Today, Cogeco Cable Inc. (TSX:CCA) ("Cogeco Cable" or the "Corporation")
announced its financial results for the fourth quarter and fiscal year ended
August 31, 2011.
For the fourth quarter and fiscal 2011:
-- Fiscal 2011 fourth-quarter consolidated revenue improved by $25.8
million, or 8% to reach $350.2 million, when compared to the prior year.
For the 2011 fiscal year, consolidated revenue grew by $79.8 million, or
6.2% to reach $1,361.2 million;
-- Fiscal 2011 fourth-quarter operating income before amortization(1)
increased by $19.9 million, or 14.4%, to reach $158.1 million. For
fiscal 2011, consolidated operating income before amortization grew by
$55.9 million, or 11% to reach $566 million;
-- Consolidated operating margin(1) increased to 45.1% for the quarter
compared to 42.6% for the corresponding period of the prior year, and to
41.6% during fiscal 2011 compared to 39.8% the year before;
-- Fourth-quarter 2011 consolidated net income amounted to $69.6 million,
or $1.43 per share, compared to $39.7 million, or $0.82 per share for
the corresponding period of the prior year, increases of $29.9 million,
or 75.4%, and of $0.61 per share, or 74.4%, respectively;
-- In the third quarter of fiscal 2011, a write-off of the Corporation's
net investment in its Portuguese subsidiary Cabovisao-Televisao por
Cabo, S.A. ("Cabovisao") was recorded through a non-cash impairment loss
in the amount of $225.9 million as a result of the severe decline in the
economic environment in Portugal, with the Country ultimately requiring
financial assistance from the International Monetary Fund and the
European Central Bank, combined with subscriber losses in the third
quarter despite additional marketing initiatives designed to generate
RGU growth in the near term;
-- In fiscal 2011, the Corporation redeemed the $175 million Senior Secured
Notes Series B, bearing interest at 7.73%, from the net proceeds of the
issuance, in the first quarter of fiscal 2011, of the $200 million
Senior Secured Debentures Series 2, bearing interest at 5.15%. A one-
time make-whole premium of $8.8 million was paid on the redemption,
which increased financial expense;
-- Consolidated net loss for fiscal 2011 amounted to $47.7 million, or
$0.98 per share, as a result of the impairment loss described above,
compared to a net income of $157.3 million, or $3.24 per share, in the
prior year. Fiscal 2010 net income included a favourable income tax
adjustment of $29.8 million related to the reduction of Ontario
provincial corporate income tax rates for the Canadian operations.
Excluding the above adjustments for both fiscal years, fiscal 2011
adjusted net income(1) would have amounted to $178.2 million, or $3.67
per share(1), compared to $127.5 million, or $2.63 per share,
representing increases of $50.7 million, or 39.7%, and of $1.04 per
share, or 39.5%, respectively;
-- Free cash flow (1) reached $24.4 million for the quarter, representing
an increase of 27.1% over the fourth quarter of the prior year. The
increase in free cash flow is the result of an increase in cash flow
from operations (1) outpacing the increase in capital expenditures. Free
cash flow stands at $103.8 million for fiscal 2011, $71.4 million, or
40.8% lower than free cash flow of $175.1 million in fiscal 2010. The
decline in free cash flow when compared to fiscal 2010 is due to an
increase of $103.7 million in current income tax expense stemming
primarily from the fiscal 2010 modifications to the corporate structure,
the increase in financial expense and the increase in capital
expenditures, which offset the increase in operating income before
amortization in the current fiscal year;
-- On June 27, 2011, Cogeco Cable concluded an agreement to acquire all of
the shares of Quiettouch Inc. ("Quiettouch"), a leading independent
provider of outsourced managed information technology and infrastructure
services to mid-market and larger enterprises in Canada. Quiettouch
offers a full suite of differentiated services that allow customers to
outsource their mission-critical information technology infrastructure
and application requirements, including managed infrastructure and
hosting, virtualization, firewall services, data backup with end-to-end
monitoring and reporting, and enhanced and traditional co-location
services. Quiettouch operates three data centres in Toronto and
Vancouver, as well as a fibre network within key business areas of
downtown Toronto. The transaction was completed on August 2, 2011;
(1) The indicated terms do not have standardized definitions prescribed by
Canadian Generally Accepted Accounting Principles ("GAAP") and therefore,
may not be comparable to similar measures presented by other companies. For
more details, please consult the "Non-GAAP financial measures" section of
the Results overview.
-- On August 31, 2011, Cogeco Cable concluded and completed an agreement to
acquire all the shares of MTO Telecom Inc. ("MTO"). With over 1,500
kilometres of network, MTO, the largest private telecommunications
provider in the Greater Montreal Area and the Province of Quebec, offers
high-performance Ethernet broadband connectivity services to carrier,
enterprise and public sector customers;
-- Revenue-Generating Units ("RGU")(1) grew by 38,344 net additions in the
quarter and 228,111 net additions in the fiscal year, for a total of
3,407,460 RGU at August 31, 2011.
(1) Represents the sum of Basic Cable, High Speed Internet ("HSI"), Digital
Television and Telephony service customers.
"Cogeco Cable finished fiscal 2011 with results meeting or exceeding most of our
objectives. This strong performance rested primarily on our capacity to renew
and enhance our products and services and satisfy our customers. In Canada, in
our efforts to use bandwidth more efficiently to improve our offering for our
customers, we continued deploying the DOCSIS 3.0 technology in our footprint and
started migrating analogue packages to digital in several regions. On the
business telecommunications side, Cogeco Data Services ("CDS") enjoyed another
solid year with a positive contribution to Cogeco Cable's results. The fiscal
year also ended on a high note with the integration of newly-acquired
Toronto-area company Quiettouch and Greater-Montreal firm MTO., which will
expand CDS' offering and open new markets. In Portugal, the economic crisis
facing the country did not spare our subsidiary Cabovisao. The Portuguese
government's various reforms put extra pressure on consumers spending, resulting
in net customer losses, which led us to write-off Cogeco Cable's investment in
Cabovisao in the fiscal year. However, Cabovisao will make every effort to hold
its own until conditions return to normal.
For fiscal 2012, we anticipate continued growth in most of our performance
indicators. Our primary focus will be to integrate our new acquisitions, to
strengthen our competitive positioning and to continuously improve our processes
and practices to spark sales growth, further enhance customer service and
achieve higher customer retention," declared Louis Audet, President and CEO of
Cogeco Cable.
Fiscal 2012 Financial Guidelines
Cogeco Cable's fiscal 2012 preliminary financial guidelines, as issued on July
6, 2011, have been updated to reflect the acquisitions of Quiettouch and MTO
completed in the last quarter of fiscal 2011. Cogeco Cable now expects to
achieve revenue of $1,455 million, representing growth of $94 million, or 6.9%
when compared to fiscal 2011 results. Operating income before amortization
should amount to $600 million, an increase of $34 million, or 6%, when compared
to 2011 results. Capital expenditures and the increase in deferred charges
should increase by $23 million, reaching $360 million for the 2012 fiscal year.
However, free cash flow is expected to decline to $100 million. The decrease of
approximately $4 million, when compared to the results for the 2011 fiscal year,
is primarily due to increases in capital expenditures and increase in deferred
charges and in current income tax expense, which are expected to offset the
growth in operating income before amortization. Please consult the "Fiscal 2012
financial guidelines" section of the Corporation's 2011 Annual Report for
further details.
FINANCIAL HIGHLIGHTS
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Quarters ended August 31, Years ended August 31,
2011 2010 Change 2011 2010 Change
($000, except
percentages,
RGU growth and
per share data) $ $ % $ $ %
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Operations
Revenue 350,168 324,323 8.0 1,361,166 1,281,376 6.2
Operating income
before
amortization(1) 158,098 138,177 14.4 565,983 510,096 11.0
Operating
margin(1) 45.1% 42.6% - 41.6% 39.8% -
Operating income 104,630 74,481 40.5 318,805 251,225 26.9
Impairment of
goodwill and
fixed assets - - - 225,873 - -
Net income
(loss) 69,565 39,663 75.4 (47,666) 157,303 -
Adjusted net
income(1) 69,565 39,663 75.4 178,207 127,521 39.7
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Cash Flow
Cash flow from
operating
activities 219,509 194,414 12.9 515,322 417,284 23.5
Cash flow from
operations(1) 153,351 127,024 20.7 440,349 494,814 (11.0)
Capital
expenditures
and increase in
deferred
charges 128,915 107,799 19.6 336,592 319,682 5.3
Free cash
flow(1) 24,436 19,225 27.1 103,757 175,132 (40.8)
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Financial
Condition
Total assets - - - 2,735,500 2,702,819 1.2
Indebtedness(2) - - - 981,214 958,939 2.3
Shareholders'
equity - - - 1,061,045 1,136,301 (6.6)
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RGU growth 38,344 64,303 (40.4) 228,111 287,111 (20.5)
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Per Share
Data(3)
Earnings (loss)
per share
Basic 1.43 0.82 74.4 (0.98) 3.24 -
Diluted 1.42 0.81 75.3 (0.98) 3.23 -
Adjusted
earnings per
share(1)
Basic 1.43 0.82 74.4 3.67 2.63 39.5
Diluted 1.42 0.81 75.3 3.65 2.62 39.3
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(1) The indicated terms do not have standardized definitions prescribed by
Canadian GAAP and therefore, may not be comparable to similar measures
presented by other companies. For more details, please consult the "Non-
GAAP financial measures" section of the Results overview.
(2) Indebtedness is defined as the total of bank indebtedness, principal on
long-term debt, balance due on a business acquisition, and obligations
under derivative financial instruments.
(3) Per multiple and subordinate voting shares.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute forward-looking
information within the meaning of securities laws. Forward-looking information
may relate to Cogeco Cable's future outlook and anticipated events, business,
operations, financial performance, financial condition or results and, in some
cases, can be identified by terminology such as "may"; "will"; "should";
"expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict";
"potential"; "continue"; "foresee", "ensure" or other similar expressions
concerning matters that are not historical facts. In particular, statements
regarding the Corporation's future operating results and economic performance
and its objectives and strategies are forward-looking statements. These
statements are based on certain factors and assumptions including expected
growth, results of operations, performance and business prospects and
opportunities, which Cogeco Cable believes are reasonable as of the current
date. While management considers these assumptions to be reasonable based on
information currently available to the Corporation, they may prove to be
incorrect. The Corporation cautions the reader that the current economic
uncertainties make forward-looking information and the underlying assumptions
subject to greater uncertainty and that, consequently, they may not materialize,
or the results may significantly differ from the Corporation's expectations. It
is impossible for Cogeco Cable to predict with certainty the impact that this
current economic environment may have on future results. Forward-looking
information is also subject to certain factors, including risks and
uncertainties (described in the "Uncertainties and main risk factors" section of
the Corporation's 2011 annual Management's Discussion and Analysis (MD&A)) that
could cause actual results to differ materially from what Cogeco Cable currently
expects. These factors include technological changes, changes in market and
competition, governmental or regulatory developments, general economic
conditions, the development of new products and services, the enhancement of
existing products and services, and the introduction of competing products
having technological or other advantages, many of which are beyond the
Corporation's control. Therefore, future events and results may vary
significantly from what management currently foresee. The reader should not
place undue importance on forward-looking information and should not rely upon
this information as of any other date. While management may elect to, the
Corporation is under no obligation (and expressly disclaims any such
obligation), and does not undertake to update or alter this information before
the next quarter, except as required by Law.
This press release should be read in conjunction with the Corporation's
consolidated financial statements, and the notes thereto, prepared in accordance
with Canadian GAAP and the MD&A included in the Corporation's 2011 Annual
Report. Throughout this discussion, all amounts are in Canadian dollars unless
otherwise indicated.
RESULTS OVERVIEW
This analysis should be read in conjunction with the Corporation's 2011 Annual
Report available on SEDAR at www.sedar.com. Please refer to the Corporation's
2011 Annual Report for more details on annual results.
CANADIAN OPERATIONS
CUSTOMER STATISTICS
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Net additions % of
(losses) Penetration(1)
Quarters ended Years ended August
August 31, 31, August 31,
August 31,
2011 2011 2010 2011 2010 2011 2010
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RGU 2,575,795 49,204 43,707 225,218 190,714
Basic Cable
service
customers 877,985 (1,369) 433 3,480 9,700
HSI service
customers 601,214 7,746 8,904 42,157 44,005 70.6 66.2
Digital
Television
service
customers 678,326 29,464 17,472 118,908 61,020 78.2 64.8
Telephony
service
customers 418,270 13,363 16,898 60,673 75,989 51.3 44.4
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(1) As a percentage of Basic Cable service customers in areas served.
In Canada, fiscal 2011 RGU net additions were higher than in the comparable
periods of the prior year, and the Canadian operations continue to generate RGU
growth despite higher penetration rates, category maturity and aggressive
competition. Basic Cable service customer net losses stood at 1,369 for the
quarter, compared to net additions of 433 in the fourth quarter of the prior
year. Fourth quarter Basic Cable service customer losses are usual and due to
the end of the school year for college and university students. For the 2011
fiscal year, Basic Cable service customer net additions stood at 3,480, compared
to 9,700 in the prior year. Basic Cable service net additions in fiscal 2011
were mainly due to expansions in the network and the bundling effect of
continued growth in HSI and Telephony services. In the quarter, Telephony
service customers grew by 13,363 compared to 16,898 for the same period last
year, and the number of net additions to the HSI service stood at 7,746
customers compared to 8,904 customers in the fourth quarter of the prior year.
In fiscal 2011, Telephony service customers grew by 60,673 compared to 75,989 in
fiscal 2010, and the number of net additions to the HSI service stood at 42,157
customers compared to 44,005 customers in the prior year. HSI and Telephony net
additions continue to stem from the enhancement of the product offering, the
impact of the bundled offer (Cogeco Complete Connection) of Television, HSI and
Telephony services, and promotional activities. For the three-month period ended
August 31, 2011, additions to the Digital Television service stood at 29,464
customers, compared to 17,472 for the comparable period of the prior year. For
the 2011 fiscal year, additions to the Digital Television service stood at
118,908 customers, compared to 61,020 for the prior fiscal year. Digital
Television service net additions are due to targeted marketing initiatives to
improve penetration, the launch of new High Definition ("HD") channels, the
continuing interest for HD television service and the deployment of the Digital
Terminal Adapter ("DTA") technology in most of the Corporation's markets.
OPERATING RESULTS
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Quarters ended August 31, Years ended August 31,
2011 2010 Change 2011 2010 Change
($000, except
percentages) $ $ % $ $ %
----------------------------------------------------------------------------
(unaudited)(unaudited) (audited) (audited)
Revenue 306,862 282,155 8.8 1,188,889 1,093,620 8.7
Operating costs 155,352 152,034 2.2 634,749 607,072 4.6
Management fees -
COGECO Inc. - - - 9,172 9,019 1.7
----------------------------------------- ----------------------
Operating income
before
amortization(1) 151,510 130,121 16.4 544,968 477,529 14.1
----------------------------------------- ----------------------
Operating margin(1) 49.4% 46.1% 45.8% 43.7%
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(1) The indicated terms do not have standardized definitions prescribed by
Canadian GAAP and therefore, may not be comparable to similar measures
presented by other companies. For more details, please consult the "Non-GAAP
financial measures" section.
Driven by RGU growth combined with an increase in rentals of home terminal
devices stemming from the strong growth in Digital Television services and rate
increases, fourth-quarter Canadian operations revenue went up by $24.7 million,
or 8.8%, to reach $306.9 million. For the year ended August 31, 2011, revenue
rose by $95.3 million, or 8.7%, at $1,188.9 million. The levy amounting to 1.5%
of gross Cable Television service revenue imposed by the Canadian
Radio-television and Telecommunications Commission ("CRTC") in order to finance
the Local Programming Improvement Fund ("LPIF") also contributed to the revenue
growth in fiscal 2011.
For the fourth quarter of fiscal 2011, operating costs increased by $3.3 million
at $155.4 million, an increase of 2.2% when compared to the prior year. For the
year ended August 31, 2011, operating costs increased by $27.7 million, or 4.6%,
at $634.7 million. The increase in operating costs is mainly attributable to
servicing additional RGU, the launch of new HD channels and additional marketing
initiatives.
Fiscal 2011 fourth-quarter operating income before amortization increased by
$21.4 million, or 16.4%, to reach $151.5 million, and fiscal 2011 operating
income before amortization amounted to $545 million, an increase of $67.4
million, or 14.1% when compared to fiscal 2010. The growth in operating income
before amortization reflects the growth in revenue exceeding the increase in
operating costs. The operating margin increased to 49.4% from 46.1% in the
quarter, and to 45.8% from 43.7% for the year, as a result of rate increases and
RGU growth.
EUROPEAN OPERATIONS
CUSTOMER STATISTICS
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Net additions % of
(losses) Penetration(1)
Quarters ended Years ended August
August 31, 31, August 31,
August
31, 2011 2011 2010 2011 2010 2011 2010
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RGU 831,665 (10,860) 20,596 2,893 96,397
Basic Cable
service
customers 255,777 (2,350) 1,591 (4,490) 787
HSI service
customers 162,436 (2,556) 2,778 (751) 19,573 63.5 62.7
Digital
Television
service
customers 164,580 (5,182) 12,017 4,728 57,099 64.3 61.4
Telephony
service
customers 248,872 (772) 4,210 3,406 18,938 97.3 94.3
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(1) As a percentage of Basic Cable service customers in areas served.
Economic conditions in Portugal continued to be difficult. During the second
half of fiscal 2011, and as part of the negotiated financial assistance package,
the Portuguese government has committed to financial reforms which include
increases in sales and income taxes combined with reductions in government
spending on social programs. Please consult the "Impairment of goodwill and
fixed assets" section for further details. These measures are expected to put
further downwards pressure on consumer spending. The rate of growth for our
services has diminished in this environment, with net customer losses across all
of the Corporation's services in the European operations in the fourth quarter
of fiscal 2011. The number of Basic Cable service customers decreased by 2,350
in the fourth quarter, compared to an increase of 1,591 customers in the
comparable period of the prior year. For fiscal 2011, the number of Basic Cable
service customers decreased by 4,490, compared to growth of 787 customers in the
prior year. HSI service customers decreased by 2,556 for the quarter and 751 in
the fiscal year, compared to increases of 2,778 and 19,573 in the comparable
periods of the prior year. The number of Digital Television service customers
decreased by 5,182 customers in the fourth quarter of fiscal 2011, compared to a
growth of 12,017 customers in the same quarter of fiscal 2010. Fiscal 2011 net
customer additions to the Digital Television service customers amounted to 4,728
customers, compared to 57,099 in fiscal 2010. The number of Telephony service
customers fell by 772 in the fourth quarter, compared to a growth of 4,210
customers in the same period of the prior year. In the 2011 fiscal year, the
number of Telephony service customers increased by 3,406, compared to 18,938
customers in the prior year.
OPERATING RESULTS
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Quarters ended August 31, Years ended August 31,
2011 2010 Change 2011 2010 Change
($000, except
percentages) $ $ % $ $ %
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Revenue 43,306 42,168 2.7 172,277 187,756 (8.2)
Operating costs 36,718 34,112 7.6 151,262 155,189 (2.5)
------------------------------------------ --------------------
Operating income
before
amortization 6,588 8,056 (18.2) 21,015 32,567 (35.5)
------------------------------------------ --------------------
Operating margin 15.2% 19.1% 12.2% 17.3%
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Fiscal 2011 fourth-quarter European operations revenue increased by $1.1
million, or 2.7%, at $43.3 million as a result of a higher average exchange rate
for the Euro when compared to the same quarter of the prior year, which offset
the decline in the number of Basic Cable service customers in the fourth quarter
of fiscal 2011 compared to fiscal 2010. Revenue from the European operations in
the local currency for the fourth quarter amounted to EUR31.1 million, a
decrease of EUR1 million, or 3.1% when compared to the prior year. Fiscal 2011
revenue amounted to $172.3 million, $15.5 million, or 8.2%, less than in the
prior year. The decline in revenue was mainly due to Basic Cable service
customer losses combined with the lower value of the Euro in relation to the
Canadian dollar. Revenue from the European operations in the local currency for
fiscal 2011 amounted to EUR125.4 million, representing a decrease of EUR5.5
million, or 4.2%, when compared to the prior year.
For the fourth quarter of fiscal 2011, operating costs increased by $2.6 million
at $36.7 million, an increase of 7.6% when compared to the prior year. The
increase in operating costs is mainly attributable to the impact of the higher
value of the Euro in relation to the Canadian dollar. For fiscal 2011, European
operations' operating costs decreased by $3.9 million, or 2.5%, at $151.3
million, as the lower value of the Euro in relation to the Canadian dollar
combined with the lower cost of servicing fewer Basic Cable service customers
offset the impact increases described above. Operating costs of the European
operations for the quarter and fiscal 2011 in the local currency amounted to
EUR26.4 million and EUR110.2 million, increases of EUR0.4 million and EUR1.8
million, respectively, when compared to EUR62.6 million and EUR108.4 million in
the corresponding periods of the prior year.
Operating income before amortization decreased by $1.5 million, or 18.2%, at
$6.6 million in the fourth quarter, and by $11.6 million, or 35.5%, at $21
million for the fiscal year. The decline in operating income before amortization
in the quarter is the result of the increase in operating costs exceeding the
growth in revenue. The decline in operating income before amortization for
fiscal 2011 is mainly due to a decrease in revenue which outpaced the decrease
in operating costs and the lower value of the Euro in relation to the Canadian
dollar. The European operating margin decreased to 15.2% from 19.1% in the
quarter and to 12.2% from 17.3% in the fiscal year when compared to the same
periods of fiscal 2010.
IMPAIRMENT OF GOODWILL AND FIXED ASSETS
During the third quarter of fiscal 2011, the economic environment in Portugal
continued to deteriorate, with the Country ultimately requiring financial
assistance from the International Monetary Fund and the European Central Bank.
As part of the negotiated financial assistance package, the Portuguese
government has committed to financial reforms which include increases in sales
and income taxes combined with reductions in government spending on social
programs. These measures are expected to put further downwards pressure on
consumer spending capacity. The rate of growth for our services has diminished
in this environment, with net customer losses and service downgrades by
customers in the European operations in the third quarter of fiscal 2011. In
accordance with current accounting standards, management considered that this
situation combined with net customer losses in the third quarter, which were
significantly more important and persistent than expected, will continue to
negatively impact the financial results of the European operations and indicate
a decrease in the value of the Corporation's investment in the Portuguese
subsidiary. As a result, the Corporation tested goodwill and all long-lived
assets for impairment at May 31, 2011.
Goodwill is tested for impairment using a two step approach. The first step
consists of determining whether the fair value of the reporting unit to which
goodwill is assigned exceeds the net carrying amount of that reporting unit,
including goodwill. In the event that the net carrying amount exceeds the fair
value, a second step is performed in order to determine the amount of the
impairment loss. The impairment loss is measured as the amount by which the
carrying amount of the reporting unit's goodwill exceeds its fair value. The
Corporation completed its impairment test on goodwill and concluded that
goodwill was impaired at May 31, 2011. As a result, a non-cash impairment loss
of $29.3 million was recorded in the third quarter of the 2011 fiscal year. Fair
value of the reporting unit was determined using the discounted cash flow
method. Future cash flows were based on internal forecasts and consequently,
considerable management judgement was necessary to estimate future cash flows.
Long-lived assets with finite useful lives, such as fixed assets, are tested for
impairment by comparing the carrying amount of the asset or group of assets to
the expected future undiscounted cash flows to be generated by the asset or
group of assets. The impairment loss is measured as the amount by which the
asset's carrying amount exceeds its fair value. Accordingly, the Corporation
completed its impairment test on the fixed assets of the Portuguese subsidiary
at May 31, 2011, and determined that the carrying value of these assets exceeded
the expected future undiscounted cash flows to be generated by these assets. As
a result, a non-cash impairment loss of $196.5 million was recognized in the
third quarter of the 2011 fiscal year.
The impairment loss of the Corporation's net investment in Cabovisao affected
the Corporation's financial results as follows for the third quarter and 2011
fiscal year:
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(in thousands of dollars) $
---------------------------------------------------------------------------
Impairment of goodwill 29,344
Impairment of fixed assets 196,529
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Impairment loss 225,873
Income taxes -
---------------------------------------------------------------------------
Impairment loss net of income taxes 225,873
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CASH FLOW ANALYSIS
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Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000) $ $ $ $
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(unaudited) (unaudited) (audited) (audited)
Operating activities
Cash flow from operations(1) 153,351 127,024 440,349 494,814
Changes in non-cash
operating items 66,158 67,390 74,973 (77,530)
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219,509 194,414 515,322 417,284
Investing activities(2) (261,058) (107,776) (468,519) (319,373)
Financing activities(2) 755 (65,204) (27,786) (100,183)
Effect of exchange rate
changes on cash and cash
equivalents denominated in
a foreign currency 150 402 588 (1,344)
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Net change in cash and cash
equivalents (40,644) 21,836 19,605 (3,616)
Cash and cash equivalents,
beginning of period 96,091 14,006 35,842 39,458
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Cash and cash equivalents,
end of period 55,447 35,842 55,447 35,842
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(1) The indicated terms do not have standardized definitions prescribed by
Canadian GAAP and therefore, may not be comparable to similar measures
presented by other companies. For more details, please consult the "Non-GAAP
financial measures" section.
(2) Excludes assets acquired under capital leases.
During the fourth quarter of 2011, cash flow from operations reached $153.4
million, 20.7% higher than the comparable period last year, primarily due to the
growth in operating income before amortization and the increase in current
income tax recovery stemming from the fiscal 2010 modifications to the corporate
structure which reduced the future income tax expense accordingly. Changes in
non-cash operating items generated cash inflows of $66.2 million, mainly as a
result of increases in accounts payable and accrued liabilities, partly offset
by a decrease in income tax liabilities. In the fourth quarter of the prior
year, cash inflows of $67.4 million mainly stemmed from an increase in accounts
payable and accrued liabilities.
For the fiscal 2011, cash flow from operations amounted to $440.3 million, $54.5
million, or 11%, lower than the comparable period last year. This reduction is
primarily due to the recognition of current income tax expense relating to the
modifications to the corporate structure which reduced the future income tax
expense accordingly and to the payment of a make-whole premium amounting to $8.8
million on the early repayment of the Senior Secured Notes Series B, partly
offset by the increase in operating income before amortization. Changes in
non-cash operating items generated cash inflows of $75 million, mainly as a
result of increases in income tax liabilities and accounts payable and accrued
liabilities and a decrease in income taxes receivable, partly offset by an
increase in accounts receivable. The cash outflows of $77.5 million in the prior
year were mainly due to a decrease in income tax liabilities combined with
increases in income taxes receivable and accounts receivable, partly offset by
an increase in deferred and prepaid revenue and other liabilities.
Investing activities amounted to $261.1 million in the fourth quarter and $468.5
million in the fiscal year, compared to $107.8 million and $319.4 million,
respectively, for the same periods of fiscal 2010. Fourth-quarter and fiscal
2011 investing activities include the acquisitions of Quiettouch and MTO for a
total amount of $132.3 million described below.
On June 27, 2011, Cogeco Cable concluded an agreement to acquire all of the
shares of Quiettouch, a leading independent provider of outsourced managed
information technology and infrastructure services to mid-market and larger
enterprises in Canada. Quiettouch offers a full suite of differentiated services
that allow customers to outsource their mission-critical information technology
infrastructure and application requirements, including managed infrastructure
and hosting, virtualization, firewall services, data backup with end-to-end
monitoring and reporting, and enhanced and traditional co-location services.
Quiettouch operates three data centres in Toronto and Vancouver, as well as a
fibre network within key business areas of downtown Toronto. The transaction was
completed on August 2, 2011.
On August 31, 2011, Cogeco Cable concluded and completed an agreement to acquire
all the shares of MTO. With over 1,500 kilometres of network, MTO, the largest
private telecommunications provider in the Greater Montreal Area and the
Province of Quebec, offers high-performance Ethernet broadband connectivity
services to carrier, enterprise and public sector customers.
These acquisitions were accounted for using the purchase method. The results
have been consolidated as of the acquisition date. The preliminary allocation of
the purchase price of these acquisitions, pending the completion of the
valuation of the net assets acquired, is as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(In thousands of dollars) $
----------------------------------------------------------------------------
Consideration
Paid
Purchase of shares 133,600
Preliminary working capital adjustment (1,034)
Acquisition costs 1,111
----------------------------------------------------------------------------
133,677
Balance due on a business acquisition(1) 11,400
Preliminary working capital adjustment payable 1,429
Acquisition costs payable 713
----------------------------------------------------------------------------
147,219
----------------------------------------------------------------------------
Net assets acquired
Cash and cash equivalents 1,409
Accounts receivable 4,619
Prepaid expenses and other 1,036
Fixed assets 27,195
Deferred charges 615
Customer relationships 34,305
Goodwill 94,743
Accounts payable and accrued liabilities assumed (3,626)
Deferred and prepaid revenue (1,538)
Long-term future income tax liabilities (11,539)
----------------------------------------------------------------------------
147,219
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Bearing interest at bank prime rate plus 1% and payable in February
2013.
Other investing activities, including mainly capital expenditures, increased by
$21 million in the fourth quarter and by $16.9 million in fiscal 2011, mainly
due to the following factors:
-- An increase in support capital spending stemming from the construction
of new facilities and the acquisition of new service vehicles in the
Canadian operations;
-- An increase in customer premise equipment spending mainly due to the
timing of equipment purchases to support RGU growth in the Canadian
operations. This increase was partly offset by the decrease in customer
premise equipment spending reflecting lower RGU growth in the European
operations.
In the fourth quarter of 2011, Cogeco Cable generated free cash flows of $24.4
million compared to $19.2 million in the prior year. The increase in free cash
flow is the result of an increase in cash flow from operations outpacing the
increase in capital expenditures. For fiscal 2011, free cash flow of $103.8
million was generated, $71.4 million, or 40.8%, lower than in fiscal 2010. The
decline in free cash flow when compared to fiscal 2010 is due to an increase of
$103.7 million in current income tax expense stemming primarily from
modifications to the corporate structure, the increase in financial expense and
the increase in capital expenditures, which offset the increase in operating
income before amortization in the current fiscal year.
In the fourth quarter of 2011, Indebtedness affecting cash increased by $10.6
million, mainly due to the business acquisitions for a total amount of $132.3
million and the dividend payment of $9.7 million described below, partly offset
by the cash inflows of $66.2 million from the changes in non-cash operating
items, the decrease in cash and cash equivalents of $40.6 million and the free
cash flow of $24.4 million. Indebtedness was reduced mainly through net
repayments on the Corporation's Term Revolving Facility of $11.2 million. In the
fourth quarter of 2010, Indebtedness affecting cash decreased by $53.4 million
mainly due to the inflows generated by changes in non-cash operating items of
$67.4 million and the free cash flow of $19.2 million, partly offset by the
increase in cash and cash equivalents of $21.8 million and the payment of
dividends totalling $6.8 million described below and an increase in deferred
transaction costs of $5.2 million. Indebtedness reduced mainly through a
decrease of $44.7 million in bank indebtedness and net repayments on the
Corporation's term and revolving loans of $7.6 million.
During the fourth quarter of fiscal 2011, a dividend of $0.20 per share was paid
to the holders of subordinate and multiple voting shares, totalling $9.7
million, 42.9% higher than the dividend of $0.14 per share, or $6.8 million the
year before.
During fiscal 2011, the level of Indebtedness affecting cash increased by $4.3
million, mainly due to the business acquisitions for a total of $132.3 million,
the dividend payments of $34.5 million described below and the increase in cash
and cash equivalents of $19.6 million, offset by the free cash flow of $103.8
million and the cash inflows of $75 million from the changes in non-cash
operating items. Indebtedness mainly decreased through the repayment, on
December 22, 2010, of the $175 million Senior Secured Notes Series B due on
October 31, 2011 and the related make-whole premium on early repayment, combined
with a net repayment of $16.2 million on the Corporation's Term Revolving
Facility. The Senior Secured Notes Series B were repaid from the net proceeds of
$198.3 million as a result of the issuance, on November 16, 2010, of Senior
Secured Debentures Series 2 ("Fiscal 2011 debentures"). During fiscal 2010, the
level of Indebtedness affecting cash decreased by $66.2 million, mainly due to
the free cash flow of $175.1 million, partly offset by the outflows related to
non-cash operating items of $77.5 million, the payment of dividends totalling
$27.2 million described below and an increase in deferred transaction costs of
$5.2 million. Indebtedness mainly decreased through net repayments on the
Corporation's term and revolving loans of $62.4 million.
Total dividends of $0.71 per share, comprised of quarterly dividends of $0.17
per share in the first three quarters of the year and a dividend of $0.20 per
share in the last quarter, were paid during fiscal 2011, for a total of $34.5
million. In fiscal 2010, quarterly dividends of $0.14 per share, totalling $0.56
per share were paid, for an amount of $27.2 million. The 27% increase in the
total dividend in fiscal 2011 reflects the progression of the Corporation's
financial results.
NON-GAAP FINANCIAL MEASURES
This section describes non-GAAP financial measures used by Cogeco Cable
throughout this Press release. It also provides reconciliations between these
non-GAAP measures and the most comparable GAAP financial measures. These
financial measures do not have standard definitions prescribed by Canadian GAAP
and therefore, may not be comparable to similar measures presented by other
companies. These measures include "cash flow from operations", "free cash flow",
"operating income before amortization", "operating margin", "adjusted net
income" and "adjusted earnings per share".
CASH FLOW FROM OPERATIONS AND FREE CASH FLOW
Cash flow from operations is used by Cogeco Cable's management and investors to
evaluate cash flows generated by operating activities, excluding the impact of
changes in non-cash operating items. This allows the Corporation to isolate the
cash flow from operating activities from the impact of cash management
decisions. Cash flow from operations is subsequently used in calculating the
non-GAAP measure, "free cash flow". Free cash flow is used by Cogeco Cable's
management and investors to measure its ability to repay debt, distribute
capital to its shareholders and finance its growth.
The most comparable Canadian GAAP financial measure is cash flow from operating
activities. Cash flow from operations is calculated as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000) $ $ $ $
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Cash flow from operating
activities 219,509 194,414 515,322 417,284
Changes in non-cash operating
items (66,158) (67,390) (74,973) 77,530
----------------------------------------------------------------------------
Cash flow from operations 153,351 127,024 440,349 494,814
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Free cash flow is calculated as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000) $ $ $ $
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Cash flow from operations 153,351 127,024 440,349 494,814
Acquisition of fixed assets (126,578) (105,219) (325,720) (308,908)
Increase in deferred charges (2,337) (2,580) (10,872) (10,633)
Assets acquired under
capital leases - - - (141)
----------------------------------------------------------------------------
Free cash flow 24,436 19,225 103,757 175,132
----------------------------------------------------------------------------
----------------------------------------------------------------------------
OPERATING INCOME BEFORE AMORTIZATION AND OPERATING MARGIN
Operating income before amortization is used by Cogeco Cable's management and
investors to assess the Corporation's ability to seize growth opportunities in a
cost effective manner, to finance its ongoing operations and to service its
debt. Operating income before amortization is a proxy for cash flow from
operations excluding the impact of the capital structure chosen, and is one of
the key metrics used by the financial community to value the business and its
financial strength. Operating margin is a measure of the proportion of the
Corporation's revenue which is left over, before income taxes, to pay for its
fixed costs, such as interest on Indebtedness. Operating margin is calculated by
dividing operating income before amortization by revenue.
The most comparable Canadian GAAP financial measure is operating income.
Operating income before amortization and operating margin are calculated as
follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
($000, except percentages) $ $ $ $
----------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Operating income 104,630 74,481 318,805 251,225
Amortization 53,468 63,696 247,178 258,871
----------------------------------------------------------------------------
Operating income before
amortization 158,098 138,177 565,983 510,096
----------------------------------------------------------------------------
Revenue 350,168 324,323 1,361,166 1,281,376
----------------------------------------------------------------------------
Operating margin 45.1% 42.6% 41.6% 39.8%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
Adjusted net income and adjusted earnings per share are used by Cogeco Cable's
management and investors to evaluate the net income and earnings per share from
ongoing operations without the impact of certain adjustments, net of income
taxes, which could affect the comparability of the Corporation's financial
results. The exclusion of these adjustments does not indicate that they are
non-recurring.
The most comparable Canadian GAAP financial measures are net income and earnings
per share. Adjusted net income and adjusted earnings per share are calculated as
follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended August 31, Years ended August 31,
2011 2010 2011 2010
(in thousands of dollars,
except the number of shares
and per share data) $ $ $ $
----------------------------------------------------------------------------
Net income (loss) 69,565 39,663 (47,666) 157,303
Adjustments:
Impairment of goodwill and
fixed assets - - 225,873 -
Reduction of the Ontario
provincial income tax
rates - - - (29,782)
----------------------------------------------------------------------------
Adjusted net income 69,565 39,663 178,207 127,521
----------------------------------------------------------------------------
Weighted average number of
multiple voting and
subordinate voting shares
outstanding 48,662,536 48,513,705 48,582,989 48,520,183
Effect of dilutive stock
options 171,525 136,172 176,887 133,994
Effect of dilutive
subordinate voting shares
held in trust under the
Incentive Share Unit Plan 105,064 58,219 100,939 45,163
----------------------------------------------------------------------------
Weighted average number of
diluted multiple voting and
subordinate voting shares
outstanding 48,939,125 48,708,096 48,860,815 48,699,340
----------------------------------------------------------------------------
Adjusted earnings per share
Basic 1.43 0.82 3.67 2.63
Diluted 1.42 0.81 3.65 2.62
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fiscal 2011
Quarters ended(1) Nov. 30 Feb. 28 May 31 Aug. 31
($000, except
percentages and per
share data) $ $ $ $
--------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 331,519 336,569 342,910 350,168
Operating income
before
amortization(2) 129,428 134,372 144,085 158,098
Operating margin(2) 39.0% 39.9% 42.0% 45.1%
Operating income 66,438 69,293 78,444 104,630
Impairment of goodwill
and fixed assets - - 225,873 -
Income taxes 16,101 14,017 18,547 20,304
Net income (loss) 33,637 31,151 (182,019) 69,565
Adjusted net income(2) 33,637 31,151 43,854 69,565
Cash flow from
operating activities 55,003 92,663 148,147 219,509
Cash flow from
operations(2) 36,433 118,819 131,746 153,351
Capital expenditures
and increase in
deferred charges 66,447 70,668 70,562 128,915
Free cash flow(2) (30,014) 48,151 61,184 24,436
Earnings (loss) per
share(3)
Basic 0.69 0.64 (3.74) 1.43
Diluted 0.69 0.64 (3.74) 1.42
Adjusted earnings per
share(2)(3)
Basic 0.69 0.64 0.90 1.43
Diluted 0.69 0.64 0.90 1.42
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Fiscal 2010
Quarters ended(1) Nov. 30 Feb. 28 May 31 Aug. 31
($000, except
percentages and per
share data) $ $ $ $
--------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 317,365 320,397 319,291 324,323
Operating income
before
amortization(2) 122,606 122,613 126,700 138,177
Operating margin(2) 38.6% 38.3% 39.7% 42.6%
Operating income 57,041 56,774 62,929 74,481
Impairment of goodwill
and fixed assets - - - -
Income taxes (15,766) 11,952 15,060 17,772
Net income (loss) 56,666 29,789 31,185 39,663
Adjusted net income(2) 26,884 29,789 31,185 39,663
Cash flow from
operating activities (3,618) 114,037 112,451 194,414
Cash flow from
operations(2) 130,229 118,318 119,243 127,024
Capital expenditures
and increase in
deferred charges 68,221 74,379 69,283 107,799
Free cash flow(2) 62,008 43,939 49,960 19,225
Earnings (loss) per
share(3)
Basic 1.17 0.61 0.64 0.82
Diluted 1.16 0.61 0.64 0.81
Adjusted earnings per
share(2)(3)
Basic 0.55 0.61 0.64 0.82
Diluted 0.55 0.61 0.64 0.81
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) The addition of quarterly information may not correspond to the annual
total given rounding.
(2) The indicated terms do not have standardized definitions prescribed by
Canadian GAAP and therefore, may not be comparable to similar measures
presented by other companies. For more details, please consult the "Non-GAAP
financial measures" section of the Results overview.
(3) Per multiple and subordinate voting share.
SEASONAL VARIATIONS
Cogeco Cable's operating results are not generally subject to material seasonal
fluctuations. However, the customer growth in the Basic Cable and HSI service
are generally lower in the second half of the fiscal year as a result of a
decrease in economic activity due to the beginning of the vacation period, the
end of the television seasons, and students leaving their campuses at the end of
the school year. Cogeco Cable offers its services in several university and
college towns such as Kingston, Windsor, St. Catharines, Hamilton, Peterborough,
Trois-Rivieres and Rimouski in Canada, and Aveiro, Covilha, Evora, Guarda and
Coimbra in Portugal.
Furthermore, the third and fourth quarter operating margins are usually higher
as no management fees are paid to COGECO Inc. Under the management Agreement,
Cogeco Cable pays a fee equal to 2% of its total revenue subject to a maximum
amount. As the maximum amount has been reached in the second quarters of fiscal
2011 and fiscal 2010, Cogeco Cable did not pay management fees in the second
halves of either year.
ADDITIONAL INFORMATION
Additional information relating to the Corporation, including its 2011 Annual
Report and Annual Information Form, is available on SEDAR at www.sedar.com.
ABOUT COGECO CABLE
Cogeco Cable (www.cogeco.ca) is a telecommunications corporation and is the
second largest hybrid fibre coaxial cable operator in Ontario, Quebec and
Portugal. Through its two-way broadband cable networks, Cogeco Cable provides
its residential customers with Audio, Analogue and Digital Television, as well
as HSI and Telephony services. Cogeco Cable also provides to its commercial
customers, through its subsidiary Cogeco Data Services, data networking,
e-business applications, video conferencing, hosting services, Ethernet, private
line, VoIP, HSI access, data storage, data security, co-location services,
managed IT services, cloud services and other advanced communication solutions.
Cogeco Cable's subordinate voting shares are listed on the Toronto Stock
Exchange (TSX:CCA).
Analyst Conference Call: Thursday, October 27, 2011 at 11:00 A.M. (EDT)
Media representatives may attend as listeners
only.
Please use the following dial-in number to have
access to the conference call by dialling five
minutes before the start of the conference:
Canada and US access number: 1 866-322-8032
International access number: + 1 416-640-3406
Confirmation code: 6470562
A rebroadcast of the conference call will be
available until November 3, by dialing:
Canada and US access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 6470562
CUSTOMER STATISTICS
(unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Homes passed
Canada 1,622,420 1,593,743
Portugal(1) 905,742 905,359
Total 2,528,162 2,499,102
----------------------------------------------------------------------------
Homes connected(2)
Canada 992,990 979,590
Portugal 264,223 269,194
Total 1,257,213 1,248,784
----------------------------------------------------------------------------
Revenue-generating units
Canada 2,575,795 2,350,577
Portugal 831,665 828,772
Total 3,407,460 3,179,349
----------------------------------------------------------------------------
Basic Cable service customers
Canada 877,985 874,505
Penetration as a percentage of homes passed 54.1% 54.9%
Portugal 255,777 260,267
Penetration as a percentage of homes passed 28.2% 28.7%
Total 1,133,762 1,134,772
----------------------------------------------------------------------------
HSI service customers
Canada 601,214 559,057
Penetration as a percentage of Basic Cable(3) 70.6% 66.2%
Portugal 162,436 163,187
Penetration as a percentage of Basic Cable(3) 63.5% 62.7%
Total 763,650 722,244
----------------------------------------------------------------------------
Digital Television service customers
Canada 678,326 559,418
Penetration as a percentage of Basic Cable(3) 78.2% 64.8%
Portugal 164,580 159,852
Penetration as a percentage of Basic Cable(3) 64.3% 61.4%
Total 842,906 719,270
----------------------------------------------------------------------------
Telephony service customers
Canada 418,270 357,597
Penetration as percentage of Basic Cable(3) 51.3% 44.4%
Portugal 248,872 245,466
Penetration as percentage of Basic Cable(3) 97.3% 94.3%
Total 667,142 603,063
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The Corporation is currently assessing the number of homes passed.
(2) Represents the sum of Basic Cable service customers and HSI and
Telephony service customers who do not subscribe to the Basic Cable service.
(3) Calculated on the basis of the systems where the service is offered.
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