year and is explained by increased capital expenditures and
deferred charges to support digital telephony and better-than-expected RGU growth in the cable
sector.
Net change in cash and cash equivalents generated cash inflow in the first quarter. At quarter end,
the cable subsidiary had cash and cash equivalents in hand with a maturity that could not be
synchronized with the maturity of its Indebtedness under the Term Facility.
During the first quarter, the level of Indebtedness increased by $61.8 million mainly due to a
decline in non-cash operating items of $51.9 million and a net change in cash and cash
equivalents of $20.7 million, partly offset by generated Free Cash Flow of $12.8 million. For the
same period last year, Indebtedness grew by $26 million, essentially due to a decline of
$44.5 million in non-cash operating items counterbalanced by generated Free Cash Flow of
$19.5 million. In addition, a dividend of $0.0625 per share for subordinate and multiple voting
shares, totalling $1 million, was paid during the first quarter of fiscal 2006 compared to a dividend
of $0.0525 per share totalling $0.9 million for the first quarter of fiscal 2005.
As at November 30, 2005, the cable subsidiary had utilized $40 million of its Term Facility and the
Company had drawn $23 million of its Term Facility. Based on existing bank covenants, COGECO
could have used about $40 million under its bank facilities. Also, Cogeco Cable had access to the
entire committed amounts. Going forward, COGECO and Cogeco Cable have sufficient capacity to
finance foreseeable growth and expect to continue to generate Free Cash Flow to further reduce
their leverage ratios.
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 Cable may be subject to approval by minority shareholders.
FINANCIAL POSITION
Since August 31, 2005, significant changes in the balance sheet include “Cash and cash
equivalents,” “Accounts receivable,” “Accounts payable and accrued liabilities,” and
“Indebtedness.” The $12.2 million increase in accounts receivable was mainly related to TQS as
first quarter television revenue is significantly higher than fourth quarter revenue due to seasonal
factors. Accounts payable and accrued liabilities declined by $42.6 million as the use of working
capital was tightly managed at fiscal 2005 year-end. Cash and cash equivalents and Indebtedness
increased by $20.7 million and $61.8 million, respectively, due to the factors previously discussed
in the “Cash Flow and Liquidity” section.
A description of COGECO’s share data as of December 30, 2005 is presented in the table below:
Number of shares/
options
Amount
($000s)
Common Shares
Multiple voting shares
Subordinate voting shares
1,849,900
14,600,356
12
116,160
Options to Purchase Subordinate Voting Shares
Outstanding options
Exercisable options
425,376
425,376
Page 6
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 have not
materially changed since August 31, 2005 and are described in the 2005 annual MD&A.
DIVIDEND DECLARATION AND NORMAL COURSE ISSUER BID
At its January 11, 2006 meeting, the Board of Directors of COGECO declared a quarterly dividend
of $0.0625 per share for subordinate and multiple voting shares, payable on February 8, 2006, to
shareholders on record as at January 25, 2006.
On December 21, 2005, COGECO renewed its normal course issuer bid pursuant to which it can
acquire up to 250,000 subordinate voting shares for cancellation, representing 1.71% of the
outstanding shares of this class. During the first quarter of fiscal 2006, COGECO did not acquire
any of its shares.
CABLE SECTOR
Customer Statistics
Net additions % Penetration
(1)
Quarters ended
November 30,
November 30,
November 30,
2005
2005 2004 2005 2004
Revenue-generating units
(2)
1,408,503
60,770
42,359
Basic service customers 832,336 10,903 7,743
HSI service customers
(3)
300,641 22,993 17,397 39.9 35.5
Digital video service customers
(4)
268,619 21,415 17,219 32.9 27.0
Digital telephony customers 6,907 5,459 ―
2.7
―
Digital terminals
(5)
334,869 30,985 21,842
41.0
32.2
(1) As a percentage of basic service customers in areas served.
(2) Including basic service, digital video service, Internet service and digital telephony service customers.
(3) The number of Internet customers in fiscal 2005 has been restated to reflect the number of customers based on the billing dates, which are
distributed throughout the month, instead of the number of customers as at the end of the quarter. This change produces a downward
adjustment of approximately 4,800 customers as at November 30, 2004. Customers subscribing only to Internet services amounted to 57,051
as at November 30, 2005, compared to 55,057 as at August 31, 2005.
(4) In fiscal 2005, the number of digital video service customers has been restated to reflect changes brought about by our billing improvement
program, which has allowed us to identify digital video service customer accounts that were not cancelled when they became inactive. This
change resulted in a downward adjustment of approximately 6,200 customers as at November 30, 2004 and did not affect the number of digital
terminals.
(5) 64% of terminals as at November 30, 2005 were purchased compared to 77% one year earlier.
All services generated higher growth in the first quarter compared to the same period last year.
The number of net additions in basic service and HSI service customers was higher by 40.8% and
32.2%, respectively, in the first quarter of 2006, compared to the same quarter last year. This
result is mainly attributable to winback over satellite competition due to anti-piracy measures and
to additional marketing initiatives such as outbound telemarketing and promotional activities as
well as digital telephony up-sell activities and the triple-play bundled offer.
The increase in the number of digital video service customers stems from Cogeco Cable’s
attractive promotional offer in Québec and from consumers’ growing interest in this technology.
Page 7
By the end of the first quarter of fiscal 2006, 6,907 customers were subscribing to digital telephony
while pending orders reached 2,208. During the quarter, Cogeco Cable launched its digital
telephony service in Kingston and Hamilton, Ontario and rolled it out to all residents of its service
areas, whether or not they were Cogeco Cable customers. The digital telephony service is now
available to 30% of Cogeco Cable basic customers.
Operating results
Quarters ended November 30,
($000s, except percentages)
2005
2004 %
Change
Revenue $ 143,413 $ 135,766 5.6
Operating costs 83,243 79,857 4.2
Management fees - COGECO Inc.
2,868 2,715
5.6
Operating income before amortization 57,302 53,194 7.7
Operating margin 40.0% 39.2%
Revenue
Revenue for the first quarter rose by $7.6 million or 5.6% compared to the same period last year
due to higher penetration rates in digital video, HSI and digital telephony services as well as to rate
increases implemented in June and August of 2005. Monthly rate increases of at most $3 per
customer and averaging $0.50 per basic service customer took effect on June 15, 2005 in Ontario
and on August 1, 2005 in Québec. As a result of these increases, the basic monthly rate is now
$24.99 in the large majority of networks in Ontario, and the number of different basic rates in
Québec has dropped from 22 to 7, ranging essentially between $20 and $27.50 per month. The
monthly rate for certain bundled services has increased by $1 in Ontario, and other limited rate
increases for selective tier services were implemented in Québec. Furthermore, the August 2005
reduction in digital terminal rental rates was more than offset by a greater number of customers
renting digital terminals.
Operating Costs
During the first quarter, operating costs, excluding management fees payable to COGECO Inc.,
rose by $3.4 million, or 4.2%. This increase arises mainly from higher operating costs to serve
additional RGU including digital telephony. In addition, network fees increased by 2.5% in the first
quarter compared to the same period last year as a result of the introduction of digital telephony,
the Canadian Radio-television and Telecommunication Commission mandated APTN wholesale
rate increase and RGU growth. This was partly offset by IP transport costs that have declined
despite HSI customer growth.
Operating Income before Amortization
For the first quarter, operating income before amortization rose by 7.7% compared to the same
period last year due to the increase in revenue, outpacing the rise in operating costs. Cogeco
Cable had previously anticipated a reduction in its operating margin due to the launch of digital
telephony. However, the cable subsidiary increased its operating margin to 40% in the first quarter,
compared to 39.2% last year, as a result of better-than-expected net additions of HSI service
customers.
Page 8
Foreign exchange management
Cogeco Cable has entered into cross-currency swap agreements to fix the liability for interest and
principal payments on its US$150 million Senior Secured Notes. These agreements have the
effect of converting the US interest coupon rate of 6.83% per annum to an average Canadian
dollar fixed interest rate of 7.254% per annum. The exchange rate applicable to the principal
portion of the debt has been fixed at CDN$1.5910. Amounts due under the
US$150 million Senior Secured Notes Series A decreased by CDN$3 million during the first
quarter due to the Canadian dollar’s appreciation. Since the Senior Secured Notes Series A are
fully hedged, the fluctuation is fully offset by a variation in deferred credit described in
Note 6 of the first quarter interim financial statements. The $63.6 million deferred credit represents
the difference between the quarter-end exchange rate and the exchange rate on the
cross-currency swap agreements, which determine the liability for interest and principal payments
on the Senior Secured Notes Series A.
MEDIA SECTOR
Operating Results
Quarters ended November 30,
($000s, except percentages)
2005 2004 %
Change
Revenue $ 37,116 $ 35,690 4.0
Operating costs 34,667 30,856 12.4
Operating income before amortization 2,449 4,834 (49.3)
Operating margin 6.6% 13.5%
Revenue
During the first quarter of fiscal 2006, all radio stations contributed to the increase in revenue.
Furthermore, it is the first quarter for which revenue and operating expenses for the Sherbrooke
and Trois-Rivières RYTHME FM stations are no longer capitalized. Television revenue decreased
by 3.9% in the first quarter due to a decline in TQS’s audience ratings and to the advertising
market that remains difficult for conventional television in the Francophone market.
Operating Income before Amortization
The operating income before amortization declined from $4.8 million to $2.4 million in the first
quarter. TQS’s operating income before amortization decreased as a result of lower revenue while
investment in television programming increased. Radio’s operating income before amortization
improved due to revenue growth which was partially offset by additional royalty expenses following
the Copyright Board October 14
th
decision on SOCAN tariffs.
Page 9
FISCAL 2006 FINANCIAL GUIDELINES
Cable Sector
In furtherance of its existing line of business and external growth strategy, Cogeco Cable
continues to investigate cable system acquisition opportunities, including cable systems located
outside Canada.
Since economic and industry factors described in the 2005 annual MD&A remain unchanged,
management is maintaining its fiscal 2006 financial and customer guidance and, as a result, still
expects to generate Free Cash Flow of $35 to $40 million.
Media Sector
The media sector maintains its projections for fiscal 2006, which can be found in the Company’s
2005 annual MD&A.
RISK FACTORS AND UNCERTAINTIES
There has been no significant change in the risk factors and uncertainties facing COGECO as
described in the Company’s 2005 annual MD&A.
ADDITIONAL INFORMATION
This MD&A was prepared on January 11, 2006. Additional information relating to the Company,
including its Annual Information Form, is available on the SEDAR Web site at www.sedar.com.
ABOUT COGECO
COGECO is a diversified communications company. Through its Cogeco Cable subsidiary,
COGECO provides about 1,409,000 revenue-generating units to approximately 1,454,000
households in its service territory. Through its two-way broadband cable infrastructure, Cogeco
Cable provides its residential and commercial customers with analog and digital video and audio
services, high-speed Internet access as well as digital telephony services. Through its Cogeco
Radio-Television subsidiary, COGECO holds a 60% interest and operates the TQS network, six
TQS television stations, and three French CBC-affiliated television stations in partnership with CTV
Television. Cogeco Radio-Television also wholly owns and operates RYTHME FM radio stations in
Montréal, Québec City, Trois-Rivières and Sherbrooke as well as 93
3
in Québec City. COGECO’s
subordinate voting shares are listed on the Toronto Stock Exchange (CGO.SV). The subordinate
voting shares of Cogeco Cable are also listed on the Toronto Stock Exchange (CCA.SV).
- 30 -
Page 10
Source: COGECO Inc.
Pierre Gagné
Vice President, Finance and Chief Financial Officer
Tel.: (514) 874-2600
Information: Media
Marie Carrier
Director, Corporate Communications
Tel.: (514) 874-2600
Analyst Conference Call: Thursday January 12, 2006, at 11:00 a.m. EST
By Internet at www.cogeco.ca/investors
By telephone: 1 800 310-6649 (confirmation code 4786865)
Media are invited to participate in listen mode only.
Re-broadcast of the call available until January 19:
1 888 203-1112 (confirmation code 4786865)
Page 11
Supplementary Quarterly Financial Information
Quarters ended November 30, August 31, May 31, February
2005 2004 2005 2004 2005 2004 28, 2005 29, 2004
($000, except percentages
and per share data)
(restated)
(1)
Revenue $180,478 $171,411 $164,210 $154,652 $173,418 $168,392 $166,566 $158,144
Operating income before
amortization
60,593
58,928
56,485
55,862
63,814
59,407
54,616
49,021
Operating margin 33.6% 34.4% 34.4% 36.1% 36.8% 35.3% 32.8% 31.0%
Amortization 29,883 33,616 30,769 33,758 32,783 33,323 33,383 33,606
Financial expense 13,961 14,240 14,366 14,305 14,441 14,813 14,237 15,213
Impairment losses ― ― ― ― ― ― 52,531 ―
Income taxes 6,611 4,582 5,052 1,472 5,869 5,046 (130) 1,815
Non-controlling interest 5,455 3,256 5,422 4,077 5,603 2,409 (16,940) (561)
Net income (loss) 4,593 3,117 630 2,117 4,964 3,816 (28,524) (1,142)
Cash flow from operations 46,842 44,503 43,215 43,010 48,699 44,127 40,962 33,853
Net income (loss) per
share
Basic and diluted $0.28 $0.19 $0.04 $0.13 $0.30 $0.23 $(1.74) $(0.07)
(1) During the third quarter of fiscal 2004, Cogeco Cable, a subsidiary of the Company, adopted new accounting standards regarding revenue
recognition and certain related costs, as well as the classification of certain items as revenue, expense or capitalized cost. These changes
were applied on a retroactive basis in accordance with Abstracts 141 and 142 issued by the Canadian Institute of Chartered Accountants
(CICA) Emerging Issues Committee (EIC). See “Accounting Policies and Estimates” of the 2005 MD&A for a detailed description of these new
accounting standards implemented on a retroactive basis.
Cable sector operating results are generally not subject to material seasonal fluctuations.
However, the loss of basic service customers is usually greater, and the addition of HSI customers
is generally lower in the third quarter, mainly due to students leaving campuses at the end of the
school year. However, the media sector’s operating results may be subject to significant seasonal
variations. The revenue depends on audience ratings and the market for conventional radio and
television advertising expenditures in the Province of Québec. Advertising sales, mainly national
advertising, are normally weaker in the second and fourth quarters and, as a result, the operating
margin before amortization is generally lower.
The large net loss of COGECO in the second quarter of fiscal 2005 was attributable to COGECO’s
60% share of the television sector’s impairment of goodwill and other intangible assets amounting
to $29.6 million. This loss is discussed in the “Impairment of goodwill and other intangible assets”
section of the Company’s 2005 annual MD&A.
COGECO INC.
Cable Statistics
November 30, August 31,
2005 2005
Homes Passe
d
Ontario 990 777 986 401
Québec 463 516 462 332
1 454 293 1 448 733
Revenue Generating Units
Ontario 1 011 926 968 749
Québec 396 577 378 984
1 408 503 1 347 733
Basic Service Customer
s
Ontario 589 476 581 631
Québec 242 860 239 802
832 336 821 433
Discretionnary Service Customer
s
Ontario 466 250 461 038
Québec 186 957 183 320
653 207 644 358
Pay TV Service Customer
s
Ontario 82 923 80 817
Québec 38 019 35 407
120 942 116 224
High-Speed Internet Service Customers
Ontario 243 896 226 133
Québec 56 745 51 515
300 641 277 648
Digital Video Customers
Ontario 173 811 159 734
Québec 94 808 87 470
268 619 247 204
Digital Terminals
Ontario 232 265 209 662
Québec 102 604 94 222
334 869 303 884
Digital Telephony
Ontario 4 743 1 251
Québec 2 164 197
6 907 1 448
Page 12
Page 13
COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended November 30,
(In thousands of dollars, except per share data)
2005
2004
(unaudited)
(unaudited)
Revenue $ 180,478
$ 171,411
Operating costs
119,885
112,483
Operating income before amortization 60,593
58,928
Amortization (note 3)
29,883
33,616
Operating income 30,710
25,312
Financial expense (note 6)
13,961
14,240
Income before income taxes and the following items 16,749
11,072
Income taxes (note 4)
6,611
4,582
Non-controlling interest
5,455
3,256
Loss on dilution resulting from shares issued by a subsidiary
-
75
Share in the loss of a general partnership
90
42
Net income $ 4,593
$ 3,117
Earnings per share (note 5)
Basic and diluted
$0.28
$0.19
Page 14
COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three months ended November 30,
(In thousands of dollars)
2005
2004
(unaudited)
(unaudited)
Balance at beginning $ 185,762
$ 209,188
Net income
4,593
3,117
Dividends on multiple voting shares
(116)
(97)
Dividends on subordinate voting shares
(913)
(762)
Balance at end $ 189,326
$ 211,446
Page 15
COGECO INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
November 30,
2005
August 31,
2005
(unaudited)
(audited)
Assets
Current
Cash and cash equivalents
$ 20,683
$-
Accounts receivable
67,745
55,529
Income tax receivable
493
-
Prepaid expenses
4,063
4,704
Broadcasting rights
18,358
14,168
111,342
74,401
Broadcasting rights
19,144
16,076
Investments
539
539
Fixed assets
732,422
726,270
Deferred charges
39,564
41,797
Broadcasting licenses and customer base
1,017,892
1,017,892
$ 1,920,903
$ 1,876,975
Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness
$ 22,274
$ 605
Accounts payable and accrued liabilities
109,427
151,985
Broadcasting rights payable
13,904
7,337
Income tax payable
-
299
Deferred and prepaid income
26,895
25,034
Current portion of long-term debt (note 6)
1,358
1,400
173,858
186,660
Long-term debt (note 6)
753,910
713,739
Share in the partner’s deficiency of a general partnership
738
648
Deferred and prepaid income
10,844
10,522
Broadcasting rights payable
5,632
4,112
Pension plans liabilities and accrued employee benefits
11,718
10,628
Future income tax liabilities
213,761
208,434
Non-controlling interest
444,126
439,643
1,614,587
1,574,386
Shareholders' equity
Capital stock (note 7)
116,167
116,167
Retained earnings
189,326
185,762
Contributed surplus - stock-based compensation
823
660
306,316
302,589
$ 1,920,903
$ 1,876,975
Page 16
COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended November 30,
(In thousands of dollars)
2005
2004
(unaudited)
(unaudited)
Cash flow from operating activities
Net income
$ 4,593
$ 3,117
Items not affecting cash and cash equivalents
Amortization (note 3)
29,883
33,616
Amortization of deferred financing costs
241
313
Future income taxes (note 4)
5,327
3,412
Non-controlling interest
5,455
3,256
Other
1,343
789
Cash flow from operations
46,842
44,503
Changes in non-cash operating items (note 8a))
(51,913)
(44,512)
(5,071)
(9)
Cash flow from investing activities
Acquisition of fixed assets
(30,328)
(22,292)
Increase in deferred charges
(3,715)
(2,746)
Other
-
22
(34,043)
(25,016)
Cash flow from financing activities
Increase in bank indebtedness
21,669
29,282
Increase in long-term debt
40,500
58
Repayment of long-term debt
(371)
(3,334)
Issue of subordinate voting shares
-
34
Dividends on multiple voting shares
(116)
(97)
Dividends on subordinate voting shares
(913)
(762)
Issue of subordinate voting shares by a subsidiary to non-
controlling interest, net of issue cost
-
329
Dividends paid by a subsidiary to non-controlling interest
(972)
(485)
59,797
25,025
Net change in cash and cash equivalents 20,683
-
Cash and cash equivalents at beginning
-
-
Cash and cash equivalents at end $ 20,683
$-
See supplemental cash flow information in note 8.
Page 17
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
1. Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in
accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present
fairly the financial position of COGECO Inc. as at November 30, 2005 and August 31, 2005 as well as its results of
operations and its cash flow for the three month periods ended November 30, 2005 and 2004.
While management believes that the disclosures presented are adequate, these unaudited interim consolidated
financial statements and notes should be read in conjunction with COGECO Inc.’s annual consolidated financial
statements for the year ended August 31, 2005. These unaudited interim consolidated financial statements follow the
same accounting policies as the most recent annual consolidated financial statements.
The interim consolidated financial statements for the three month period ended November 30, 2004 have not been
subject to a review by the Company’s external auditors.
2. Segmented Information
The Company’s activities are divided into two business segments: Cable and Media. The Cable segment is
comprised of all cable and high-speed Internet access and digital telephony services, and the Media segment is
comprised of radio and television operations.
The principal financial information per business segment is presented in the table below:
Head Office
Cable Media and elimination Consolidated
Three months ended November 30,
(unaudited)
2005 2004 2005 2004 2005 2004 2005 2004
Revenue $ 143,413 $ 135,766 $ 37,116 $ 35,690 $ (51) $ (45) $ 180,478 $ 171,411
Operating costs 86,111 82,572 34,667 30,856 (893) (945) 119,885 112,483
Operating income before
amortization
57,302
53,194 2,449 4,834 842
900
60,593 58,928
Amortization 28,277 32,244 1,567 1,312 39 60 29,883 33,616
Operating income 29,025 20,950 882 3,522 803 840 30,710 25,312
Financial expense 13,582 13,894 114 101 265 245 13,961 14,240
Income taxes 6,445 3,229 (37) 896 203 457 6,611 4,582
Net assets employed
(1) (2)
$ 1,642,485 $ 1,643,783 $ 85,282 $ 138,379 $ 5,751 $ 6,192 $ 1,733,518 $ 1,788,354
Total assets
(2)
1,782,332 1,752,748 131,772 173,790 6,799 7,389 1,920,903 1,933,927
Goodwill
(2)
- - - 27,925 - - -27,925
Acquisition of fixed assets 30,013 21,574 315 668 - 50 30,328 22,292
(1) Total assets less cash and cash equivalents, accounts payable and accrued liabilities, broadcasting rights payable and deferred and prepaid income.
(2) As at November 30, 2005 and 2004.
Page 18
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
3. Amortization
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Fixed assets $ 24,176 $ 27,519
Deferred charges 5,707 6,097
$ 29,883 $ 33,616
4. Income taxes
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Current $ 1,284 $ 1,170
Future 5,327 3,412
$ 6,611 $ 4,582
The following table provides the reconciliation between statutory federal and provincial income taxes and the
consolidated income tax expense:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Income tax at combined income tax rate of 34.84 %
(33.54 % in 2004)
$
5,804
$
3,713
Loss or income subject to lower or higher tax rates - 94
Decrease in income taxes as a result of increases in
substantially enacted tax rates
(91)
-
Large corporation tax 837 625
Other 61 150
Income tax at effective income tax rate $ 6,611 $ 4,582
Page 19
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
5. Earnings per share
The following table provides reconciliation between basic and diluted earnings per share:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Net income $ 4,593 $ 3,117
Weighted average number of multiple voting and subordinate
voting shares outstanding
16,450,004
16,372,764
Effect of dilutive stock options
(1)
158,692 147,259
Weighted average number of diluted multiple voting and
subordinate voting shares outstanding
16,608,696
16,520,023
Earnings per share
Basic and diluted $ 0.28 $ 0.19
(1) For the three month period ended November 30, 2005, 43,843 stock options (191,976 in 2004) were excluded from the calculation of diluted earnings per share
since the exercise price of the options was greater than the average share price of the subordinate voting shares.
Page 20
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
6. Long-term debt
Maturity Interest rate
November 30,
2005
August 31,
2005
(unaudited) (audited)
Parent company
Term Facility 2008 5.59 %
(1)
$ 23,000 $ 22,500
Obligation under capital lease 2010 6.61 51 55
Subsidiaries
Term Facility 2007 4.75 40,000 -
Senior Secured Debentures Series 1 2009 6.75 150,000 150,000
Senior – Secured Notes
Series A – US $150 million 2008 6.83
(2)
175,035 178,065
Series B 2011 7.73 175,000 175,000
Second Secured Debentures Series A 2007 8.44 125,000 125,000
Deferred credit
(3)
2008 - 63,615 60,585
Obligations under capital leases 2010 5.87 – 8.36 3,483 3,831
Other - - 84 103
755,268 715,139
Less current portion 1,358 1,400
$ 753,910 $ 713,739
(1) Average interest rate on debt as of November 30, 2005, including stamping fees.
(2) Cross-currency swap agreements have resulted in an effective interest rate of 7.254% on the Canadian dollar equivalent of the U.S. denominated debt.
(3) The deferred credit represents the amount which would have been payable as at November 30, 2005, and August 31, 2005 under cross-currency swaps entered into by the Company’s subsidiary,
Cogeco Cable Inc., to hedge Senior Secured Notes Series A denominated in US dollars.
Interest on long-term debt for the three month period ended November 30, 2005 amounted to $13,209,000
($13,349,000 in 2004).
Page 21
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
7. Capital Stock
Authorized, an unlimited number
Preferred shares of first and second rank, issuable 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 shares, 1 vote per share.
November 30,
2005
August 31,
2005
(unaudited) (audited)
Issued
1,849,900 multiple voting shares $ 12 $ 12
14,600,104 subordinate voting shares 116,155 116,155
$ 116,167 $ 116,167
During the period, subordinate voting shares transactions were as follows:
Three months ended Twelve months ended
November 30, 2005 August 31, 2005
(unaudited) (audited)
Number of
shares
Amount
Number of
shares
Amount
Balance at beginning 14,600,104 $ 116,155 14,522,456 $ 115,609
Shares issued for cash under the Employee Stock Purchase Plan
and the Stock Option Plan
-
-
77,648
546
Balance at end 14,600,104 $ 116,155 14,600,104 $ 116,155
Page 22
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
7. Capital Stock (continued)
Stock-based plans
The Company established, for the benefit of its employees and those of its subsidiaries, an Employee Stock Purchase
Plan and a Stock Option Plan for certain executives which are described in the Corporation’s annual consolidated
financial statements. During the first quarter, no stock options were granted to employees by COGECO Inc.
However, the Company’s subsidiary, Cogeco Cable Inc., granted 123,342 stock options (140,766 in 2004) with an
exercise price of $29.05 ($21.50 in 2004), of which 31,743 stock options (38,397 in 2004) were granted to COGECO
Inc.’s employees. The Company records compensation expense for options granted on or after September 1, 2003.
As a result, a compensation expense of $163,000 ($98,000 in 2004) was recorded for the three month period ended
November 30, 2005. If compensation cost had been recognized using the fair value-based method at the grant date
for options granted between September 1, 2001 and August 31, 2003, the Company’s net income and earnings per
share for the three month periods ended November 30, 2005 and 2004 would have been reduced to the following
pro forma amounts:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Net income
As reported $ 4,593 $ 3,117
Pro forma 4,585 3,037
Basic earnings per share
As reported $ 0.28 $ 0.19
Pro forma 0.28 0.19
Diluted earnings per share
As reported $ 0.28 $ 0.19
Pro forma 0.28 0.18
The fair value of stock options granted by the Company’s subsidiary, Cogeco Cable Inc., for the three month period
ended November 30, 2005 was $9.46 ($7.46 in 2004) per option. The fair value was estimated on the grant date for
purposes of determining stock-based compensation expense using the Binomial option pricing model based on the
following assumptions:
2005 2004
Expected dividend yield
1.27 % 1.27 %
Expected volatility
39 % 43 %
Risk-free interest rate
3.70 % 3.70 %
Expected life in years
4.0 4.0
As at November 30, 2005, the Company had outstanding stock options providing for the subscription of 425,376
subordinate voting shares. These stock options can be exercised at various prices ranging from $6.60 to $37.50 and
at various dates up to October 19, 2011.
TQS Inc., an indirect subsidiary of the Company, also adopted a stock option plan for certain executives and key
employees. During the first quarter, no stock options (77,000 in 2004) were granted by TQS Inc. A compensation
expense of $30,000 ($41,000 in 2004) was recorded for the three month period ended November 30, 2005 related to
this plan.
Page 23
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
8. Statements of cash flow
a) Changes in non-cash operating items
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Accounts receivable $ (12,216) $ (11,498)
Income tax receivable (493) 178
Prepaid expenses 641 (246)
Broadcasting rights (7,258) (1,844)
Accounts payable and accrued liabilities (42,558) (37,549)
Broadcasting rights payable 8,087 2,993
Income tax payable (299) -
Deferred and prepaid income 2,183 3,526
Other - (72)
$ (51,913) $ (44,512)
b) Other information
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Interest paid $ 16,374 $ 16,248
Income taxes paid 2,076 992
Page 24
COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2005
(amounts in tables are in thousands of dollars, except per share data)
9. Employees future benefits
The Company and its subsidiaries offer their employees defined contributory benefit pension plans, a defined
contribution pension plan or collective registered retirement savings plans which are described in the Company’s
annual consolidated financial statements. The total expenses related to these plans are as follows:
Three months ended November 30,
2005 2004
(unaudited) (unaudited)
Defined contributory benefit pension plans $ 1,118 $ 439
Defined contribution pension plan and collective registered
retirement savings plans
487
403
$ 1,605 $ 842
10. Comparative figures
Certain comparative figures have been reclassified in order to conform to the presentation adopted in the current
period.