MONTREAL, July 10 /CNW Telbec/ - Today, COGECO Inc. (TSX: CGO) announced
its financial results for the third quarter of fiscal 2006, ended May 31.
Sustained improvements
----------------------
COGECO continues to generate sustained improvements in its major
performance indicators. Revenue is up 9.4%, operating income before
amortization by 3.6% and net income by 11.4%. Following increased demand for
digital telephony, high-speed Internet (HSI) and digital video services, the
cable sector experienced substantial growth. In the media sector, TQS is well
prepared for the new television season and the radio stations are gaining
market share in audiences and revenue in all markets.
Cable Sector:
-------------
Continued internal growth
-------------------------
Cogeco Cable reported strong increases in its revenue-generating units(1)
(RGU), adding more than 48,000 RGUs, compared to 6,400 for the same period
last year, driving a revenue increase of 9.9%. Operating income before
amortization has improved by 8.5% while net income jumped by 50% to stand at
$12.4 million. The digital telephony service keeps attracting new clients
having snowball effect on all other services. "Our new digital telephony
clients are discovering the advantages of cable, most of them enjoying more
than one of Cogeco Cable's services", said Mr. Louis Audet, President and
Chief Executive Officer of COGECO.
Growth by business acquisition
------------------------------
On June 2, Cogeco Cable entered into an agreement with Cable Satisfaction
International Inc. (CSII), Catalyst Fund Limited Partnership I (Catalyst) and
Cabovisao - Televisao por Cabo S.A. (Cabovisao), to purchase, at a cost of
(euro) 464.9 million, all the shares of the second largest cable operator in
Portugal, an indirect wholly-owned subsidiary of CSII. This agreement and its
execution by the monitor and interim receiver RSM Richter Inc. on behalf of
CSII was approved by the Superior Court of QuDebec on July 4, 2006, thus
fulfilling one of the conditions precedent to the sale and purchase of the
Cabovisao shares. Cogeco Cable is pleased with Cabovisao's growth potential
and expects to make attractive additions to the services it already provides
to its customers. "This acquisition is consistent with Cogeco Cable's strategy
to pursue external growth opportunities and Cabovisao is well positioned in
the high-growth cable telecommunications market in Portugal", stated Mr.
Audet.
Media Sector:
-------------
TQS: ready for the fall season
------------------------------
Television revenue remained relatively stable in the third quarter
compared to the same period last year. TQS generated good audience ratings for
Loft Story II over portions of the second and third quarters. "Building on
this success, Loft Story III and other programming improvements should impact
positively our advertising sales for the next season", declared Mr. Audet.
Radio: popularity on the rise
-----------------------------
On the radio side, RYTHME FM maintained its first position in the
Montreal French market. All of its other stations are gaining in popularity in
their respective markets.
2007 projections - Canada
-------------------------
Consolidated outlook
--------------------
For fiscal 2007, COGECO expects to improve operating income before
amortization by 8% to 11%, and consequently generate a net income of
approximately $19 million. The expected free cash flow should stand between
$20 million and $25 million.
Cable Sector
------------
For fiscal 2007, the cable subsidiary expects continued growth in HSI,
digital video and digital telephony services. Revenue from the Canadian
operations should consequently improve by between 10% and 12%. An operating
margin of approximately 40% should be achieved despite the launch of digital
telephony in most of the cable subsidiary's networks. Growth in revenue and
sustained cost control should help achieve an increase in operating income
before amortization of approximately 9%.
"For the future, we are confident that the number of Canadian customers
will continue to grow, thanks to our strong offering, which is in line with
customer demand. As for Cabovisao, we are dedicated to the successful
integration of our newest and promising asset to ensure the creation of value
for Cogeco Cable's shareholders", declared Mr. Audet.
Media Sector
------------
At TQS, the renewed management team has steadied the course with new
programs, new hosts and standard favourites. On the radio side, management
will focus on maintaining leadership in the key Montreal market while
continuing to improve performance in all regional markets.
<<
----------------------
(1) Revenue-generating units represent the sum of basic service, HSI
service, digital video service and digital telephony service
customers.
FINANCIAL HIGHLIGHTS
Quarters ended May 31, Nine months ended May 31,
($000s, except
percentages and
per share data) (unaudited) (unaudited)
% %
2006 2005 Change 2006 2005 Change
-------- -------- ------- -------- -------- -------
Revenue $ 189,718 $ 173,418 9.4 $ 547,555 $ 511,395 7.1
Operating
income before
amortization 66,111 63,814 3.6 184,469 177,358 4.0
Net income
(loss) 5,529 4,964 11.4 12,801 (20,443) -
Cash flow from
operations(1) 52,093 48,699 7.0 140,579 134,164 4.8
Less:
Capital
expendi-
tures and
increase in
deferred
charges 38,463 27,057 42.2 112,822 83,288 35.5
Free cash
flow(1) 13,630 21,642 (37.0) 27,757 50,876 (45.4)
Per share data
Basic net
income
(loss) $ 0.33 $ 0.30 10.0 $ 0.78 $ (1.25) -
(1) Cash flow from operations, free cash flow and net income excluding
impairment of goodwill and other intangible assets do not have
standard definitions prescribed by Canadian Generally Accepted
Accounting Principles (GAAP) and should be treated accordingly. For
more details, please consult the Non-GAAP financial measures section.
FORWARD-LOOKING STATEMENT
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", "ensure" 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
CORPORATE STRATEGIES AND OBJECTIVES
COGECO's objectives are to maximise shareholder value by increasing
profitability and by ensuring continued growth. The strategies for reaching
those objectives are, for the cable sector, constant corporate growth through
the diversification of products and services as well as clientele and
territories, effective management of capital and tight cost control. The media
sector focuses on continuous improvement of its program schedules to increase
its market share, and therefore, its profitability. The Company measures its
performance with regard to these objectives with operating income before
amortization growth, free cash flow and revenue-generating units(x) (RGU)
growth for the cable sector. Below are the third quarter achievements of the
cable and media sectors in furtherance of COGECO's objectives.
Cable Sector
Diversification and improvement of products and services
- Digital video services:
- Addition of WWE 24/7 to Cogeco Cable's digital video offer;
- Digital telephony service:
- The digital telephony service is now available to 50% of homes passed
in Cogeco Cable's territories;
- Deployment of digital telephony service in Grimsby, Stoney Creek,
Welland, Port Colborne, Dundas, Milton, Georgetown, Ancaster Fort
Erie, Pelham, Wallaceburg Niagara Falls and Essex, Ontario, and in
Shawinigan, Grand-MGere, Louiseville and St-Georges-de-Beauce, QuDebec;
- High-speed Internet service:
- Cogeco Cable increased the download speed of its Standard HSI service
to a maximum of 7 Mbps and its combined upload and download bit cap
for each HSI service: from 30 Gb to 100 Gb for the Pro service, from
15 Gb to 60 Gb for the Standard service and from 2 Gb to 10 Gb for
the Lite service. In the last few weeks, Cogeco Cable has completed
the improvement of its Pro HSI service by increasing its speed from
up to 10 Mbps to up to 16 Mbps. As for the Standard HSI service, its
speed will be increased from up to 7 Mbps to up to 10 Mbps before the
end of July 2006;
- Significant upgrade of the free security suite, which provides pop up
blockers, anti-spyware and protection with the introduction of
F-Secure Pex 6 in all our territories.
Sustained corporate growth and diversification of clientele and
territories
- Acquisition:
- On June 2, 2006, Cogeco Cable entered into an agreement with Cable
Satisfaction International Inc. (CSII), Catalyst Fund Limited
Partnership I (Catalyst) and Cabovisao-Televisao por Cabo, S.A.
("Cabovisao"), to purchase, at a cost of (euro) 464.9 million, all
the shares of the second largest cable operator in Portugal, an
indirect wholly-owned subsidiary of CSII. The price includes the
purchase of senior debt and reimbursement of certain other Cabovisao
liabilities. The final purchase price will be determined following
completion of a post-closing working capital adjustment. Cogeco Cable
is assuming a (euro) 20 million working capital deficiency. The
transaction, which was approved by the Superior Court of QuDebec on
July 4, 2006, is still subject to the fulfilment of certain
conditions of closing, including the implementation of the plan of
arrangement previously approved by the court in March 2004, as
amended.
Cogeco Cable will finance the acquisition of Cabovisao through an
underwritten credit facility of $900 million over five years
committed by a major Canadian Chartered Bank.
----------------------
(x) See "Customer statistics" of the cable sector section for detailed
explanations.
Media Sector
- During the second and third quarter, TQS aired "Loft Story II", which
had a positive impact on TQS's total viewership. TQS has announced that
it will air "Loft Story III" in the fall 2006. Increased programming
commitments should sustain growth in viewership and advertising
revenue;
- RYTHME FM was confirmed, with the announcement of the last BBM survey,
to be in top position in the Montreal market and is gaining market
share in its other stations across QuDebec. Station 933 continues to
gain new listeners within its target audience.
RGU growth
During the first nine months, the number of RGUs in the cable sector
increased by 12.2%. The cable subsidiary had anticipated RGU growth between
10% and 11% for all of fiscal 2006. Higher than anticipated HSI, digital video
and digital telephony customer growth has allowed Cogeco Cable to exceed its
objective in the first nine months of the fiscal year. Therefore, management
has revised its guidelines during the third quarter and now believes it will
reach RGU growth between 13% and 15% by August 31, 2006. Please consult
"Fiscal 2006 and 2007 financial guidelines" section for further details.
Operating income before amortization growth
The Company had originally anticipated stable operating income before
amortization in fiscal 2006. Although operating income before amortization
grew by 4% during the first nine months, COGECO still expects the latter to
remain relatively stable in fiscal 2006. Please consult "Fiscal 2006 and 2007
financial guidelines" section for further details.
Free cash flow
In the first nine months, COGECO generated free cash flow of
$27.8 million. In light of stronger than expected RGU growth in the first nine
months of fiscal 2006, capital expenditures and deferred charges in the cable
sector are expected to surpass the $160 million guideline and reach between
$163 and $168 million. Therefore, COGECO's free cash flow will be
approximately $15 million to $20 milion, which is more than the revised
objective of $10 million to $15 million. Please consult "Fiscal 2006 and 2007
financial guidelines" section for further details.
ACCOUNTING POLICIES AND ESTIMATES
Non-Monetary Transactions
In June 2005, the Canadian Institute of Chartered Accountants issued
Handbook section 3831, Non-Monetary Transactions, which revised and replaced
the current standards on non-monetary transactions. Under the new section, the
criterion for measuring non-monetary transactions at fair value is modified to
focus on the assessment of commercial substance instead of the culmination of
the earnings process. A non-monetary transaction has commercial substance when
the entity's future cash flows are expected to change significantly as a
result of the transaction. These standards are effective for non-monetary
transactions initiated in periods beginning on or after January 1, 2006.
During the third quarter, the Company adopted these new standards and
concluded that they had no significant impact on its consolidated financial
statements.
There has been no other 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 third quarter and first nine months of fiscal 2006, rose
by $16.3 million, or 9.4%, and by $36.2 million, or 7.1%, respectively,
compared to the same periods last year. Cable revenue, driven by an increased
number of customers in digital video, HSI and digital telephony services as
well as rate increases, went up by $13.9 million, or 9.9%, in the third
quarter and by $30.9 million, or 7.5%, in the first nine months. Media revenue
increased by $2.4 million, or 7.3%, in the third quarter and by $5.3 million,
or 5.4%, in the first nine months, due to higher radio advertising revenue.
Operating income before amortization grew by 3.6% and 4.0% in the third
quarter and first nine months of fiscal 2006 respectively, compared to the
same periods last year. The cable sector contributed to an increase of
$4.9 million and $13.3 million in the third quarter and first nine months.
During the same periods, the media sector had a negative impact of
$2.2 million and $6.3 million.
FIXED CHARGES
Quarters ended May 31, Nine months ended May 31,
($000s, except
percentages) % %
2006 2005 Change 2006 2005 Change
-------- -------- ------- -------- -------- -------
Amortization $ 30,658 $ 32,783 (6.5) $ 90,758 $ 99,782 (9.0)
Financial
expense $ 14,120 $ 14,441 (2.2) $ 42,312 $ 42,918 (1.4)
Amortization amounted to $30.7 million and $90.8 million during the third
quarter and first nine months of fiscal 2006 compared to $32.8 million and
$99.8 million for the same periods last year. Amortization declined during
these periods since many cable modems and digital terminals in the cable
sector were fully amortized.
Financial expense slightly decreased in the third quarter and the first
nine months of fiscal 2006, compared to the same periods last year. This is
due to the lower level of Indebtedness (defined as bank indebtedness and long-
term debt) during these periods offset by increases in the short-term interest
rate on the Term Facilities.
IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS
Subsequent to a viewership market share loss in conventional television
combined with a shift in conventional television advertising towards specialty
channels, impairment tests of goodwill and other intangible assets related to
the television operation of the media business unit were performed at the end
of the second quarter of fiscal 2005. The Company concluded that an impairment
existed and consequently wrote-off the $27.9 million of goodwill and reduced
the value of its television broadcasting licenses by $24.6 million. The impact
of the impairment of goodwill and other intangible assets on net income of the
first nine months of fiscal 2005 was as follows:
($ 000s)
Impairment of goodwill and other intangible assets 52,531
Income taxes 3,270
-----------
Impairment losses net of income taxes 49,261
Non-controlling interest 19,651
-----------
Impairment losses net of income taxes and
non-controlling interest 29,610
-----------
-----------
INCOME TAXES
During the third quarter of fiscal 2006, income taxes stood at
$8.5 million compared to $5.9 million in the same period in fiscal 2005. For
the first nine months of fiscal 2006, income taxes stood at $20.8 million
compared to $13.6 million excluding a non-cash income tax adjustment of
$3.3 million for the impairment of goodwill and other intangible assets of the
television operations for the same period last year. The income tax increases
were mainly attributable to the cable sector's growth in operating income
before amortization combined with a decline in fixed charges as discussed
before.
On May 2, 2006, the Federal government announced its intention to reduce
the corporate income tax rate progressively from 21% to 19% effective in
January 2010 and to eliminate the corporate surtax of 1.12% by January 1,
2008. These measures were considered to be substantially enacted on June 6,
2006, and therefore, will reduce future income taxes by approximately
$18 million for the next quarter ending August 31, 2006.
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 third
quarter and first nine months of fiscal 2006, the non-controlling interest
stood at $7.3 million and $17.6 million compared to $5.6 million and negative
$8.1 million, respectively, for the same periods last year. The non-
controlling interest for the first nine months of fiscal 2005 included an
adjustment of $19.7 million for the television's impairment of goodwill and
other intangible assets.
NET INCOME (LOSS)
Net income for the third quarter of fiscal 2006 amounted to $5.5 million,
or $0.33 per share, compared to $5 million, or $0.30 per share, for the same
period last year. For the first nine months of fiscal 2006, net income stood
at $12.8 million, or $0.78 per share compared to a net loss of $20.4 million,
or $1.25 per share for the comparable period last year. Compared to same
period last year, net income increase in the first nine months of fiscal 2006
is attributable to the solid performance of the cable sector and to the fact
that the Company made a $29.6 million impairment of goodwill and other
intangible assets in the second quarter of fiscal 2005.
In the first nine months of fiscal 2006, net income excluding impairment
of goodwill and other intangible assets(x) grew from $9.2 million to
$12.8 million compared to the same periods last year. This increase is due to
the cable sector's net income growth.
CASH FLOW AND LIQUIDITY
Quarters ended May 31, Nine months ended May 31,
($000s) 2006 2005 2006 2005
------------- ------------- ------------- -------------
Operating
Activities
Cash flow from
operations $ 52,093 $ 48,699 $ 140,579 $ 134,164
Changes in
non-cash
operating
items (4,558) 1,260 (53,643) (26,271)
------------- ------------- ------------- -------------
47,535 49,959 86,936 107,893
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Investing
Activities(1) $ (16,912) $ (25,459) $ (110,047) $ (81,643)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Financing
Activities(1) $ (30,623) $ (24,500) $ 23,111 $ (26,250)
------------- ------------- ------------- -------------
Net change in
cash and cash
equivalents $ - $ - $ - $ -
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(1) Excludes assets acquired under capital leases.
During the third quarter of fiscal 2006, cash flow from operations
reached $52.1 million, or 7% higher than the comparable period 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 for the same period last year, mainly as a result of relatively
stable accounts receivable compared to a decrease for the same period in
fiscal 2005.
During the first nine months of fiscal 2006, cash flow from operations
reached $140.6 million, or 4.8% higher than for the same period 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 in the prior year mainly as a result of a larger decrease in
accounts payable and accrued liabilities caused by increased capital
expenditures incurred in late fiscal 2005
----------------------
(x) Cash flow from operations, free cash flow and net income excluding
impairment of goodwill and other intangible assets do not have
standard definitions prescribed by Canadian Generally Accepted
Accounting Principles (GAAP) and should be treated accordingly. For
more details, please consult the Non-GAAP financial measures section.
In the third quarter, investing activities decrease by $8.5 million due
to increases of $11.2 million in capital expenditures and $0.6 million in
deferred charges, offset by a decrease of $20.3 million in restricted cash.
For the first nine months, the rise in investing activities was due to
increases of $26.7 million in capital expenditures and $1.6 million in
deferred charges.
The third quarter and first nine months increases in deferred charges are
explained by the cable sector's higher reconnect costs attributable to the
significant level of RGU increase, which includes the digital telephony
customer growth. During the third quarter, the $20.3 million decrease in
restricted cash was the result of a reimbursement of a deposit in escrow. This
deposit of (euro) 15 million was intended for the business acquisition
described in the "Corporate Strategies and Objectives" section and was
reimbursed with accumulated interest thereon.
During the third quarter and first nine months, the increase related to
capital expenditures is mainly due to the following factors of the cable
sector:
- The increase in customer premise equipment in the third quarter of
fiscal 2006 results primarily from an increase in digital terminals,
cable modems and by more home terminal devices related to the digital
telephony service. For the first nine months of fiscal 2006, the
increase in customer premise equipment results primarily from a rise in
the number of digital terminals rented to customers, a greater ratio of
digital terminals per digital home and the increase in the number of
digital telephony customers.
- The growth in scalable infrastructure is mainly attributable to the
support of the digital telephony rollout.
- Expenditures associated with the network upgrade and rebuild program
rose due to the acceleration of the program to expand the bandwidth to
750 MHz and 550 MHz for the Ontario and QuDebec networks, respectively,
and to improve network reliability. An increase in the number of
households with access to two-way service was also a factor and the
percentage of customers with access to two-way service rose from 88% as
at May 31, 2005 to 92% as at May 31, 2006.
Free cash flow of $13.6 million and $27.8 million was generated during
the third quarter and first nine months of fiscal 2006, respectively, as a
result of increased cash flow from operations in the cable sector, partly
offset by increased capital expenditures and deferred charges in that sector
and a decrease in cash flow from operations in the media sector. In the third
quarter and first nine months of fiscal 2006, free cash flow declined compared
to the same periods last year. This is mainly attributable to increased
capital expenditures and deferred charges that support digital telephony
service and better-than-expected RGU growth in the cable sector.
During the third quarter, the level of Indebtedness decrease by
$28.6 million mainly due to generated free cash flow of $13.6 million, a
decrease in restricted cash of $20.3 million partly offset by a decrease in
non-cash operating items of $4.6 million. For the same period last year,
Indebtedness declined by $23.2 million, essentially due to generated free cash
flow of $21.6 million and an increase of $1.3 million in non-cash operating
items. In addition, a dividend of $0.0625 per share for subordinate and
multiple voting shares, totalling $1 million, was paid during the third
quarter of fiscal 2006 compared to a dividend of $0.0525 per share, totalling
$0.9 million for the third quarter of fiscal 2005.
During the first nine months of fiscal 2006, the level of Indebtedness
increased by $27.7 million mainly due to a decline in non-cash operating items
of $53.6 million partly offset by generated free cash flow of $27.8 million.
For the same period last year, Indebtedness increased by $23.5 million mainly
due to generated free cash flow of $50.9 million partly offset by a decline in
non-cash operating items of $26.3 million Dividends totalling $3.1 million
were paid during the first nine months of fiscal 2006 compared to $2.6 million
for the same period the year before.
As at May 31, 2006, the Company had a working capital deficiency of
$92.1 million compared to $112.3 million as at August 31, 2005. This
improvement is mainly attributable to a reduction in the level of accounts
payable and accrued liabilities, as discussed in the "Financial Position"
section, partly offset by an increase in the current portion of Indebtedness.
This increase is explained by a greater utilization of bank indebtedness and
an increase in the cable subsidiary's current portion of long-term debt as
Cogeco Cable's Term Facility matures in less than a year. COGECO maintains a
working capital deficiency due to low 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
or services are rendered. Additionally, the cable subsidiary generally uses
cash and cash equivalents to reduce Indebtedness.
As at May 31, 2006, the cable subsidiary had utilized $18 million of its
Term Facility and the Company had drawn $20 million of its Term Facility.
Based on existing bank covenants, COGECO and 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, there have been major changes to the "Fixed
assets", "Accounts payable and accrued liabilities", and "Indebtedness" items
on the balance sheet. The $26.8 million rise in fixed assets was mainly
related to the cable sector's increase in capital expenditures as well as
lower amortization expense. Accounts payable and accrued liabilities declined
by $43.8 million as the use of working capital was tightly managed at fiscal
2005 year-end. Indebtedness increased by $30.4 million, respectively, due to
the factors previously discussed in the "Cash Flow and Liquidity" section.
A description of COGECO's share data as of June 30, 2006 is presented in
the table below:
Number of shares/ Amount
options ($000s)
----------------- -----------------
Common Shares
Multiple voting shares 1,849,900 12
Subordinate voting shares 14,688,356 117,429
Options to Purchase Subordinate
Voting Shares
Outstanding options 329,976
Exercisable options 329,976
In the normal course of business, COGECO 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
At its July 7, 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 August 3, 2006, to shareholders of record on July 21, 2006.
CABLE SECTOR
------------
CUSTOMER STATISTICS
Net additions (losses)
Quarters ended
May 31,
---------------
May 31,
2006 2006 2005
---------- ---------- ----------
RGUs (2) 1,511,693 48,081 6,378
Basic service customers 832,492 (3,349) (3,523)
HSI service customers (3) 330,479 12,378 5,731
Digital video service customers (4) 316,801 23,635 4,170
Digital telephony service customers 31,921 15,417 -
Net additions (losses) % of Penetration (1)
Nine months ended
May 31, May 31,
---------------- ----------------
2006 2005 2006 2005
RGUs (2) 163,960 72,275
Basic service customers 11,059 3,469
HSI service customers (3) 52,831 35,265 43.1 37.6
Digital video service
customers (4) 69,597 33,541 38.8 30.0
Digital telephony
service customers 30,473 - 7.6 -
(1) As a percentage of basic service customers in areas served.
(2) Represent the sum of basic service, HSI service, digital video
service and digital telephony service customers.
(3) Customers subscribing only to Internet services totaled 60,786 as at
May 31, 2006 compared to 59,292 as at February 28, 2006.
(4) In fiscal 2005, the number of digital video service customers was
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
7,800 customers as at May 31, 2005.
Except for basic service customers, all services generated higher growth
in the third quarter compared to the same period last year. The number of net
additions of HSI service and digital video service customers stood at 12,378
and 23,635 compared to 5,731 and 4,170 for the same period last year. The
number of net additions of HSI service customers was higher than the
comparable period last year, due to promotional activities, enhancement of the
product offering and the impact of the bundled offer of three services. The
increase in the number of digital video service customers stems from the
growing interest for this technology and the growing demand for the high-
definition (HD) format among customers as well as attractive promotional
offers and the snowball effect of the telephony offering.
For the third quarter of fiscal 2006, basic service customer numbers
declined by 3,349 compared to a reduction of 3,523 for the same period last
year. These losses are mainly attributable to students leaving their campuses
at the end of the school year. Cogeco Cable offers its services in several
cities with universities and colleges such as Kingston, Windsor, Hamilton,
St. Catharines, Peterborough, Trois-RiviGeres and Rimouski.
On May 31, 2006, 38,204 customers were subscribing to the digital
telephony service including pending orders compared to 18,783 customers
including pending orders as at February 28, 2006.
OPERATING RESULTS
Quarters ended May 31, Nine months ended May 31,
($000s, except percentages)
2006 2005 % 2006 2005 %
Change Change
--------- --------- ------- ------ ------- ------
Revenue $ 153,956 $ 140,071 9.9 $ 445,126 $ 414,226 7.5
Operating costs 88,145 79,054 11.5 256,620 239,239 7.3
Management fees
- COGECO Inc. 2,567 2,707 (5.2) 8,392 8,186 2.5
Operating income
before
amortization 63,244 58,310 8.5 180,114 166,801 8.0
Operating margin 41.1% 41.6% 40.5% 40.3%
Revenue
Revenue for the third quarter and first nine months of fiscal 2006 rose
by $13.9 million or 9.9% and by $30.9 million or 7.5% respectively, compared
to the same periods last year. Revenue growth during these periods is mainly
attributable to an increased number of customers subscribing to digital video,
HSI and digital telephony services as mentioned in the "Customer Statistics"
section, 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 QuDebec. 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 QuDebec. Furthermore, an August 2005 reduction in digital
terminal rental rates was more than offset by a greater number of customers
renting digital terminals.
Operating Costs
For the third quarter and first nine months of fiscal 2006, operating
costs, excluding management fees payable to COGECO Inc., rose by $9.1 million
or 11.5% and by $17.4 million or 7.3%, respectively. Operating costs also
include network fees. Network fees increased by 11.2% and 6.5% during the
third quarter and first nine months, respectively, compared to the same
periods last year. These increases are mainly the result of the introduction
of digital telephony service, the Canadian Radio-television and
Telecommunications Commission mandated APTN wholesale rate increase and RGU
growth, partly offset by IP transport costs that have declined despite HSI
customer growth. Other operating costs increased in order to serve additional
RGUs, including digital telephony.
Operating Income before Amortization
For the third quarter and first nine months of fiscal 2006, operating
income before amortization rose by 8.5% and 8%, respectively, compared to the
same periods last year as the increase in revenue outpaced the rise in
operating costs. Cogeco Cable's operating margin decreased from 41.6% to 41.1%
in the third quarter of fiscal 2006, due to the launch of telephony service.
For the first nine months of fiscal 2006, the operating margin stood at 40.5%
compared to 40.3% for the same period last year.
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$12.8 million at
the end of the third quarter of fiscal 2006 compared to August 31, 2005 due to
the Canadian dollar's appreciation. Since the Senior Secured Notes Series A
are fully hedged, the fluctuation is offset by a variation in deferred credit
described in Note 8 of the third quarter interim financial statements. The
$73.4 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 May 31, Nine months ended May 31,
($000s, except percentages)
2006 2005 % 2006 2005 %
Change Change
----- ----- ------ ------ -------- ------
Revenue $ 35,813 $ 33,392 7.3 $ 102,582 $ 97,304 5.4
Operating costs 33,203 28,627 16.0 100,415 88,817 13.1
Operating income
before
amortization 2,610 4,765 (45.2) 2,167 8,487 (74.5)
Operating margin 7.3% 14.3% 2.1% 8.7%
Revenue
During the third quarter and first nine months of fiscal 2006, revenue
increased by $2.4 million and $5.3 million respectively. All radio stations
contributed to the increase in revenue. Furthermore, since August 31, 2005,
revenue and operating expenses for the Sherbrooke and Trois-RiviGeres RYTHME FM
stations have no longer been capitalized. Television revenue remained
relatively stable in the third quarter and first nine months compared to the
same periods last year due to TQS's good audience ratings for Loft Story II in
the second and third quarters. The advertising market remains difficult for
conventional television in the Francophone market.
Operating Income before Amortization
The operating income before amortization declined in the third quarter
and first nine months of fiscal 2006 by $2.2 million and $6.3 million
respectively. For the third quarter and first nine months, TQS's operating
income before amortization decreased as a result of greater investment in
television programming, combined with small revenue growth. During the third
quarter and the first nine months of fiscal 2006, radio's operating income
before amortization improved due to revenue growth.
FISCAL 2006 AND 2007 FINANCIAL GUIDELINES
($ million, except customer data)
Preliminary Revised Revised
Projections, Projections Projections
Fiscal 2007 July 10, 2006 April 10, 2005
Cable sector-
Financial Guidelines
Revenue 660 to 670 599 to 602 593 to 600
Operating income
before amortization 264 to 267 242 to 245 236 to 240
Operating margin About 40% 40.5% About 40%
Financial expense 55 55 56
Amortization 128 117 116
Capital expenditures
and deferred charges 180 163 to 168 160
Free cash flow 30 20 to 25 20 to 25
Customer Addition
Guidelines
Basic service 3,000 to 6,000 3,000 to 6,000 3,000 to 6,000
HSI service 35,000 to 40,000 55,000 to 60,000 47,000 to 49,000
Digital video
service 55,000 to 60,000 75,000 to 80,000 59,000 to 62,000
Digital telephony
service 45,000 to 50,000 45,000 to 50,000 32,000 to 37,000
RGU 138,000 to 178,000 to 138,000 to
156,000 196,000 154,000
Media sector-
Financial Guidelines
Revenue 131 to 135 127 124 to 126
Operating income
(loss) before
amortization 1 to 3 (1) (2) to (3)
Amortization 7 6.5 7
Capital expenditures
and deferred charges 7 3.5 5 to 6
Consolidated Financial
Guidelines
Free Cash Flow 20 to 25 15 to 20 10 to 15
Operating income
before amortization 265 to 270 244 Relatively
stable
Net income 19 15 11
FISCAL 2006 FINANCIAL GUIDELINES
Cable Sector
Given the stronger-than-expected demand for digital video, HSI and
digital telephony services during the first nine months and various service
enhancements offered recently, Cogeco Cable has revised upward its 2006
guideline for digital video, HSI and digital telephony customer additions.
Subsequent to these adjustments, projected revenue and operating income before
amortization are being revised upward. The operating margin should also
increase to about 40.5% even if some additional network maintenance expenses
are expected to occur during the last quarter of fiscal 2006.
As a result of increased customer additions, Cogeco Cable will have to
purchase more digital terminals, cable modems and equipment and is raising its
capital expenditures and deferred charges guidelines from $160 million to
between $163 million and $168 million as well as its amortization guidelines
from $116 million to $117 million. The cable subsidiary should generate free
cash flow of $20 million to $25 million, which remains unchanged from last
quarter's projection, as a result of higher anticipated operating income
before amortization offset by higher capital expenditures and deferred
charges.
Media Sector
Since economic and industry factors described in the 2005 annual MD&A
remain unchanged, management is maintaining its fiscal 2006 financial
guidance.
Consolidated outlook
Based on the above-mentioned guidelines, net income of $15 million and
free cash flow between $15 million to $20 million should be generated.
FISCAL 2007 PRELIMINARY FINANCIAL OUTLOOK
Cable Sector
The fiscal 2007 financial guidelines exclude Cabovisao, which will be
presented when the transaction is completed and 2006 year-end results will be
published. The increase of approximately 10% to 12% in revenue should result
mainly from expanded penetration of HSI service in fiscal 2006 and 2007, and
from rate increases implemented in QuDebec, in June 2006 and in Ontario, in
August 2006; of at most $3 per customer and averaging $1 per basic service
customer. Improved penetration of digital video services and continued
deployment of digital telephony will also contribute to revenue increase.
Cogeco Cable plans to expand its basic service clientele through consistently
effective marketing, competitive product offers and superior customer service.
As the penetration of HSI service and digital video services increase, the
demand for these products will likely slow down but should be offset by
increased demand for digital telephony services.
Cogeco Cable expects to achieve an operating margin of approximately 40%,
despite the launch of digital telephony in most of its networks. Growth in
revenue and sustained cost control should help achieve an increase in
operating income before amortization of approximately 9%.
Cogeco Cable expects the amortization of capital assets and deferred
charges to increase by $11 million, mainly due to capital expenditures and
deferred charges for RGU additions in fiscal 2006 and 2007. Management expects
that cash flows generated by operations will finance capital expenditures and
deferred charges, expected to amount to $180 million. The cable subsidiary
expects to generate free cash flow in the order of $30 million, i.e. an
increase of approximately $5 to $10 million compared to the 2006 forecasts. An
increase in free cash flow is expected despite the continued deployment of
digital telephony. Free cash flow that is generated should be used primarily
to reduce Indebtedness, thus improving the cable subsidiary's leverage ratios.
Given the anticipated decrease in Indebtedness, financial expense will
slightly decline.
Compared to fiscal year 2006, the rise in capital expenditures and
deferred charges will result primarily from an increase of approximately $6
million associated with the scalable infrastructure related to the head end
equipment to support HSI, digital video services and video on demand, $7
million related to customer premise equipments and $4 million related to
support capital with respect to upgrade of business information systems.
Media Sector
Revenue should grow by 5% to 7% compared to fiscal 2006. In fiscal 2007,
revenue from the radio should improve by 15% to 17%, while TQS revenue should
increase by 2% to 3%.
Consolidated outlook
For fiscal 2007, COGECO expects to improve operating income before
amortization by 8% to 11%. Free cash flow should generate between $20 million
and $25 million and net income of approximately $19 million should be earned
as a result of growth in operating income before amortization.
RISK FACTORS AND UNCERTAINTIES
There has been no significant change in the risk factors and
uncertainties facing COGECO as described in the Company's 2005 annual MD&A.
NON-GAAP FINANCIAL MEASURES
This section describes Non-GAAP financial measures used by COGECO
throughout this MD&A. It also provides reconciliations between these Non-GAAP
measures and the most comparable GAAP financial measures. These financial
measures do not have standard definitions prescribed by Canadian GAAP and may
not be comparable with similar measures presented by other companies. These
measures include 'cash flow from operations', 'free cash flow' and 'net income
excluding impairment of goodwill and other intangible assets'.
Cash flow from operations
Cash flow from operations is used by COGECO's management and investors to
evaluate cash flow generated by operating activities excluding the impact of
changes in non-cash operating items. This allows the Company to isolate the
cash flow from operating activities from the impact of cash management
decisions. Cash flow from operations is subsequently used in calculating the
Non-GAAP measure 'free cash flow'. Cash flow from operations is calculated as
follows:
($ 000) Quarters ended May 31, Nine months ended May 31,
2006 2005 2006 2005
-------- ------- --------- ---------
Cash flow from
operating activities $ 47,535 $ 49,959 $ 86,936 $ 107,893
Changes in non-cash
operating items 4,558 (1,260) 53,643 26,271
-------- ------- --------- ---------
Cash flow from
operations $ 52,093 $ 48,699 $ 140,579 $ 134,164
-------- ------- --------- ---------
-------- ------- --------- ---------
Free cash flow
Free cash flow is utilized, by COGECO's management and investors, to
measure its ability to repay debt, distribute capital to its shareholders and
finance its growth. Free cash flow is calculated as follows:
($ 000) Quarters ended May 31, Nine months ended May 31,
2006 2005 2006 2005
-------- ------- --------- --------
Cash flow from
operations $ 52,093 $ 48,699 $ 140,579 $ 134,164
Acquisition of
fixed assets (33,035) (21,854) (98,357) (71,629)
Increase in
deferred charges (4,229) (3,643) (11,728) (10,099)
Assets acquired under
capital leases
- as per Note 10 b) (1,199) (1,560) (2,737) (1,560)
-------- ------- --------- --------
Free cash flow $ 13,630 $ 21,642 $ 27,757 $ 50,876
-------- ------- --------- --------
-------- ------- --------- --------
Net income excluding impairment of goodwill and other intangible assets
Net income excluding impairment of goodwill and other intangible assets
is used by COGECO and its investors in order to evaluate what would have been
the net income excluding the impairment of goodwill and other intangible
assets. This allows the Company to isolate the one time adjustment in order to
evaluate the net income from ongoing activities.
($ 000) Quarters ended May 31, Nine months ended May 31,
2006 2005 2006 2005
-------- ------- --------- --------
Net income (loss) $ 5,529 $ 4,964 $ 12,801 $(20,443)
Impairment of goodwill
and other intangible
assets (1) - - - 29,610
-------- ------- --------- --------
Net income excluding
impairment of
goodwill and
other intangible
assets $ 5,529 $ 4,964 $ 12,801 $ 9,167
-------- ------- --------- --------
-------- ------- --------- --------
(1) For more details, please consult the Impairment of goodwill
and other intangible assets section.
ADDITIONAL INFORMATION
This MD&A was prepared on July 7, 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 1,512,000 revenue-generating units to
approximately 1,469,000 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
MontrDeal, QuDebec City, Trois-RiviGeres and Sherbrooke as well as 933 in QuDebec
City. COGECO's subordinate voting shares are listed on the Toronto Stock
Exchange (CGO). The subordinate voting shares of Cogeco Cable are also listed
on the Toronto Stock Exchange (CCA).
Analyst Conference Call: Monday July 10th at 11:00 a.m.
(Eastern Daylight Time)
Media representatives may attend as listeners
only
Please use the following dial-in number to
have access to the conference call by dialing
10 minutes before the start of the
conference:
Canada/USA Access Number: 1 800 500-0177
International Access Number: +1 719 457-2679
Confirmation Code: 5307043
By Internet at: www.cogeco.ca/investors
A rebroadcast of the conference call will be
available until July 17 by dialing:
Canada and USA access number: 1 888 203-1112
International access number: + 1 719 457-0820
Confirmation code: 5307043
Supplementary Quarterly Financial Information
Quarters ended May 31, February 28,
-------------------------- --------------------------
2006 2005 2006 2005
($000, except
percentages and
per share data)
Revenue $ 189,718 $ 173,418 $ 177,359 $ 166,566
Operating income
before amortization 66,111 63,814 57,765 54,616
Operating margin 34.8% 36.8% 32.6% 32.8%
Amortization 30,658 32,783 30,217 33,383
Financial expense 14,120 14,441 14,231 14,237
Impairment losses - - - 52,531
Income taxes 8,461 5,869 5,706 (130)
Non-controlling
interest 7,293 5,603 4,842 (16,940)
Net income (loss) 5,529 4,964 2,679 (28,524)
Cash flow from
operations 52,093 48,699 41,644 40,962
Net income (loss)
per share
Basic and
diluted $ 0.33 $ 0.30 $ 0.16 $ (1.74)
Quarters ended November 30, August 31,
-------------------------- --------------------------
2005 2004 2005 2004
($000, except
percentages and
per share data)
Revenue $ 180,478 $ 171,411 $ 164,210 $ 154,652
Operating income
before amortization 60,593 58,928 56,485 55,862
Operating margin 33.6% 34.4% 34.4% 36.1%
Amortization 29,883 33,616 30,769 33,758
Financial expense 13,961 14,240 14,366 14,305
Impairment losses - - - -
Income taxes 6,611 4,582 5,052 1,472
Non-controlling
interest 5,455 3,256 5,422 4,077
Net income (loss) 4,593 3,117 630 2,117
Cash flow from
operations 46,842 44,503 43,215 43,010
Net income (loss)
per share
Basic and
diluted $ 0.28 $ 0.19 $ 0.04 $ 0.13
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 QuDebec. 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.
COGECO INC.
Cable Statistics
May 31, August 31,
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Homes Passed
Ontario 997,881 986,401
QuDebec 471,128 462,332
-------------------------------------------------------------------------
1,469,009 1,448,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue Generating Units
Ontario 1,081,998 968,749
QuDebec 429,695 378,984
-------------------------------------------------------------------------
1,511,693 1,347,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic Service Customers
Ontario 588,397 581,631
QuDebec 244,095 239,802
-------------------------------------------------------------------------
832,492 821,433
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Discretionnary Service Customers
Ontario 466,947 461,038
QuDebec 190,049 183,320
-------------------------------------------------------------------------
656,996 644,358
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Pay TV Service Customers
Ontario 85,739 80,817
QuDebec 37,927 35,407
-------------------------------------------------------------------------
123,666 116,224
-------------------------------------------------------------------------
-------------------------------------------------------------------------
High-Speed Internet Service Customers
Ontario 262,888 226,133
QuDebec 67,591 51,515
-------------------------------------------------------------------------
330,479 277,648
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Digital Video Customers
Ontario 209,871 159,734
QuDebec 106,930 87,470
-------------------------------------------------------------------------
316,801 247,204
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Digital Telephony
Ontario 20,842 1,251
QuDebec 11,079 197
-------------------------------------------------------------------------
31,921 1,448
-------------------------------------------------------------------------
-------------------------------------------------------------------------
COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
(In thousands of
dollars, except
per share data) 2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 189,718 $ 173,418 $ 547,555 $ 511,395
Operating costs 123,607 109,604 363,086 334,037
-------------------------------------------------------------------------
Operating income
before amortization 66,111 63,814 184,469 177,358
Amortization (note 4) 30,658 32,783 90,758 99,782
-------------------------------------------------------------------------
Operating income 35,453 31,031 93,711 77,576
Financial expense
(note 8) 14,120 14,441 42,312 42,918
-------------------------------------------------------------------------
Income before
income taxes and
following items 21,333 16,590 51,399 34,658
Impairment of
goodwill and
other intangible
assets - - - 52,531
Income taxes (note 5) 8,461 5,869 20,778 10,321
Non-controlling
interest 7,293 5,603 17,590 (8,081)
Loss on dilution
resulting from
shares issued by
a subsidiary - 16 - 108
Share in the loss
of a general
partnership 50 138 230 222
-------------------------------------------------------------------------
Net income (loss) $ 5,529 $ 4,964 $ 12,801 $ (20,443)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings (loss)
per share (note 6)
Basic $ 0.33 $ 0.30 $ 0.78 $ (1.25)
Diluted 0.33 0.30 0.77 (1.25)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Nine months ended May 31,
-------------------------------------------------------------------------
(In thousands of dollars) 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)
Balance at beginning $ 185,762 $ 209,188
Net income (loss) 12,801 (20,443)
Dividends on multiple voting shares (347) (291)
Dividends on subordinate voting shares (2,749) (2,294)
-------------------------------------------------------------------------
Balance at end $ 195,467 $ 186,160
-------------------------------------------------------------------------
-------------------------------------------------------------------------
COGECO INC.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
(In thousands of dollars) May 31, August 31,
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
Assets
Current
Accounts receivable $ 65,160 $ 55,529
Income tax receivable 245 -
Prepaid expenses 6,132 4,704
Broadcasting rights 15,776 14,168
-------------------------------------------------------------------------
87,313 74,401
-------------------------------------------------------------------------
Broadcasting rights 19,746 16,076
Investments 539 539
Fixed assets 753,080 726,270
Deferred charges 36,117 41,797
Broadcasting licenses and customer base 1,017,892 1,017,892
-------------------------------------------------------------------------
$ 1,914,687 $ 1,876,975
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness (note 7) $ 14,056 $ 605
Accounts payable and accrued liabilities 108,152 151,985
Broadcasting rights payable 10,483 7,337
Income tax liabilities - 299
Deferred and prepaid income 26,880 25,034
Current portion of long-term debt (note 8) 19,886 1,400
-------------------------------------------------------------------------
179,457 186,660
-------------------------------------------------------------------------
Long-term debt (note 8) 712,222 713,739
Share in the partner's deficiency of
a general partnership 878 648
Deferred and prepaid income 10,582 10,522
Broadcasting rights payable 6,131 4,112
Pension plans liabilities and accrued
employee benefits 11,750 10,628
Future income tax liabilities 225,043 208,434
Non-controlling interest 454,483 439,643
-------------------------------------------------------------------------
1,600,546 1,574,386
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (note 9) 117,441 116,167
Retained earnings 195,467 185,762
Contributed surplus - stock-based
compensation 1,233 660
-------------------------------------------------------------------------
314,141 302,589
-------------------------------------------------------------------------
$ 1,914,687 $ 1,876,975
-------------------------------------------------------------------------
-------------------------------------------------------------------------
COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
(In thousands
of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash flow from
operating
activities
Net income (loss) $ 5,529 $ 4,964 $ 12,801 $ (20,443)
Items not affecting
cash and cash
equivalents
Amortization
(note 4) 30,658 32,783 90,758 99,782
Amortization of
deferred
financing costs 243 242 724 861
Impairment of
goodwill and
other intangible
assets - - - 52,531
Future income
taxes (note 5) 7,391 4,065 16,609 6,636
Non-controlling
interest 7,293 5,603 17,590 (8,081)
Other 979 1,042 2,097 2,878
-------------------------------------------------------------------------
52,093 48,699 140,579 134,164
Changes in non-cash
operating items
(note 10a)) (4,558) 1,260 (53,643) (26,271)
-------------------------------------------------------------------------
47,535 49,959 86,936 107,893
-------------------------------------------------------------------------
Cash flow from
investing activities
Acquisition of fixed
assets (note 10b)) (33,035) (21,854) (98,357) (71,629)
Increase in
deferred charges (4,229) (3,643) (11,728) (10,099)
Decrease in
restricted cash 20,322 - - -
Other 30 38 38 85
-------------------------------------------------------------------------
(16,912) (25,459) (110,047) (81,643)
-------------------------------------------------------------------------
Cash flow from
financing activities
Increase (decrease)
in bank indebtedness (14,170) (1,331) 13,451 11,020
Increase in
long-term debt - - 18,000 58
Repayment of
long-term debt (14,447) (21,901) (3,768) (34,555)
Issue of subordinate
voting shares - - 1,274 546
Dividends on multiple
voting shares (116) (97) (347) (291)
Dividends on
subordinate voting
shares (918) (767) (2,749) (2,294)
Issue of subordinate
voting shares by a
subsidiary to
non-controlling
interest - 82 166 722
Dividends paid by a
subsidiary to
non-controlling
interest (972) (486) (2,916) (1,456)
-------------------------------------------------------------------------
(30,623) (24,500) 23,111 (26,250)
-------------------------------------------------------------------------
Net change in cash
and cash equivalents - - - -
Cash and cash
equivalents at
beginning - - - -
-------------------------------------------------------------------------
Cash and cash
equivalents
at end $ - $ - $ - $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See supplemental cash flow information in note 10.
COGECO INC.
Notes to Consolidated Financial Statements
May 31, 2006
(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 May 31, 2006 and
August 31, 2005 as well as its results of operations and its cash flow for the
three and nine month periods ended May 31, 2006 and 2005.
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 and nine
month periods ended May 31, 2005 have not been subject to a review by the
Company's external auditors.
2. Recent accounting pronouncements
Non-Monetary Transactions
In June 2005, the Canadian Institute of Chartered Accountants issued
Handbook section 3831, Non-Monetary Transactions, which revised and replaced
the current standards on non-monetary transactions. Under the new section, the
criterion for measuring non-monetary transactions at fair value is modified to
focus on the assessment of commercial substance instead of the culmination of
the earnings process. A non-monetary transaction has commercial substance when
the entity's future cash flows are expected to change significantly as a
result of the transaction. These standards are effective for non-monetary
transactions initiated in periods beginning on or after January 1, 2006.
During the third quarter, the Company adopted these new standards and
concluded that they had no significant impact on these consolidated financial
statements.
3. Segmented Information
The Company's activities are divided into two business segments: Cable
and Media. The Cable segment is comprised of all cable, 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:
Cable Media
-------------------------------------------------------------------------
Three months ended May 31,
(unaudited) 2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue $ 153,956 $ 140,071 $ 35,813 $ 33,392
Operating costs 90,712 81,761 33,203 28,627
Operating income
before
amortization 63,244 58,310 2,610 4,765
Amortization 29,048 31,396 1,562 1,328
Operating income 34,196 26,914 1,048 3,437
Financial expense 13,634 13,954 200 140
Income taxes 8,191 4,715 (11) 799
-------------------------------------------------------------------------
Net assets
employed(1)(2) $ 1,668,234 $ 1,625,255 $ 77,861 $ 78,640
Total assets(2) 1,783,583 1,739,159 123,459 116,381
Acquisition of
fixed assets 33,780 22,463 454 951
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Head Office
and elimination Consolidated
--------------------------------------------- --------------------------
Three months ended May 31,
(unaudited) 2006 2005 2006 2005
--------------------------------------------- --------------------------
--------------------------------------------- --------------------------
Revenue $ (51) $ (45) $ 189,718 $ 173,418
Operating costs (308) (784) 123,607 109,604
Operating income
before
amortization 257 739 66,111 63,814
Amortization 48 59 30,658 32,783
Operating income 209 680 35,453 31,031
Financial expense 286 347 14,120 14,441
Income taxes 281 355 8,461 5,869
--------------------------------------------- --------------------------
Net assets
employed(1)(2) $ 6,364 $ 5,720 $ 1,752,459 $ 1,709,615
Total assets(2) 7,645 7,151 1,914,687 1,862,691
Acquisition of
fixed assets - - 34,234 23,414
--------------------------------------------- --------------------------
--------------------------------------------- --------------------------
(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, broadcasting rights payable and deferred and
prepaid income.
(2) As at May 31, 2006 and 2005.
Cable Media
-------------------------------------------------------------------------
Nine months ended May 31,
(unaudited) 2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue $ 445,126 $ 414,226 $ 102,582 $ 97,304
Operating costs 265,012 247,425 100,415 88,817
Operating income
before
amortization 180,114 166,801 2,167 8,487
Amortization 85,981 95,628 4,651 3,977
Operating income
(loss) 94,133 71,173 (2,484) 4,510
Financial expense 40,992 41,688 522 395
Impairment of
goodwill an other
intangible assets - - - 52,531
Income taxes 21,572 11,800 (1,738) (2,532)
-------------------------------------------------------------------------
Net assets
employed(1)(2) $ 1,668,234 $ 1,625,255 $ 77,861 $ 78,640
Total assets(2) 1,783,583 1,739,159 123,459 116,381
Acquisition of
fixed assets 99,489 70,846 1,498 2,293
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Head Office
and elimination Consolidated
--------------------------------------------- --------------------------
Nine months ended May 31,
(unaudited) 2006 2005 2006 2005
--------------------------------------------- --------------------------
--------------------------------------------- --------------------------
Revenue $ (153) $ (135) $ 547,555 $ 511,395
Operating costs (2,341) (2,205) 363,086 334,037
Operating income
before
amortization 2,188 2,070 184,469 177,358
Amortization 126 177 90,758 99,782
Operating income
(loss) 2,062 1,893 93,711 77,576
Financial expense 798 835 42,312 42,918
Impairment of
goodwill an other
intangible assets - - - 52,531
Income taxes 944 1,053 20,778 10,321
--------------------------------------------- --------------------------
Net assets
employed(1)(2) $ 6,364 $ 5,720 $ 1,752,459 $ 1,709,615
Total assets(2) 7,645 7,151 1,914,687 1,862,691
Acquisition of
fixed assets 107 50 101,094 73,189
--------------------------------------------- --------------------------
--------------------------------------------- --------------------------
(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, broadcasting rights payable and deferred and
prepaid income.
(2) As at May 31, 2006 and 2005.
4. Amortization
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Fixed assets $ 25,237 $ 27,038 $ 74,074 $ 82,254
Deferred charges 5,421 5,745 16,684 17,528
-------------------------------------------------------------------------
$ 30,658 $ 32,783 $ 90,758 $ 99,782
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Income taxes
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Current $ 1,070 $ 1,804 $ 4,169 $ 3,685
Future 7,391 4,065 16,609 6,636
-------------------------------------------------------------------------
$ 8,461 $ 5,869 $ 20,778 $ 10,321
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The following table provides the reconciliation between statutory federal
and provincial income taxes and the consolidated income tax expense:
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Income tax at
combined income
tax rate of
34.84 % (34.15 %
in 2005) $ 7,415 $ 5,665 $ 17,827 $ (6,104)
Loss or income
subject to lower
or higher tax rates 75 (9) 341 1,721
Decrease in income
taxes as a result
of increases in
substantially
enacted tax rates - - (91) -
Large corporation
tax 807 397 2,451 1,407
Income taxes
arising from
non-deductible
impairment of
goodwill and
broadcasting
licenses - - - 10,570
Variation of the
valuation
allowance - - - 2,454
Other 164 (184) 250 273
-------------------------------------------------------------------------
Income tax at
effective income
tax rate $ 8,461 $ 5,869 $ 20,778 $ 10,321
-------------------------------------------------------------------------
-------------------------------------------------------------------------
On May 2, 2006, the Federal government announced its intention to reduce
the corporate income tax rate progressively from 21% to 19% in January 2010
and to eliminate the corporate surtax of 1.12% by January 1, 2008. These
measures were considered substantially enacted on June 6, 2006, and therefore
will reduce future income taxes by approximately $18 million for the next
three month period ending August 31, 2006.
6. Earnings (loss) per share
The following table provides reconciliation between basic and diluted
earnings (loss) per share:
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net income (loss) $ 5,529 $ 4,964 $ 12,801 $ (20,443)
Weighted average
number of multiple
voting and
subordinate
voting shares
outstanding 16,538,256 16,450,004 16,495,273 16,409,333
Effect of dilutive
stock options(1) 131,538 145,668 133,983 -
-------------------------------------------------------------------------
Weighted average
number of diluted
multiple voting
and subordinate
voting shares
outstanding 16,669,794 16,595,672 16,629,256 16,409,333
-------------------------------------------------------------------------
Earnings (loss) per share
Basic $ 0.33 $ 0.30 $ 0.78 $ (1.25)
Diluted 0.33 0.30 0.77 (1.25)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For the three and nine month periods ended May 31, 2006, 36,443 and
38,910 stock options 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. Also, for the nine month period ended May 31, 2005, the
effect of 142,565 stock options was not included in diluted loss per
share, as the effect of their inclusion was antidilutive.
7. Bank indebtedness
In April 2006, the operating line of credit available to the indirect
subsidiary of the Company, TQS Inc., has been increased form $10,000,000 to
$20,000,000. This line of credit, in the form of term credit provided by a
financial institution, is secured by a first-ranking fixed and floating
charges for an amount of $20,000,000 on the assets of TQS Inc. and its
subsidiaries.
8. Long-term debt
-------------------------------------------------------------------------
Maturity Interest May 31, August 31,
rate 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
Parent company
Term Facility 2009(1) 6.44%(2) $ 20,000 $ 22,500
Obligations under
capital leases 2010 6.49 - 6.61 145 55
Subsidiaries
Term Facility(3) 2007 4.97(2) 18,000 -
Senior Secured
Debentures Series 1 2009 6.75 150,000 150,000
Senior - Secured Notes
Series A -
US $150 million 2008 6.83(4) 165,225 178,065
Seies B 2011 7.73 175,000 175,000
Second Secured
Debentures Series A 2007 8.44 125,000 125,000
Deferred credit(5) 2008 - 73,425 60,585
Obligations under
capital leases 2010 6.42 - 8.36 5,259 3,831
Other - - 54 103
-------------------------------------------------------------------------
732,108 715,139
Less current portion 19,886 1,400
-------------------------------------------------------------------------
$ 712,222 $ 713,739
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) COGECO Inc.'s Term Facility has been extended for an additional year
in January 2006.
(2) Average interest rate on debt as of May 31, 2006, including stamping
fees.
(3) In January 2006, the Company's subsidiary, Cogeco Cable Inc., amended
its Term Facility so that the committed amount, which should have
been reduced to $95,000,000 on January 31, 2006, was maintained at
its prior level of $270,000,000.
(4) 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.
(5) The deferred credit represents the amount which would have been
payable as at May 31, 2006, 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 and nine month periods ended
May 31, 2006 amounted to $13,477,000 and $40,128,000 ($13,447,000 and
$40,150,000 in 2005).
9. 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 share, 1 vote per share.
-------------------------------------------------------------------------
May 31, August 31,
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
Issued
1,849,900 multiple voting shares $ 12 $ 12
14,688,356 subordinate voting shares
(14,600,104 as at August 31, 2005) 117,429 116,155
-------------------------------------------------------------------------
$ 117,441 $ 116,167
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the period, subordinate voting share transactions were as follows:
Nine months ended Twelve months ended
May 31, 2006 August 31, 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
-------------------------------------------------------------------------
Number of Number of
shares Amount 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 88,252 1,274 77,648 546
-------------------------------------------------------------------------
Balance at end 14,688,356 $ 117,429 14,600,104 $ 116,155
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 Company's annual consolidated
financial statements. During the first nine months, no stock options were
granted to employees by COGECO Inc. However, the Company's subsidiary, Cogeco
Cable Inc., granted 126,059 stock options (140,766 in 2005) with an exercise
price ranging from $25.12 to $29.05 ($21.50 in 2005), of which 31,743 stock
options (38,397 in 2005) 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 $207,000 and $573,000 ($133,000
and $352,000 in 2005) was recorded for the three and nine month periods ended
May 31, 2006. If compensation expense 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 (loss) and earnings (loss) per
share for the three and nine month periods ended May 31, 2006 and 2005 would
have been reduced (increased) to the following pro forma amounts:
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net income (loss)
As reported $ 5,529 $ 4,964 $ 12,801 $ (20,443)
Pro forma 5,521 4,884 12,777 (20,683)
Basic earnings
(loss) per share
As reported $ 0.33 $ 0.30 $ 0.78 $ (1.25)
Pro forma 0.33 0.30 0.77 (1.26)
Diluted earnings
(loss) per share
As reported $ 0.33 $ 0.30 $ 0.77 $ (1.25)
Pro forma 0.33 0.29 0.77 (1.26)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The fair value of stock options granted by the Company's subsidiary,
Cogeco Cable Inc., for the nine month period ended May 31, 2006 was $9.44
($7.46 in 2005) 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:
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
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 May 31, 2006, the Company had outstanding stock options providing
for the subscription of 329,976 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 nine
month period, no stock options (77,000 in 2005) were granted by TQS Inc. No
compensation expense ($40,000 in 2005) was recorded during the three month
period ended May 31, 2006, and a compensation expense of $154,000 ($121,000 in
2005) was recorded for the nine month period ended May 31, 2006 related to
this plan.
10. Statements of cash flow
a) Changes in non-cash operating items
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Accounts
receivable $ (691) $ 2,663 $ (9,631) $ (4,162)
Income tax
receivable 741 773 (245) 304
Prepaid expenses (888) 496 (1,428) (66)
Broadcasting rights 2,516 2,488 (5,278) 449
Accounts payable
and accrued
liabilities (1,555) (4,200) (43,833) (28,637)
Broadcasting
rights payable (4,680) (1,361) 5,165 1,919
Income tax
liabilities - 1,149 (299) 1,149
Deferred and
prepaid income (1) (402) 1,906 3,191
Other - (346) - (418)
-------------------------------------------------------------------------
$ (4,558) $ 1,260 $ (53,643) $ (26,271)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
b) Other information
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Fixed asset
acquisitions
through capital
leases $ 1,199 $ 1,560 $ 2,737 $ 1,560
Interest paid 16,199 16,151 44,187 44,116
Income taxes
paid (refunded) 329 (118) 4,713 2,232
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Employee future benefits
The Company and its 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 consolidated financial statements. The total expenses related
to these plans are as follows:
Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Contributory
defined benefit
pension plans $ 727 $ 567 $ 2,551 $ 1,582
Defined
contribution
pension plan and
collective
registered
retirement
savings plans 464 412 1,412 1,205
-------------------------------------------------------------------------
$ 1,191 $ 979 $ 3,963 $ 2,787
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
12. Subsequent event
Acquisition of Cabovisao - Televisao por Cabo, S.A.
On June 2, 2006, the Company's subsidiary, Cogeco Cable Inc. entered into
an agreement with Cable Satisfaction International Inc. ("CSII"), Catalyst
Fund Limited Partnership I ("Catalyst") and Cabovisao - Televisao por Cabo,
S.A. ("Cabovisao"), to purchase, at a cost of (euro) 464.9 million, all the
shares of the second largest cable operator in Portugal, an indirect wholly-
owned subsidiary of CSII. The price includes the purchase of senior debt and
reimbursement of certain other Cabovisao liabilities. The final purchase price
will be determined following completion of a post-closing working capital
adjustment. The Company is assuming a (euro) 20 million working capital
deficiency. The transaction, which was approved by the Superior Court of
Quebec on July 4, 2006, is still subject to the fulfilment of certain
conditions of closing, including the implementation of the plan of arrangement
previously approved by the court in March 2004, as amended. The Company will
finance the acquisition of Cabovisao through an underwritten credit facility
of $900 million over five years committed by a major Canadian Chartered Bank.
13. Comparative figures
Certain comparative figures have been reclassified in order to conform to
the presentation adopted in the current period.
