Today, COGECO Inc. (TSX:CGO) ("COGECO" or the "Corporation") announced its
financial results for the third quarter of fiscal 2013, ended May 31, 2013, in
accordance with International Financial Reporting Standards ("IFRS").
For the third quarter and first nine months of fiscal 2013, which include six
months operating results of Atlantic Broadband ("ABB") and four months operating
results for Peer 1 Network Enterprises, Inc. ("PEER 1"):
-- Third quarter revenue increased by 40.9% to reach $504.4 million and by
26.7% for the first nine months to reach $1.3 billion when compared to
the same periods of the prior year;
-- Operating income before depreciation and amortization increased by 39.2%
to $220.6 million when compared to the third quarter of fiscal 2012, and
by 29.3% to $573.1 million when compared to the first nine months of the
prior year. Operating income before depreciation and amortization
increases for both periods are mainly attributable to the acquisitions
of ABB and PEER 1 ("recent acquisitions") as well as the improvement in
the financial results of the Canadian operations in the Cable segment;
-- Profit for the period from continuing operations amounted to $55.1
million in the third quarter compared to $55.4 million for the same
period of the previous fiscal year. Profit for the period from
continuing operations decreased slightly during the quarter mostly due
to acquisition costs, additional depreciation and amortization and
financial expense, including costs of approximately $3.5 million to
refinance certain long-term debt with respect to the recent
acquisitions, partly offset by operating income before depreciation and
amortization generated by the Canadian operations and by the recent
acquisitions in the Cable segment. For the first nine months of fiscal
2013, profit for the period from continuing operations amounted to
$158.7 million compared to $129.3 million for the same period of fiscal
2012. Profit progression for the nine-month period is mostly
attributable to the factors described above and by additional income tax
expense;
-- Profit for the period amounted to $55.1 million in the third quarter
when compared to $55.4 million for the same period of the previous
fiscal year due to the factors described in the paragraph above. For the
first nine months of fiscal 2013, profit for the period amounted to
$158.7 million when compared to $184.8 million for the same period of
fiscal 2012 mostly attributable to the improvement of the Canadian
operations in the Cable segment and by the recent acquisitions'
financial results, offset by last year's profit from the Portuguese
subsidiary, Cabovisao - Televisao por Cabo, S.A. ("Cabovisao"), reported
as discontinued operations and disposed of on February 29, 2012 in the
Cable segment;
-- Free cash flow(1)reached $45.0 million for the third quarter compared to
$29.5 million in the comparable quarter of the prior year. For the first
nine months, free cash flow amounted to $98.0 million, compared to $73.8
million in the same period of fiscal 2012. The increase for both periods
is mostly attributable to the Cable segment by the improvement of
operating income before depreciation and amortization, partly offset by
the increase in financial expense, the recent acquisition costs as well
as the increase in acquisition of property, plant and equipment;
(1) The indicated terms do not have standard definitions prescribed by IFRS
and therefore, may not be comparable to similar measures presented by
other companies. For more details, please consult the "Non-IFRS
financial measures" section of the Management's discussion and analysis.
-- A quarterly dividend of $0.19 per share was paid to the holders of
subordinate and multiple voting shares, an increase of $0.01 per share,
or 5.6%, when compared to a dividend of $0.18 per share paid in the
third quarter of fiscal 2012. Dividend payments in the first nine months
totaled $0.57 per share in fiscal 2013, compared to $0.54 per share in
fiscal 2012;
-- In the Cable segment, fiscal 2013 third-quarter primary service units
("PSU")(1)decreased by 3,331 and increased by 15,851 for the first nine
months of fiscal 2013. At May 31, 2013, consolidated PSU amounted to
2,470,164 of which 1,981,290 come from the Canadian operations and
488,874 from the American operations;
(1) Represents the sum of Television, High Speed Internet ("HSI") and
Telephony service customers.
-- On May 28, 2013, the First Lien Credit Facilities were amended. Pursuant
to the amendment, US$50 million of the Term Loan A Facility was
converted into the Revolving Facility resulting in amounts borrowed
under these two tranches of US$190 million and of US$100 million,
respectively, while the Term Loan B Facility remained the same. Interest
rates on the First Lien Credit Facilities are based on LIBOR plus the
applicable margin, with a LIBOR floor for the Term Loan B Facility. The
applicable margin was reduced by 0.625% for the Revolving Facility and
for the Term Loan A Facility and by 1.00% for the Term Loan B Facility.
In addition, the LIBOR floor for the Term Loan B Facility was reduced
from 1.00% to 0.75%. All other terms and conditions remained the same.
In connection with the amendment, transaction costs of $US 6.2 million
were incurred;
-- On May 27, 2013, Cogeco Cable completed pursuant to a public debt
offering, the issue of $300 million Senior Secured Debentures Series "4"
(the "Debentures") for a net proceed of $297.1 million net of
transaction costs of $2.9 million. The net proceeds from this offering
were used to reduce indebtedness. These Debentures mature on May 26,
2023 and bear interest at 4.175% per annum payable semi-annually. These
Debentures are indirectly secured by a first priority fixed and floating
charge and a security interest on substantially all present and future
real and personal property and undertaking of every nature and kind of
Cogeco Cable and its subsidiaries except for ABB and certain immaterial
subsidiaries (the "unrestricted subsidiaries"). The provisions under
these Debentures provide for restrictions on the operations and
activities of Cogeco Cable and its subsidiaries except for the
unrestricted subsidiaries. Generally, the most significant restrictions
relate to permitted indebtedness, dispositions and maintenance of
certain financial ratios.
-- On April 23, 2013, Cogeco Cable completed a private placement of $410.4
million (US$400 million) aggregate principal amount of Senior Unsecured
Notes (the "2020 Notes") for a net proceed of $402.6 million (US$392.4
million), net of transaction costs of $7.8 million (US$7.6 million). The
net proceeds from this offering were used to reduce indebtedness. These
2020 Notes mature on May 1, 2020 and bear interest at 4.875% per annum
payable semi-annually. These 2020 Notes are guaranteed on a senior
unsecured basis, jointly and severally, by its subsidiaries except for
the unrestricted subsidiaries. The provisions under these 2020 Notes
provide for restrictions on the operations and activities of Cogeco
Cable and its subsidiaries except for the unrestricted subsidiaries.
Generally, the most significant restrictions relate to permitted
indebtedness, investments and distributions.
"We are satisfied with the favourable results obtained for the third quarter of
fiscal 2013," declared Louis Audet, President and Chief Executive Officer of
Cogeco Inc. "The cable subsidiary continues along a path of steady growth and
profitability, as per expectations. In the last three months, we successfully
refinanced over half of Cogeco Cable's indebtedness in order to take advantage
of historically low interest rates. Average maturity was extended from 4.6 years
to 6.1 years and fixed rate debt increased from 35% to 66%. Cogeco Cable is well
positioned going forward," continued Louis Audet.
"Regarding our media business, Cogeco Diffusion Inc.'s radio business ratings
continue to lead in many of its markets and we are pleased to see continued
appetite for radio and transit advertising from our customers. Our media
business is delivering results according to plan," concluded Louis Audet.
ABOUT COGECO
COGECO is a diversified communications corporation. Through its Cogeco Cable
subsidiary, COGECO provides to its residential and business customers Analogue
and Digital Television, High Speed Internet ("HSI") and Telephony services.
Cogeco Cable operates in Canada under the Cogeco Cable brand name in Quebec and
Ontario, and in the United States through its subsidiary Atlantic Broadband in
Western Pennsylvania, Southern Florida, Maryland, Delaware and South Carolina.
Through its subsidiaries Cogeco Data Services and PEER 1 Hosting, Cogeco Cable
provides to its commercial customers, a suite of IT hosting, information and
communications technology services (Data Centre, Co-location, Managed Hosting,
Cloud Infrastructure and Connectivity), with 23 data centres, extensive fibre
networks in Montreal and Toronto as well as points-of-presence in North America
and Europe. Through its subsidiary Cogeco Diffusion, COGECO owns and operates 13
radio stations across most of Quebec with complementary radio formats serving a
wide range of audiences as well as Cogeco News, its news agency. Cogeco
Diffusion also operates Metromedia, an advertising representation house
specialized in the public transit sector that holds exclusive advertising rights
in the Province of Quebec where it also represents its business partners active
across other Canadian markets. COGECO's subordinate voting shares are listed on
the Toronto Stock Exchange (TSX:CGO). The subordinate voting shares of Cogeco
Cable are also listed on the Toronto Stock Exchange (TSX:CCA).
Analyst Conference Call: Thursday, July 11, 2013 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 five
minutes before the start of the conference:
Canada/USA Access Number: 1 866-321-6651
International Access Number: + 1 416-642-5212
Confirmation Code: 7336653
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be
available until October 11, 2013, by dialing:
Canada and US access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 7336653
SHAREHOLDERS' REPORT
Three and nine-months periods ended May 31, 2013
FINANCIAL HIGHLIGHTS
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Quarters ended Nine months ended
(in thousands of
dollars, except
PSU growth, May 31, May 31, May 31, May 31,
percentages and 2013 2012 Change 2013 2012 Change
per share data) $ $ % $ $ %
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Operations
Revenue 504,434 358,032 40.9 1,329,543 1,049,668 26.7
Operating income
before
depreciation and
amortization(1) 220,574 158,446 39.2 573,122 443,225 29.3
Operating income 113,609 95,473 19.0 299,350 229,046 30.7
Profit for the
period from
continuing
operations 55,116 55,373 (0.5) 158,728 129,346 22.7
Profit for the
period from
discontinued
operations - - - - 55,446 -
Profit for the
period 55,116 55,373 (0.5) 158,728 184,792 (14.1)
Profit for the
period
attributable to
owners of the
Corporation 18,902 19,303 (2.1) 54,288 63,162 (14.0)
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Cash Flow
Cash flow from
operating
activities 167,641 109,546 53.0 318,731 245,571 29.8
Cash flow from
operations(1) 158,461 117,606 34.7 400,664 327,498 22.3
Acquisitions of
property, plant
and equipment,
intangible and
other assets 113,492 88,141 28.8 302,666 253,731 19.3
Free cash flow(1) 44,969 29,465 52.6 97,998 73,767 32.8
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Financial
Condition(2)
Property, plant and
equipment - - - 1,772,871 1,343,904 31.9
Total assets - - - 5,435,992 3,103,919 75.1
Indebtedness(3) - - - 3,139,507 1,180,971 -
Equity attributable
to owners of the
Corporation - - - 450,267 397,799 13.2
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Primary service
units ("PSU")
growth(4) (3,331) 6,246 - 15,851 64,705 (75.5)
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Per Share Data(5)
Earnings per share
attributable to
owners of the
Corporation
From continuing
and discontinued
operations
Basic 1.13 1.15 (1.7) 3.25 3.78 (14.0)
Diluted 1.12 1.15 (2.6) 3.22 3.75 (14.1)
From continuing
operations
Basic 1.13 1.15 (1.7) 3.25 2.71 19.9
Diluted 1.12 1.15 (2.6) 3.22 2.69 19.7
From discontinued
operations
Basic - - - - 1.07 -
Diluted - - - - 1.06 -
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(1) The indicated terms do not have standardized definitions prescribed by
International Financial Reporting Standards ("IFRS") and therefore, may
not be comparable to similar measures presented by other companies. For
more details, please consult the "Non-IFRS financial measures" section
of the Management's discussion and analysis ("MD&A").
(2) At May 31, 2013 and August 31, 2012.
(3) Indebtedness is defined as the total of bank indebtedness, principal on
long-term debt, balance due on business combinations and obligations
under derivative financial instruments.
(4) Represents the sum of Television, High Speed Internet ("HSI") and
Telephony service customers.
(5) Per multiple and subordinate voting share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
Three and nine-months periods ended May 31, 2013
FORWARD-LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis ("MD&A") may
constitute forward-looking information within the meaning of securities laws.
Forward-looking information may relate to COGECO's future outlook and
anticipated events, business, operations, financial performance, financial
condition or results and, in some cases, can be identified by terminology such
as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend";
"estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other
similar expressions concerning matters that are not historical facts. In
particular, statements regarding the 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 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 economic downturn
experienced over the past few years makes 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 to predict with
certainty the impact that the current economic uncertainties 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 2012 annual MD&A, the Corporation's MD&A
for the period ended February 28, 2013 as well as in the present MD&A) that
could cause actual results to differ materially from what COGECO currently
expects.
These factors include risks pertaining to markets and competition, technology,
regulatory developments, operating costs, information systems, disasters or
other contingencies, financial risks related to capital requirements, human
resources, controlling shareholder and holding structure, many of which are
beyond the Corporation's control. Therefore, future events and results may vary
significantly from what management currently foresees. The reader should not
place undue importance on forward-looking information and should not rely upon
this information as of any other date. While management may elect to, the
Corporation is under no obligation and does not undertake to update or alter
this information at any particular time, except as may be required by law.
All amounts are stated in Canadian dollars unless otherwise indicated. This
report should be read in conjunction with the Corporation's condensed interim
consolidated financial statements and the notes thereto, prepared in accordance
with the International Financial Reporting Standards ("IFRS") and the MD&A
included in the Corporation's 2012 Annual Report.
CORPORATE OBJECTIVES AND STRATEGIES
COGECO's objectives are to provide outstanding service to its customers and
maximize shareholder value by increasing profitability and ensuring continued
revenue growth. The strategies employed to reach these objectives, supported by
tight controls over costs and business processes, are specific to each segment.
The main strategies used to reach COGECO's objectives in the Cable segment focus
on expanding its service offering, enhancing its existing services and bundles,
improving customer experience and business processes as well as keeping a sound
capital management and a strict control over spending. The radio activities
focus on continuous improvement of its programming in order to increase its
market share and thereby its profitability. The Corporation measures its
performance, with regard to these objectives by monitoring operating income
before depreciation and amortization(1), PSU(2) growth and free cash flow(1).
KEY PERFORMANCE INDICATORS
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
For the nine-month period ended May 31, 2013, operating income before
depreciation and amortization increased by 29.3% when compared to the same
period of fiscal 2012 to reach $573.1 million. As a result of the improvement of
operating income before depreciation and amortization in the Cable segment
resulting essentially from cost reduction initiatives, management revised its
April 10, 2013 projections for fiscal 2013. Operating income before depreciation
and amortization is now expected to reach $795 million from $782 million. For
further details, please consult the fiscal 2013 revised projections in the
"Fiscal 2013 financial guidelines" section.
FREE CASH FLOW
For the nine-month period ended May 31, 2013, COGECO reports free cash flow of
$98 million, compared to $73.8 million for the first nine months of the previous
fiscal year, representing an increase of $24.2 million. This variance is mostly
attributable to the improvement of operating income before depreciation and
amortization in the Cable segment, partly offset by the increase in financial
expense, the acquisition costs related to Atlantic Broadband ("ABB") and Peer 1
Network Enterprises, Inc. ("PEER 1") acquisitions (the "recent acquisitions") as
well as the increase in acquisition of property, plant and equipment.
CABLE SEGMENT
PSU growth and penetration of service offerings
During the nine-month period ended May 31, 2013, PSU reached 2,470,164 of which
1,981,290 come from the Canadian operations and 488,874 from the American
operations. PSU for the American operations increased by 3,694 stemming
primarily from additional HSI services, partly offset by losses in Television
services. PSU for the Canadian operations increased by 12,157 when compared to
an increase of 64,705 PSU for the comparable period of the prior year, mainly as
a result of service category maturity and a more competitive environment in the
Television services. Cogeco Cable maintains targeted marketing initiatives to
increase the penetration level of its services.
BUSINESS DEVELOPMENTS AND OTHER
BBM Canada's spring 2013 survey in the Montreal region, conducted with the
Portable People Meter ("PPM"), reported that 98.5 FM is the leading radio
station in the Montreal French market amongst all listeners and men two years
old and over ("2+"), while Rythme FM has maintained its leadership position in
the female 2+ segment among the musical stations. Regarding the Montreal English
market, The Beat is the leading radio station in the female 35-64 segment. In
the other Quebec regions, our radio stations registered good ratings.
On July 5, 2013, Cogeco Cable reduced its Term Revolving Facility from $750
million to $600 million and its Revolving Facility of its Secured Credit
Facilities from $240 million to $190 million.
On June 27, 2013, Cogeco Cable completed, pursuant to a private placement, the
issuance of US$215 million Senior Secured Notes bearing interest at 4.30%
payable semi-annually and maturing on June 16, 2025. The net proceeds from this
offering along with drawings under the Corporation's credit facilities will be
used to repay, on July 29, 2013, all the outstanding amount of $300 million
Senior Secured Debentures Series 1, due on June 9, 2014.
On January 31, 2013, Cogeco Cable completed the acquisition of 96.57% of the
issued and outstanding shares of PEER 1 by way of takeover bid (the "offer")
valued at approximately $649 million. On April 3, 2013, Cogeco Cable completed
the acquisition of the remaining 3.43% of the issued and outstanding shares of
PEER 1 for a cash consideration of $17 million pursuant to the compulsory
acquisition provisions in Section 300 of the Business Corporations Act ("British
Columbia"). In connection with the completion of the offer, Cogeco Cable has
entered into secured credit facilities in the amount of approximately $650
million and maturing in 2017, with a syndicate of lenders. PEER 1 is one of the
world's leading internet infrastructure providers, specializing in managed
hosting, dedicated servers, cloud services and co-location. This acquisition
enhances Cogeco Cable footprint and builds on its strategic initiatives by
increasing scale in an attractive industry segment with significant growth
prospects in the state of the art data center platforms. Cogeco Cable will also
serve additional businesses worldwide, in addition to approximately 11,000
customers currently served, through 23 data centres and 21 points-of-presence
across North America and Europe. PEER 1's primary network centre and head office
remain located in Vancouver.
(1) The indicated terms do not have standardized definitions prescribed by
IFRS and therefore, may not be comparable to similar measures presented
by other companies. For more details, please consult the "Non-IFRS
financial measures" section.
(2) Represents the sum of Television, High Speed Internet ("HSI") and
Telephony service customers.
On November 30, 2012, Cogeco Cable completed the acquisition of ABB, an
independent cable system operator formed in 2003, serving about 485,000 PSU's
and providing Analogue and Digital Television, as well as HSI and Telephony
services. The acquisition is an attractive entry point into the United States of
America ("US") market, providing a significant increase in PSU base with further
growth potential, a high quality network infrastructure and the ability for the
Corporation's management to leverage its core knowledge and operational
experience. The transaction, valued at US$1.36 billion, was financed through a
combination of cash on hand, a draw-down on the existing Term Revolving Facility
of approximately US$588 million and US$660 million of borrowings under a new
committed non-recourse debt financing at ABB. Ranked the 12th- largest cable
television system operator in the US, ABB operates cable systems in Western
Pennsylvania, Southern Florida, Maryland, Delaware and South Carolina.
OPERATING AND FINANCIAL RESULTS
OPERATING RESULTS
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Quarters ended Nine months ended
(in thousands of May 31, May 31, May 31, May 31,
dollars, except 2013 2012 Change 2013 2012 Change
percentages) $ $ % $ $ %
----------------------------------------------------------------------------
Revenue 504,434 358,032 40.9 1,329,543 1,049,668 26.7
Operating expenses 283,860 199,586 42.2 756,421 606,443 24.7
---------------------------------------- --------------------
Operating income
before depreciation
and amortization 220,574 158,446 39.2 573,122 443,225 29.3
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REVENUE
Fiscal 2013 third-quarter revenue increased by $146.4 million or 40.9%, to reach
$504.4 million, when compared to the same period last year. For the first nine
months, revenue amounted to $1.3 billion, an increase of $279.9 million, or
26.7% when compared to the first nine months of fiscal 2012. Revenue increases
for both periods are mainly attributable to the operating results of the Cable
segment and the revenue generated by Metromedia CMR Plus Inc. ("Metromedia"),
acquired during the second quarter of fiscal 2012.
In the Cable segment, fiscal 2013 third-quarter revenue increased by $144.7
million, or 45.3%, to reach $464.5 million, when compared to the same period
last year. For the first nine months, revenue amounted to $1.2 billion, an
increase of $269.2 million, or 28.2% when compared to the same period of fiscal
2012. For further details on the Cable segment's revenue, please refer to the
"Cable segment" section.
OPERATING EXPENSES
For the third quarter of fiscal 2013, operating expenses increased by $84.3
million, or 42.2%, to reach $283.9 million. For the first nine months of the
fiscal year, operating expenses amounted to $756.4 million, an increase of
$150.0 million, or 24.7%, when compared to the same period of fiscal 2012. The
increase in operating expenses is mainly attributable to the Cable segment
operating results.
Fiscal 2013 third quarter operating expenses in the Cable segment increased by
$82.3 million, or 49.2%, to reach $249.4 million. For the first nine months of
the fiscal year, operating expenses amounted to $654.5 million, an increase of
$139 million, or 27.0%, when compared to the same period of fiscal 2012. For
further details on the Cable segment's revenue, please refer to the "Cable
segment" section.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
Mainly as a result of higher growth from revenue than operating expenses
stemming primarily from the Cable segment, operating income before depreciation
and amortization increased by $62.1 million, or 39.2%, to reach $220.6 million
in the third quarter and by $129.9 million, or 29.3% to reach $573.1 million for
the first nine months of fiscal 2013, when compared to the same periods of the
previous year. For further details on Cogeco Cable's operating results, please
refer to the "Cable segment" section.
FIXED CHARGES
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Quarters ended Nine months ended
(in thousands of May 31, May 31, May 31, May 31,
dollars, except 2013 2012 Change 2013 2012 Change
percentages) $ $ % $ $ %
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Depreciation and
amortization 104,805 62,973 66.4 256,860 214,071 20.0
Financial expense 36,487 17,822 - 84,032 51,710 62.5
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For the three and nine-month periods ended May 31, 2013, depreciation and
amortization expense reached $104.8 million and $256.9 million, respectively,
compared to $63.0 million and $214.1 million for the same periods of the prior
year, respectively, resulting mainly from Cogeco Cable's recent acquisitions and
from additional acquisition of property, plant and equipment offset by higher
fiscal 2012 depreciation expense related to the reduction of useful lives for
certain home terminal devices in the Cable segment.
Fiscal 2013 third-quarter financial expense increased by $18.7 million to reach
$36.5 million compared to $17.8 million in fiscal 2012 third-quarter. For the
first nine months of fiscal 2013, financial expense increased by $32.3 million,
or 62.5%, at $84.0 million, compared to $51.7 million in the prior year.
Financial expense increased in both periods as a result of the cost of financing
related to the recent acquisitions, including costs of approximately $3.5
million to refinance certain long-term debt with respect to these recent
acquisitions.
INCOME TAXES
For the three and nine-month periods ended May 31, 2013, income tax expense
amounted to $22.0 million and $56.6 million, respectively, compared to $22.3
million and $48.0 million, respectively, for the comparable periods in the prior
year. The increase in the first nine months is mostly attributable to the
improvement in operating income before depreciation and amortization, partly
offset by the increase in depreciation and amortization and financial expense.
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS
For the three-month period ended May 31, 2013, profit for the period from
continuing operations amounted to $55.1 million of which $18.9 million, or $1.13
per share is attributable to owners of the Corporation, compared to a profit for
the period from continuing operations of $55.4 million of which $19.3 million or
$1.15 per share is attributable to owners of the Corporation for the comparable
period. Profit for the period from continuing operations decreased slightly
during the quarter mostly due to acquisition costs, additional depreciation and
amortization and financial expense, including costs of approximately $3.5
million to refinance certain long-term debt with respect to the recent
acquisitions, partly offset by operating income before depreciation and
amortization generated by the Canadian operations and by the recent acquisitions
in the Cable segment. For the nine-month period ended May 31, 2013, profit for
the period from continuing operations amounted to $158.7 million of which $54.3
million, or $3.25 per share is attributable to owners of the Corporation,
compared to a profit for the period from continuing operations of $129.3 million
of which $45.3 million, or $2.71 per share is attributable to owners of the
corporation for the comparable period. Profit progression for the period from
continuing operations for the first nine months of fiscal 2013 is mostly due to
the Cable segment and is attributable to the increase in operating income before
depreciation and amortization, partly offset by the recent acquisitions costs
and by the depreciation and amortization, financial expense and income tax
increases explained above.
PROFIT FOR THE PERIOD
For the three and nine-month periods ended May 31, 2013, profit for the period
amounted to $55.1 million and $158.7 million, respectively, compared to $55.4
million and $184.8 million for the comparable periods. Fiscal 2013 third-quarter
profit for the period attributable to owners of the Corporation amounted to
$18.9 million, or $1.13 per share, compared to $19.3 million, or $1.15 per
share, in the third quarter of fiscal 2012. For the nine-month period ended May
31, 2013, profit for the period attributable to owners of the Corporation
amounted to $54.3 million, or $3.25 per share, compared to $63.2 million, or
$3.78 per share for the comparable period of fiscal 2012. The decline for the
quarter is due to the factors described above and for the nine-month period to
last year's profit from the Portuguese subsidiary, Cabovisao - Televisao por
Cabo, S.A. ("Cabovisao"), reported as discontinued operations and disposed of on
February 29, 2012 and by the increases in depreciation and amortization,
financial expense and acquisition costs all related to the recent acquisitions
in the Cable segment, partly offset by the improvement in operating income
before depreciation and amortization generated by the Cable segment.
The non-controlling interest represents a participation of approximately 67.9%
in Cogeco Cable's results. For the three and nine-month periods ended May 31,
2013, profit for the period attributable to non-controlling interest amounted to
$36.2 million and $104.4 million, respectively, when compared to $36.1 million
and $121.6 million for the comparable periods of fiscal 2012.
CASH FLOW ANALYSIS
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Quarters ended Nine months ended
May 31, May 31, May 31, May 31,
2013 2012 2013 2012
(in thousands of dollars) $ $ $ $
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Operating activities
Cash flow from operations 158,461 117,606 400,664 327,498
Changes in non-cash
operating activities (5,443) (20,507) (80,194) (85,288)
Amortization of deferred
transaction costs and
discounts on long-term debt (3,520) (1,681) (7,237) (3,357)
Income taxes paid (17,031) (10,634) (79,490) (67,711)
Current income tax expense 27,563 25,016 76,227 72,306
Financial expense paid (28,876) (18,076) (75,271) (49,587)
Financial expense 36,487 17,822 84,032 51,710
----------------------------------------------------------------------------
167,641 109,546 318,731 245,571
Investing activities (135,812) (87,543) (2,308,490) (284,212)
Financing activities (35,540) (8,464) 1,812,085 86,925
----------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents denominated in
foreign currencies 1,089 - 1,794 -
----------------------------------------------------------------------------
Net change in cash and cash
equivalents from continuing
operations (2,622) 13,539 (175,880) 48,284
Net change in cash and cash
equivalents from
discontinued operations (1) - - - 49,597
Cash and cash equivalents
from continuing and
discontinued operations,
beginning ofyear 42,265 139,558 215,523 55,216
----------------------------------------------------------------------------
Cash and cash equivalents
from continuing and
discontinued operations,
end of year 39,643 153,097 39,643 153,097
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) For further details on the Corporation's cash flows attributable to
discontinued operations, please refer to the "Disposal of subsidiary and
discontinued operations" on note 14 of the condensed interim
consolidated financial statements.
OPERATING ACTIVITIES
Fiscal 2013 third-quarter cash flow from operations reached $158.5 million
compared to $117.6 million, an increase of $40.9 million or 34.7%, compared to
the same period of prior year. For the first nine months, cash flow from
operations reached $400.7 million compared to $327.5 million for the same period
last year, an increase of $73.2 million, or 22.3%. Increases for both periods
are primarily due to the improvement of operating income before depreciation and
amortization, partly offset by financial expense increase and by the recent
acquisition costs. For the third quarter, changes in non-cash operating
activities generated cash outflows of $5.4 million compared to $20.5 million in
the third quarter of fiscal 2012, mainly as a result of a lower decrease in
trade and other payables compared to the prior year. For the first nine months,
changes in non-cash operating activities generated cash outflows of $80.2
million compared to $85.3 million for the same period in fiscal 2012, mainly as
a result of a decrease in provisions compared to an increase in prior year,
partly offset by an increase in deferred and prepaid revenue and other
liabilities compared to a decrease in the prior year.
INVESTING ACTIVITIES
BUSINESS COMBINATIONS IN FISCAL 2013
On March 6, 2013, the Corporation's subsidiary, Cogeco Cable, completed the
working capital adjustments in relation to the ABB acquisition, which increased
income tax receivable by $3.4 million and goodwill by $0.6 million, and
decreased trade and other payables assumed by $1.5 million and income tax
liabilities assumed by $0.1 million. In addition, on April 3, 2013, Cogeco Cable
completed the acquisition of the remaining 3.43% of the issued and outstanding
shares of PEER 1 for a cash consideration of $17 million. The acquisition of
non-controlling interest has not changed the purchase price allocation. On
January 31, 2013, Cogeco Cable, completed the acquisition of PEER 1 and on
November 30, 2012, the acquisition of ABB. These acquisitions were accounted for
using the purchase method. In addition, in the second quarter of fiscal 2013,
Metromedia also completed the acquisition of a non-controlling interest
participation of 27.5% in one of its subsidiaries for a cash consideration of
approximately $0.5 million.
The preliminary purchase price allocation of these acquisitions, pending the
completion of the valuation of the net assets acquired as well as Metromedia's
non-controlling interest acquisition are as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Metromedia PEER 1 ABB TOTAL
$ $ $ $
----------------------------------------------------------------------------
Consideration
Paid
Purchase of shares 462 494,796 337,779 833,037
Working capital
adjustments - - 5,415 5,415
Repayment of secured debts
and settlement of options
outstanding - 170,872 1,021,854 1,192,726
----------------------------------------------------------------------------
462 665,668 1,365,048 2,031,178
----------------------------------------------------------------------------
Net assets acquired
Cash and cash equivalents - 10,840 5,480 16,320
Restricted cash - 8,729 - 8,729
Trade and other receivables - 12,772 9,569 22,341
Prepaid expenses and other - 3,855 1,370 5,225
Income tax receivable - 672 3,418 4,090
Other assets - 3,328 - 3,328
Property, plant and
equipment - 150,206 205,353 355,559
Intangible assets - 139,703 763,084 902,787
Goodwill - 421,986 603,254 1,025,240
Deferred tax assets - 8,355 33,835 42,190
Trade and other payables
assumed - (26,330) (26,134) (52,464)
Provisions - - (721) (721)
Income tax liabilities
assumed - (4,716) (53) (4,769)
Deferred and prepaid revenue
and other liabilities
assumed - (3,315) (5,254) (8,569)
Long-term debt assumed - (1,735) - (1,735)
Deferred tax liabilities - (58,682) (228,153) (286,835)
Non-controlling interest 462 - - 462
----------------------------------------------------------------------------
462 665,668 1,365,048 2,031,178
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FISCAL 2013 ADJUSTEMENT RELATED TO FISCAL 2012 BUSINESS COMBINATION
During the second quarter of fiscal 2013, the Corporation completed the purchase
price allocation of Metromedia which was acquired on December 26, 2011. The
final purchase price allocation of Metromedia is as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Preliminary Final
$ $
----------------------------------------------------------------------------
Consideration
Paid
Purchase of shares 36,860 36,860
Repayment of secured debt 2,140 2,140
----------------------------------------------------------------------------
39,000 39,000
Balance due on a business combination, bank
prime rate plus 1% and payable in June 2013 2,000 2,000
----------------------------------------------------------------------------
41,000 41,000
----------------------------------------------------------------------------
Net assets acquired
Cash and cash equivalents 3,265 3,265
Trade and other receivables 7,242 7,364
Prepaid expenses and other 57 57
Income tax receivable 234 132
Property, plant and equipment 4,764 4,645
Intangible assets 14,747 14,747
Goodwill 20,171 20,540
Trade and other payables assumed (4,615) (4,786)
Income tax liabilities (142) -
Deferred and prepaid revenue and other
liabilities assumed (374) (615)
Deferred tax liabilities (3,887) (3,887)
Non-controlling interest (462) (462)
----------------------------------------------------------------------------
41,000 41,000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE AND OTHER ASSETS
For the three and nine-month periods ended May 31, 2013, acquisition of
property, plant an equipment amounted to $109.0 million and $289.0 million,
respectively, compared to $84.2 million and $243.2 million for the comparable
periods of fiscal 2012 mainly as a results of the recent acquisitions and the
following factors in the Cable segment:
-- A decrease in scalable infrastructure due to the timing of initiatives
to improve network capacity in existing areas served;
-- A decrease in customer premise equipment, mainly due to the achievement
in fiscal 2012 of the first phase in the conversion of Television
service customers from analogue to digital and the lower PSU growth as a
result of service maturity;
-- An increase in network upgrade and rebuild to deploy advanced
technologies such as DOCSIS 3.0 and Switched Digital Video in existing
areas served; and
-- An increase in data centre facilities capital expenditures mainly due to
the construction of a new data centre facility in Barrie, Ontario,
opened last June, and by the expansion of data centre facilities in
Toronto, Canada and in Portsmouth, England as well as the fiber
expansion in the Toronto area in order to fulfill orders from new
customers demand.
Acquisition of intangible and other assets are mainly attributable to reconnect
and additional service activation costs as well as other customer acquisition
costs. For the third quarter and the first nine months of fiscal 2013, the
acquisition of intangible and other assets amounted to $4.5 million and $13.7
million, compared to $4.0 million and $10.6 million for the same periods last
year, respectively.
FREE CASH FLOW AND FINANCING ACTIVITIES
In the third quarter of fiscal 2013, free cash flow amounted to $45.0 million,
$15.5 million, or 52.6%, higher than in the comparable period of fiscal 2012.
For the first nine months period, free cash flow amounted to $98.0 million,
$24.2 million, or 32.8%, higher than the same period of last year. Free cash
flow increase for both periods over the prior year are due to the improvement of
operating income before depreciation and amortization in the Canadian operation
in the Cable segment as well as the recent acquisitions, partly offset by the
increase in financial expense, the recent acquisition costs as well as the
increase in acquisition of property, plant and equipment.
In the third quarter of fiscal 2013, higher Indebtedness level provided for a
cash increase of $22.0 million mainly due to the issuance, in the Cable segment,
of $300 million Senior Secured Debentures Series "4" (the "Debentures") for a
net proceed of $297.1 million, net of transaction costs of $2.9 million and the
issuance of a private placement of $410.4 million (US$400 million) Senior
Unsecured Notes (the "2020 Notes") for a net proceed of $402.6 million (US$392.4
million), net of transaction costs of $7.8 million (US$7.6 million). In
addition, the net proceeds under the Debentures and the 2020 Notes were used to
repay the Canadian Term Facility amounting to $175 million, the US Term Facility
amounting to $230.8 million (US$225 million), the $114.7 Revolving loan in
connection with the financing of the acquisition of PEER 1 in the Cable segment
and $192.4 million Term Revolving Facility. In the third quarter of fiscal 2012,
Indebtedness remained essentially the same.
For the first nine months of fiscal 2013, higher Indebtedness level provided for
a cash increase of $1.9 billion, mainly due to the issuance of the 2020 Notes
and the Debentures, described above, as well as draw-down on the existing Term
Revolving Facility of $411.9 million (US$420 million) including the repayment
made during the quarter explained above and the new First Lien Credit of $637.4
million (US$660 million for a net proceed of US$641.5 million, net of
transaction costs of US$18.5 million) to finance the acquisition of ABB as well
to drawings of $125.1 million, under Secured Credit Facilities to finance the
acquisition of PEER 1, net of the repayment made during the third quarter
explained above. In the first nine months of fiscal 2012, Indebtedness affecting
cash increased by $129.9 million mainly due to the issuance, on February 14,
2012, of $200 million Senior Secured Debentures Series 3 ("Fiscal 2012
debentures") and on November 7, 2011, of Unsecured Notes for net proceeds of
$198.1 million and $34.6 million, respectively, which was used to repay the
$107.7 million Term Revolving Facilities.
During the third quarter of fiscal 2013, quarterly dividends of $0.19 per share
were paid to the holders of subordinate and multiple voting shares, totaling
$3.2 million, compared to quarterly dividends of $0.18 per share for a total of
$3.0 million the year before. Dividend payments in the first nine months totaled
$0.57 per share, or $9.5 million, compared to $0.54 per share, or $9.0 million
the year before. In addition, dividends paid by a subsidiary to non-controlling
interests in the third quarter amounted to $8.6 million and $25.7 million for
the first nine months, compared to $8.2 million and $24.7 million, respectively,
for the comparable periods of the prior year.
As at May 31, 2013, the Corporation had a working capital deficiency of $146.7
million compared to $18.5 million at August 31, 2012. The increase of $128.2
million in the deficiency is mainly due to the decrease of $175.9 million
million in cash and cash equivalents, primarily used for the acquisition of ABB
in the Cable segment. The deficiency was also impacted by an increase of $29.3
million in trade and other receivables, a decrease of $23.7 million in trade and
other payables and by an increase of $14.7 million in deferred and prepaid
revenue. As part of the usual conduct of its business, Cogeco Cable maintains a
working capital deficiency due to a low level of accounts receivable as a large
portion of the Corporation's customers pay before their services are rendered,
unlike trade and other payables, which are paid after products are delivered or
services are rendered, thus enabling the Corporation to use cash and cash
equivalents to reduce Indebtedness.
At May 31, 2013, the Corporation had used $76.1 million of its $100 million Term
Revolving Facility for a remaining availability of $23.9 million and Cogeco
Cable had used $439.9 million of its $750 million Term Revolving Facility for a
remaining availability of $310.1 million. In addition, Cogeco Cable also
benefits from additional Revolving Facilities of $251 million as a result of the
acquisition of PEER 1, of which $131.7 million was used at May 31, 2013 for a
remaining availability of $119.3 million. Two subsidiaries of Cogeco Cable also
benefits from a Revolving Facility of $103.7 million (US$100 million) related to
the acquisition of ABB, of which $55.7 million (US$53.7 million) was used at May
31, 2013 for a remaining availability of $48 million (US$46.3 million).
FINANCIAL POSITION
As a result of the acquisition of ABB and PEER 1 in the Cable segment, most
financial position balances have changed significantly since August 31, 2012.
For further details on the preliminary allocation of the purchase price of the
acquisitions, please refer to the investing activities under the "Cash flow
analysis" section.
OUTSTANDING SHARE DATA
A description of COGECO's share data at June 30, 2013 is presented in the table
below. Additional details are provided in note 10 of the condensed interim
consolidated financial statements.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amount
Number of (in thousands
shares of dollars)
----------------------------------------------------------------------------
Common shares
Multiple voting shares 1,842,860 12
Subordinate voting shares 14,989,338 121,976
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FINANCING
In the normal course of business, COGECO has incurred financial obligations,
primarily in the form of long-term debt, operating and finance leases and
guarantees. COGECO's obligations, as discussed in the 2012 Annual Report, have
not materially changed since August 31, 2012, except as mentioned below.
On May 28, 2013, the First Lien Credit Facilities were amended. Pursuant to the
amendment, US$50 million of the Term Loan A Facility was converted into the
Revolving Facility resulting in amounts borrowed under these two tranches of
US$190 million and of US$100 million, respectively, while the Term Loan B
Facility remained the same. Interest rates on the First Lien Credit Facilities
are based on LIBOR plus the applicable margin, with a LIBOR floor for the Term
Loan B Facility. The applicable margin was reduced by 0.625% for the Revolving
Facility and for the Term Loan A Facility and by 1.00% for the Term Loan B
Facility. In addition, the LIBOR floor for the Term Loan B Facility was reduced
from 1.00% to 0.75%. All other terms and conditions remained the same. In
connection with the amendment, transaction costs of US$6.2 million were
incurred. In connection with the acquisition of ABB on November 30, 2012, the
Corporation initially concluded, through two of its US subsidiaries, First Lien
Credit Facilities totaling US$710 in three tranches for a net proceed of
US$641.5 million net of transaction costs of US$18.5 million. The first tranche,
a Term Loan A Facility will mature on November 30, 2017, the second tranche, a
Term Loan B Facility will mature on November 30, 2019 and the third tranche, a
Revolving Credit Facility will mature on November 30, 2017. Effective on
December 31, 2013, the Term Loan A Facility is subject to quarterly amortization
of $3 million in the first year, $6 million in the second year and $7.2 million
in the third and fourth years. Effective on December 31, 2012, the Term Loan B
Facility is subject to quarterly amortization of 0.25% until its maturity date.
In addition to the fixed amortization schedule and commencing in the first
quarter of fiscal 2015, loans under the Term Loan Facilities shall be prepaid
according to a Prepayment Percentage of excess cash flow generated during the
prior fiscal year. The First Lien Credit Facilities are non-recourse to Cogeco
Cable, its Canadian subsidiaries and PEER 1's subsidiaries and are indirectly
secured by a first priority fixed and floating charge on substantially all
present and future real and personal property and undertaking of every nature
and kind of ABB and its subsidiaries. The provisions under these facilities
provide for restrictions on the operations and activities of ABB and its
subsidiaries. Generally, the most significant restrictions relate to permitted
indebtedness and investments, distributions and maintenance of certain financial
ratios.
On May 27, 2013, Cogeco Cable completed pursuant to a public debt offering, the
issue of $300 million Senior Secured Debentures Series "4" (the "Debentures")
for a net proceed of $297.1 million,net of transaction costs of $2.9 million.
These Debentures mature on May 26, 2023 and bear interest at 4.175% per annum
payable semi-annually. These Debentures are indirectly secured by a first
priority fixed and floating charge and a security interest on substantially all
present and future real and personal property and undertaking of every nature
and kind of the Corporation and its subsidiaries except for ABB and certain
immaterial subsidiaries ("unrestricted subsidiaries"). The provisions under
these Debentures provide for restrictions on the operations and activities of
Cogeco Cable and its subsidiaries except for the unrestricted subsidiaries.
Generally, the most significant restrictions relate to permitted indebtedness,
dispositions and maintenance of certain financial ratios.
On April 23, 2013, Cogeco Cable completed a private placement of $410.4 million
(US$400 million) aggregate principal amount of Senior Unsecured Notes (the "2020
Notes") for a net proceed of $402.6 million (US$392.4 million) net of
transaction costs of $7.8 million (US$7.6 million). These 2020 Notes mature on
May 1, 2020 and bear interest at 4.875% per annum payable semi-annually. These
2020 Notes are guaranteed on a senior unsecured basis, jointly and severally, by
its subsidiaries except for the unrestricted subsidiaries. The provisions under
these 2020 Notes provide for restrictions on the operations and activities of
Cogeco Cable and its subsidiaries except for the unrestricted subsidiaries.
Generally, the most significant restrictions relate to permitted indebtedness,
investments and distributions.
On April 23, 2013, the Corporation's subsidiary, Cogeco Cable, reimbursed the
Canadian Term Facility of $175 million and the US Term Facility of US$225
million in connection with the financing for the acquisition of PEER 1. As a
result of the acquisition of PEER 1 on January 31, 2013, Cogeco Cable concluded
Secured Credit Facilities totaling approximately $650 million with a syndicate
of lenders in four tranches for a net proceed of $640.3 million net of
transaction costs of $2.8 million. The first tranche, a Canadian Term Facility
amounting to $175 million, the second tranche, a US Term Facility amounting to
US$225 million, the third tranche, a Revolving Facility of $240 million and the
fourth tranche, a UK Revolving Facility of GBP 7 million. The Revolving Facility
is available in Canadian dollars, US dollars, British Pounds and Euros and
interest rates are based on Bankers' Acceptance, LIBOR Loans in US dollars,
British Pounds or Euros, Prime Rate Loans or US and British Pounds Base Rate
Loans, plus the applicable margin. The UK Revolving Facility is available in
British Pounds and interest rates are based on British Pounds Base Rate Loans or
British Pounds LIBOR Loans. The Secured Credit Facilities will mature on January
31, 2017. The Secured Credit Facilities are indirectly secured by a first
priority fixed and floating charge on substantially all present and future real
and personal property and undertaking of every nature and kind of Cogeco Cable
and most of its subsidiaries except for the unrestricted subsidiaries, and
provides for certain permitted encumbrances, including purchased money
obligations, existing funded obligations and charges granted by any subsidiary
prior to the date when it becomes a subsidiary, subject to a maximum amount. The
provisions under this facility provides for restrictions on the operations and
activities of Cogeco Cable except for the unrestricted subsidiaries. Generally,
the most significant restrictions relate to permitted investments and dividends
on multiple and subordinate voting shares, as well as incurrence and maintenance
of certain financial ratios primarily linked to operating income before
amortization, financial expense and total indebtedness.
FINANCIAL MANAGEMENT
Cogeco Cable has entered into cross-currency swap agreements to set the
liability for interest and principal payments on its US$190 million Senior
Secured Notes Series A maturing on October 1, 2015. These agreements have the
effect of converting the U.S. interest coupon rate of 7.00% per annum to an
average Canadian dollar interest rate of 7.24% per annum. The exchange rate
applicable to the principal portion of the debt has been fixed at $1.0625 per US
dollar. Cogeco Cable elected to apply cash flow hedge accounting on these
derivative financial instruments. During the first nine months of fiscal 2013,
amounts due under the US$190 million Senior Secured Notes Series A increased by
$9.7 million due to the US dollar's appreciation relative to the Canadian
dollar. The fair value of cross-currency swaps liability decreased by a net
amount of $9.3 million, of which a decrease of $9.7 million offsets the foreign
exchange loss on the debt denominated in US dollars. The difference of $0.4
million was recorded as a decrease of other comprehensive income. During the
first nine months of fiscal 2012, amounts due under the US$190 million Senior
Secured Notes Series A increased by $10.2 million due to the US dollar's
appreciation over the Canadian dollar. The fair value of cross- currency swaps
liability decreased by a net amount of $11.4 million, of which $10.2 million
offsets the foreign exchange loss on the debt denominated in US dollars.
Furthermore, Cogeco Cable's net investment in foreign subsidiaries is exposed to
market risk attributable to fluctuations in foreign currency exchange rates,
primarily changes in the values of the Canadian dollar versus the US dollar and
British Pound. This risk was mitigated since the major part of the purchase
prices for ABB and PEER 1 were borrowed directly in US dollars and British
Pounds. These debts were designated as hedges of net investments in foreign
operations. At May 31, 2013, the net investment for ABB and for PEER 1 amounted
to US$1.1 billion and GBP 66.6 million while long-term debt was amounted to
US$841.7 million and GBP 69.1 million. The exchange rate used to convert the US
dollar currency and British Pound currency into Canadian dollars for the
statement of financial position accounts at May 31, 2013 was $1.0368 per US
dollar and $1.5752 per British Pound. The impact of a 10% change in the exchange
rate of the US dollar and British Pound into Canadian dollars would change other
comprehensive income by approximately $27.5 million.
The Corporation is also impacted by foreign currency exchange rates, primarily
changes in the values of the US dollar relative to the Canadian dollar with
regards to purchases of certain equipment, as the majority of customer premise
equipment is purchased and subsequently paid in US dollars. Please consult the
"Foreign Exchange Risk" section in Note 13 of the condensed interim consolidated
financial statements for further details.
DIVIDEND DECLARATION
At its July 10, 2013 meeting, the Board of Directors of COGECO declared a
quarterly eligible dividend of $0.19 per share for multiple voting and
subordinate voting shares, payable on August 7, 2013, to shareholders of record
on July 24, 2013. The declaration, amount and date of any future dividend will
continue to be considered and approved by the Board of Directors of the
Corporation based upon the Corporation's financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors, at its sole discretion, deems relevant. There is therefore no
assurance that dividends will be declared, and if declared, the amount and
frequency may vary.
CABLE SEGMENT
CUSTOMER STATISTICS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated US (1) CANADA
May 31, 2013
----------------------------------------------------------------------------
PSU 2,470,164 488,874 1,981,290
Television service
customers 1,079,285 233,941 845,344
HSI service customers 826,495 176,170 650,325
Telephony service
customers 564,384 78,763 485,621
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated
Net additions (losses) Net additions (losses)
Quarters
ended Nine months ended
May 31, 2013 May 31, 2012 May 31, 2013 May 31, 2012
----------------------------------------------------------------------------
PSU (3,331) 6,246 15,851 64,705
Television service
customers (8,407) (4,453) (21,143) (9,112)
HSI service customers 2,351 2,835 22,408 27,638
Telephony service
customers 2,725 7,864 14,586 46,179
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Include 485,180 PSU (237,313 Television service, 169,553 HSI service and
78,314 Telephony service customers) from the acquisition of ABB. In the
third quarter of fiscal 2013, PSU from ABB at November 30, 2012 and
February 28, 2013 have been adjusted downwards to comply with Cogeco
Cable's and Canadian practices mostly related to reporting the number of
hotels and hotel units.
Fiscal 2013 third-quarter and first nine months, PSU net additions for the
Canadian operations were lower than in the comparable period of the prior year
mainly as a result of service category maturity, competitive offers and
tightening of our customer credit qualifications. PSU net additions for the
American operations were also lower than the last quarter resulting mainly from
snowbirds returning home for the summer in its Miami cluster. For the third
quarter net customer losses for Television service customers stood at 8,407
compared to 4,453 for fiscal 2012 third-quarter. Television service customer net
losses are mainly due to the promotional offers of competitors for the video
service combined with the tightening of our customer credit controls in Canada.
Fiscal 2013 third-quarter HSI service customers grew by 2,351 compared to 2,835
in the third quarter of the prior year, and the number of net additions to the
Telephony service stood at 2,725 customers compared to 7,864 customers for the
same period of the prior year. For the nine-month periods, PSU net additions are
stemming primarily from additional HSI services, partly offset by losses in
Television services for both Canadian and American operations.
OPERATING RESULTS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters
ended Nine months ended
(in thousands of May 31, May 31, May 31, May 31,
dollars, except 2013 2012 Change 2013 2012 Change
percentages) $ $ % $ $ %
----------------------------------------------------------------------------
Revenue 464,497 319,771 45.3 1,222,080 952,930 28.2
Operating expenses 249,365 167,110 49.2 654,477 515,218 27.0
Management fees -
COGECO Inc. - - - 9,569 9,485 0.9
---------------------------------------- --------------------
Operating income
before depreciation
and amortization 215,132 152,661 40.9 558,034 428,227 30.3
---------------------------------------- --------------------
Operating margin 46.3% 47.7% 45.7% 44.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue
Fiscal 2013 third-quarter revenue increased by $144.7 million, or 45.3%, to
reach $464.5 million, when compared to the same period last year. For the first
nine months, revenue amounted to $1.2 billion, an increase of $269.2 million, or
28.2% when compared to the same period of fiscal 2012. Revenue increases for
both periods are mainly attributable to the operating results of the recent
acquisitions as well as rate increases implemented in June and July 2012 in the
Canadian operations.
Operating expenses
For the third quarter of fiscal 2013, operating expenses increased by $82.3
million, or 49.2%, to reach $249.4 million. For the first nine months of the
fiscal year, operating expenses amounted to $654.5 million, an increase of $139
million, or 27.0%, when compared to the same period of fiscal 2012. These
additional operating expenses are mostly attributable to the recent
acquisitions, partly offset by cost reduction initiatives and the reduction in
operating expenses in the Canadian operations related to the deployment and
support costs incurred in fiscal 2012 for the migration of Television service
customers from analogue to digital.
Operating income before depreciation and amortization and operating margin
Fiscal 2013 third-quarter operating income before depreciation and amortization
increased by $62.5 million, or 40.9%, to reach $215.1 million, and by $129.8
million, or 30.3%, to reach $558.0 million in the first nine months as a result
of the recent acquisitions and the improvement in the Canadian operations.
Cogeco Cable's third-quarter operating margin decreased to 46.3% from 47.7%
mainly due to lower margins generated by PEER 1 acquisition and increased to
45.7% from 44.9% for the first nine months of fiscal 2013 when compared to the
comparable periods of the prior year.
FISCAL 2013 FINANCIAL GUIDELINES
As a result of revised projections in the Cable segment described below, the
Corporation revised its consolidated projections for the 2013 fiscal year.
Operating income before depreciation and amortization should increase from $782
million to $795 million and financial expense should increase from $118 million
to $131 million.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revised Revised
projections projections
July 10, 2013 April 10, 2013
Fiscal 2013 Fiscal 2013
(in millions of dollars) $ $
----------------------------------------------------------------------------
Financial guidelines
Revenue 1,835 1,835
Operating income before depreciation and
amortization 795 782
Integration, restructuring and acquisition
costs 17 16
Financial expense 131 118
Current income tax expense 94 94
Profit for the year 207 207
Profit for the year attributable to owners
of the Corporation 69 69
Acquisitions of property, plant and
equipment, intangible and other assets 404 404
Free cash flow(1) 150 150
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Free cash flow is calculated as operating income before depreciation and
amortization less integration, restructuring and acquisition costs,
financial expense, current income tax expense and acquisitions of
property, plant and equipment, intangible and other assets.
CABLE SEGMENT
Giving effect to the improvement of the Cogeco Cable's financial performance in
the Canadian operations with regards to the operating income before depreciation
and amortization mainly as a result of costs reduction initiatives, management
revised upwards its operating income before depreciation and amortization
projections issued on April 10, 2013 from $767 million to $780 million which
should contribute to increase the operating margin from 45.2% to 46.0%. PSU
growth should decline from 35,000 to 15,000 as a consequence of a more
competitive environment in the Canadian operations combined with service
category maturity and tighter customer credit qualification. However, revenue
projections should remain the same as a result of the rate increases implemented
in June 2013 in Quebec and Ontario. Furthermore, Cogeco Cable will use the net
proceeds of the issuance of US$215 million Senior Secured Notes, under a private
placement, on June 27, 2013, and borrow under its credit facilities to repay, on
July 29, 2013, all the outstanding amount of $300 million Senior Secured
Debentures Series 1, due on June 9, 2014. Therefore, financial expense should
reach $125 million, an increase of $12 million, mainly as a result of the
estimated make-whole premium on the early repayment of the Senior Secured
Debentures Series 1.
Fiscal 2013 revised financial guidelines are as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revised Revised
projections projections
July 10, 2013 April 10, 2013
Fiscal 2013 Fiscal 2013
(in millions of dollars, except net customer
additions and operating margin) $ $
----------------------------------------------------------------------------
Financial guidelines
Revenue 1,695 1,695
Operating income before depreciation and
amortization 780 767
Operating margin 46.0% 45.2%
Integration, restructuring and acquisition
costs 17 16
Depreciation and amortization 368 368
Financial expense 125 113
Current income tax expense 92 92
Profit for the year 205 205
Acquisitions of property, plant and
equipment, intangible and other assets 401 401
Free cash flow(1) 145 145
Net customer addition guidelines
PSU growth 15,000 35,000
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) Free cash flow is calculated as operating income before depreciation and
amortization less integration, restructuring and acquisition costs,
financial expense, current income tax expense and acquisitions of
property, plant and equipment, intangible and other assets.
FISCAL 2014 PRELIMINARY FINANCIAL GUIDELINES
For fiscal 2014, COGECO expects revenue to reach $2.1 billion and operating
income before depreciation and amortization should reach $900 million, as a
result of Cogeco Cable's 2014 preliminary guidelines and the projected results
of the radio and transit advertising activities. Free cash flow should generate
approximately $230 million and profit for the year attributable to the owners of
the Corporation should reach $82 million.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revised
Preliminary projections
projections July 10, 2013
Fiscal 2014 Fiscal 2013
(in millions of dollars) $ $
----------------------------------------------------------------------------
Financial guidelines
Revenue 2,075 1,835
Operating income before depreciation and
amortization 900 795
Integration, restructuring and acquisition
costs - 17
Financial expense 134 131
Current income tax expense 106 94
Profit for the year 250 207
Profit for the year attributable to owners of
the Corporation 82 69
Acquisitions of property, plant and equipment,
intangible and other assets 430 404
Free cash flow(1) 230 150
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Free cash flow is calculated as operating income before depreciation and
amortization less integration, restructuring and acquisition costs,
financial expense, current income tax expense and acquisitions of
property, plant and equipment, intangible and other assets.
CABLE SEGMENT
The fiscal 2014 preliminary financial guidelines take into consideration the
current uncertain global economic environment. These preliminary guidelines also
take into consideration the competitive environment that prevails in Canada, the
deployment of new technologies such as Fibre to the Home ("FTTH"), Fibre to the
Node ("FTTN") and Internet Protocol Television ("IPTV") by the incumbent
telecommunications providers.
For fiscal 2014, Cogeco Cable expects to achieve revenue of $1.935 billion,
representing growth of $240 million, or 14.2% when compared to the revised
fiscal 2013 projections issued on July 10, 2013. Revenue should increase as a
result of the full year impact from the recent acquisitions. In the Cable
services segment, revenue should stem primarily from targeted marketing
initiatives to improve penetration rates of the Digital Television, HSI and
Telephony services. Furthermore, the Digital Television service should continue
to benefit from the customers' ongoing strong interest in the Corporation's
growing HD service offerings. Revenue will also benefit, in the Canadian cable
services, from the impact of rate increases implemented in June 2013 in Quebec
and Ontario, ranging on average between $2 to $3 per HSI and Telephony service
customers. Cogeco Cable's strategies include consistently effective marketing to
residential and business customers, competitive product offerings and superior
customer service, which combined, lead to the expansion and loyalty of the
Television service clientele. As the penetration of residential HSI, Telephony
and Digital Television services increase, the new demand for these products
should slow in the Canadian cable services, reflecting service category
maturity. However, growth in the commercial and business sector is expected to
continue at a consistent pace in the Cable services segment. In the Enterprise
services segment, revenue growth should stem primarily from the hosting services
and the opening of the Barrie data centre facility.
As a result of the full year impact from the recent acquisitions, the increased
costs to service additional customers, inflation and manpower increases, as well
as the continuation of the marketing initiatives and retention strategies,
operating expenses are expected to expand by approximately $135 million, or
14.8% in the 2014 fiscal year when compared to the revised 2013 projections.
For fiscal 2014, Cogeco cable expects operating income before depreciation and
amortization of $885 million, an increase of $105 million, or 13.5% when
compared to the revised projections for 2013. The operating margin is expected
to reach approximately 45.7% in fiscal 2014, compared to the revised projections
for the 2013 fiscal year of 46.0%, reflecting operating expenses growth slightly
higher than the revenue growth as well as lower margins business activities from
the Enterprise services segment.
Cogeco Cable expects the depreciation and amortization of property, plant and
equipment and intangible assets to increase by $67 million for fiscal 2014,
mainly from the full year impact of recent acquisitions. Cash flows from
operations should finance capital expenditures and the increase in intangible
assets amounting to $425 million, an increase of $24 million when compared to
the revised 2013 projections. Capital expenditures projected for the 2014 fiscal
year are mainly due to scalable infrastructure for product enhancements and the
deployment of new technologies, line extensions to expand existing territories,
support capital to improve business information systems and support facility
requirements and expansion for the Enterprise services segment in order to
fulfill orders from new customers.
Fiscal 2014 free cash flow is expected to amount to $225 million, an increase of
$80 million, or 55.2% when compared to the projected free cash flow of $145
million for fiscal 2013, resulting from the growth in operating income before
depreciation and amortization, partly offset by additional capital expenditures
and financial expense from the full year impact of the recent acquisitions of
ABB and PEER 1 and by an increase in current income taxes. Generated free cash
flow will reduce Indebtedness net of cash and cash equivalent, thus improving
the Corporation's net leverage ratios. Financial expense should amount to $130
million an increase of $5 million related to ABB's and PEER 1's acquisition
financing. As a result, profit for the year of approximately $245 million should
be achieved compared to $205 million for the revised projections for fiscal
2013.
Fiscal 2014 preliminary financial guidelines are as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revised
Preliminary projections July
projections 10, 2013
(in millions of dollars, except operating Fiscal 2014 Fiscal 2013
margin) $ $
----------------------------------------------------------------------------
Financial guidelines
Revenue 1,935 1,695
Operating income before depreciation and
amortization 885 780
Operating margin 45.7% 46.0%
Integration, restructuring and
acquisition costs - 17
Depreciation and amortization 435 368
Financial expense 130 125
Current income tax expense 105 92
Profit for the year 245 205
Acquisitions of property, plant and
equipment, intangible and other assets 425 401
Free cash flow(1) 225 145
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) Free cash flow is calculated as operating income before depreciation and
amortization less integration, restructuring and acquisition costs,
financial expense, current income tax expense and acquisitions of
property, plant and equipment, intangible and other assets.
CONTROLS AND PROCEDURES
The President and Chief Executive Officer ("CEO") and the Senior Vice President
and Chief Financial Officer ("CFO"), together with Management, are responsible
for establishing and maintaining adequate disclosure controls and procedures and
internal controls over financial reporting, as defined in National Instrument
52-109. COGECO's internal control framework is based on the criteria published
in the report Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS.
The CEO and CFO, supported by Management, evaluated the design of the
Corporation's disclosure controls and procedures and internal controls over
financial reporting as of May 31, 2013, and have concluded that they are
adequate. Furthermore, no significant changes to the internal controls over
financial reporting occurred during the quarter ended May 31, 2013, except as
described below with respect to ABB and PEER 1.
On November 30, 2012, the Corporation's subsidiary, Cogeco Cable, completed the
acquisition of ABB and, subsequently on January 31, 2013 and April 3, 2013, the
Corporation acquired 100% of the issued and outstanding shares of PEER 1. Due to
the short period of time between those acquisition dates and the certification
date on July 10, 2013, management was unable to complete its review of the
design of Internal Controls Over Financial Reporting ("ICFR") for the recent
acquisitions. At May 31, 2013, risks were however mitigated as management was
fully apprised of any material events affecting these recent acquisitions. In
addition, all the assets and liabilities acquired were valued and recorded in
the condensed interim consolidated financial statements as part of the
preliminary purchase price allocation process and both ABB and PEER 1 results of
operations were also included in the Corporation's consolidated results. ABB
constitutes 13% of revenue, 13% of profit of the period, 32% of the total
assets, 18% of the current assets, 32% of the non current assets, 13% of the
current liabilities and 32% of the non current liabilities of the consolidated
condensed interim financial statements for the nine-month period ended May 31,
2013. PEER 1 constitutes 4% of revenue, -8% of profit of the period, 14% of the
total assets, 9% of the current assets, 14% of the non current assets, 9% of the
current liabilities and 10% of the non current liabilities of the consolidated
condensed interim financial statements for the nine-month period ended May 31,
2013. In the upcoming quarters, management will complete its review of the
design of ICFR for ABB and PEER 1 and assess its effectiveness. The business
combinations of fiscal 2013 under the "Cash flow analysis" section of this MD&A
presents summary financial information about the preliminary purchase price
allocation, assets acquired and liabilities assumed as well as other financial
information about ABB and PEER 1 business impact on the consolidated results of
the Corporation. Other financial information about ABB can be found in the
Business Acquisition Report filed by the Corporation on www.sedar.com, on
February 13, 2013.
UNCERTAINTIES AND MAIN RISK FACTORS
The uncertainties and main risk factors faced by the Corporation have not
changed significantly for its Canadian cable services since August 31, 2012,
except for the proposed Astral/Bell amended Arrangement Agreement described
below. A detailed description of the uncertainties and main risk factors faced
by COGECO can be found in the 2012 Annual Report and the Corporation's MD&A for
the period ended February 28, 2013 filed on SEDAR, available at www.sedar.com.
On June 27, 2013, the CRTC approved the application by Astral Media Inc.
("Astral") to transfer the control of Astral to BCE Inc. ("Bell"). The CRTC
concluded that the transaction as modified is in the public interest and
advances the objectives set out for the Canadian broadcasting. Specific measures
have been imposed by the CRTC to ensure that the transaction benefits Canadians
and the Canadian broadcasting system. As a part of the conditions, BCE will have
to sell 10 of the radio stations it acquired in the deal as well as 11 specialty
TV channels and be subject to greater increase of regulatory oversight with
respect to affiliation agreements. Bell will control over forty percent (40 %)
of Cogeco Cable's programming service affiliation payments at current wholesale
rates. In the event of future disputes concerning the terms of affiliation
between Cogeco Cable and Bell for services controlled by Bell, the CRTC may set
such terms at either party's request following a dispute resolution process, and
the services may not be interrupted by either party while such dispute
resolution process is pending.
FUTURE ACCOUNTING DEVELOPMENTS IN CANADA
A number of new standards, interpretations and amendments to existing standards
were issued by the International Accounting Standard Board ("IASB") that are
mandatory but not yet effective for the period ended May 31, 2013 and have not
been applied in preparing the condensed interim consolidated financial
statements. These standards are described under "Future accounting developments
in Canada" in the Corporation's 2012 annual MD&A, available at www.sedar.com and
www.cogeco.ca.
CHANGES IN CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There has been no significant change in COGECO's accounting policies, estimates
and future accounting pronouncements since August 31, 2012. A description of the
Corporation's policies and estimates can be found in the 2012 Annual Report,
available at www.sedar.com and www.cogeco.ca.
NON-IFRS FINANCIAL MEASURES
This section describes non-IFRS financial measures used by COGECO throughout
this MD&A. It also provides reconciliations between these non-IFRS measures and
the most comparable IFRS financial measures. These financial measures do not
have standard definitions prescribed by IFRS and therefore, may not be
comparable to similar measures presented by other companies. These measures
include "cash flow from operations", "free cash flow" and "operating income
before depreciation and amortization".
CASH FLOW FROM OPERATIONS AND FREE CASH FLOW
Cash flow from operations is used by COGECO's management and investors to
evaluate cash flows generated by operating activities, excluding the impact of
changes in non-cash operating activities, amortization of deferred transaction
costs and discounts on long-term debt, income taxes paid, current income tax
expense, financial expense paid and financial expense. This allows the
Corporation to isolate the cash flows from operating activities from the impact
of cash management decisions. Cash flow from operations is subsequently used in
calculating the non-IFRS measure, "free cash flow". Free cash flow is used, by
COGECO's management and investors, to measure its ability to repay debt,
distribute capital to its shareholders and finance its growth.
The most comparable IFRS measure is cash flow from operating activities. Cash
flow from operations is calculated as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Nine months ended
May 31, 2013 May 31, 2012 May 31, 2013 May 31, 2012
(in thousands of dollars) $ $ $ $
----------------------------------------------------------------------------
Cash flow from operating
activities 167,641 109,546 318,731 245,571
Changes in non-cash
operating activities 5,443 20,507 80,194 85,288
Amortization of deferred
transaction costs and
discounts on long-term
debt 3,520 1,681 7,237 3,357
Income taxes paid 17,031 10,634 79,490 67,711
Current income tax
expense (27,563) (25,016) (76,227) (72,306)
Financial expense paid 28,876 18,076 75,271 49,587
Financial expense (36,487) (17,822) (84,032) (51,710)
----------------------------------------------------------------------------
Cash flow from operations 158,461 117,606 400,664 327,498
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Free cash flow is
calculated as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Nine months ended
May 31, 2013 May 31, 2012 May 31, 2013 May 31, 2012
(in thousands of dollars) $ $ $ $
----------------------------------------------------------------------------
Cash flow from operations 158,461 117,606 400,664 327,498
Acquisition of property,
plant and equipment (108,976) (84,161) (289,016) (243,161)
Acquisition of intangible
and other assets (4,516) (3,980) (13,650) (10,570)
----------------------------------------------------------------------------
Free cash flow 44,969 29,465 97,998 73,767
----------------------------------------------------------------------------
----------------------------------------------------------------------------
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
Operating income before depreciation and amortization is used by COGECO'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 depreciation and amortization is a
proxy for cash flows from operations excluding the impact of the capital
structure chosen, and is one of the key metrics used by the financial community
to value the business and its financial strength.
The most comparable IFRS financial measure is operating income. Operating income
before depreciation and amortization is calculated as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Nine months ended
May 31, May 31, May 31, May 31,
(in thousands of dollars, except 2013 2012 2013 2012
percentages) $ $ $ $
----------------------------------------------------------------------------
Operating income 113,609 95,473 299,350 229,046
Depreciation and amortization 104,805 62,973 256,860 214,071
Integration, restructuring and
acquisitions costs 2,160 - 16,912 108
----------------------------------------------------------------------------
Operating income before
depreciation and amortization 220,574 158,446 573,122 443,225
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
----------------------------------------------------------------------------
----------------------------------------------------------------------------
February February
Quarters ended May 31, 28, 29,
(in thousands of dollars, 2013 2012 2013 2012
except per share data) $ $ $ $
----------------------------------------------------------------------------
Revenue 504,434 358,032 458,501 345,613
Operating income before
depreciation and
amortization 220,574 158,446 195,968 144,518
Operating income 113,609 95,473 102,464 58,931
Income taxes 22,006 22,278 15,416 13,372
Profit for the period from
continuing operations 55,116 55,373 56,517 29,449
Profit for the period from
discontinued operations - - - 52,047
Profit for the period 55,116 55,373 56,517 81,496
Profit for the period
attributable to owners of
the Corporation 18,902 19,303 16,899 25,089
Cash flow from operating
activities 167,641 109,546 157,095 126,455
Cash flow from operations 158,461 117,606 140,413 105,153
Acquisitions of property,
plant and equipment,
intangible and other
assets 113,492 88,141 106,019 87,186
Free cash flow 44,969 29,465 34,394 17,967
Earnings per share(1)
From continuing and
discontinued operations
Basic 1.13 1.15 1.01 1.50
Diluted 1.12 1.15 1.00 1.49
From continuing
operations
Basic 1.13 1.15 1.01 0.50
Diluted 1.12 1.15 1.00 0.50
From discontinued
operations
Basic - - - 1.00
Diluted - - - 0.99
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended November 30, August 31,
(in thousands of dollars, 2012 2011 2012 2011
except per share data) $ $ $ $
----------------------------------------------------------------------------
Revenue 366,608 346,023 356,685 331,045
Operating income before
depreciation and
amortization 156,580 140,261 163,617 152,434
Operating income 83,277 74,642 95,943 101,304
Income taxes 19,168 12,340 33,625 21,804
Profit for the period from
continuing operations 47,095 44,524 44,900 63,870
Profit for the period from
discontinued operations - 3,399 - 6,219
Profit for the period 47,095 47,923 44,900 70,089
Profit for the period
attributable to owners of
the Corporation 18,487 18,770 13,889 23,317
Cash flow from operating
activities (6,005) 9,570 203,193 217,792
Cash flow from operations 101,790 104,739 119,612 148,228
Acquisitions of property,
plant and equipment,
intangible and other
assets 83,155 78,404 124,638 122,441
Free cash flow 18,635 26,335 (5,026) 25,787
Earnings per share(1)
From continuing and
discontinued operations
Basic 1.11 1.12 0.83 1.39
Diluted 1.10 1.11 0.83 1.39
From continuing
operations
Basic 1.11 1.06 0.83 1.27
Diluted 1.10 1.05 0.83 1.27
From discontinued
operations
Basic - 0.07 - 0.12
Diluted - 0.06 - 0.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Per multiple and subordinate voting share.
SEASONAL VARIATIONS
Cogeco Cable's operating results are not generally subject to material seasonal
fluctuations except as follows. The customer growth in the Television service
customers 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 season, 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. In the American
operations, the customer growth in the Television service customers and HSI
service are also generally lower in the second half of the fiscal year as a
result of a decrease in economic activity due to the snowbirds leaving for the
summer season essentially in the Miami area.
ADDITIONAL INFORMATION
This MD&A was prepared on July 10, 2013. Additional information relating to the
Corporation, including its Annual Information Form, is available on the SEDAR
website at www.sedar.com.
/s/ Jan Peeters /s/ Louis Audet
------------------------------------- -------------------------------------
Jan Peeters Louis Audet
Chairman of the Board President and Chief Executive Officer
COGECO Inc.
Montreal, Quebec
July 10, 2013
CABLE SEGMENT CUSTOMER STATISTICS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
February November August
May 31, 28, 30, 31, May 31,
2013 2013 2012 2012 2012
----------------------------------------------------------------------------
Primary service
units(1) 2,470,164 2,473,495 2,469,393 1,969,133 1,962,174
CANADA 1,981,290 1,984,555 1,984,213 1,969,133 1,962,174
US 488,874 488,940 (2) 485,180 (2) 0 0
----------------------------------------------------------------------------
Television service
customers 1,079,285 1,087,692 1,098,352 863,115 868,873
CANADA 845,344 852,707 861,039 863,115 868,873
Penetration as a
percentage of
homes passed 50.7% 51.4% 52.1% 52.4% 52.9%
US 233,941 234,985 237,313 0 0
Penetration as a
percentage of
homes passed 45.3% 45.5% 46.0% 0 0
----------------------------------------------------------------------------
Digital Television
service customers 924,155 922,703 922,576 771,503 765,585
CANADA 779,950 778,728 780,724 771,503 765,585
Penetration as a
percentage of
homes passed 46.8% 46.9% 47.2% 46.8% 46.6%
US 144,205 143,975 141,852 0 0
Penetration as a
percentage of
homes passed 27.9% 27.9% 27.5% 0 0
----------------------------------------------------------------------------
Analogue
Television
service customers 155,130 164,989 175,776 91,612 103,288
CANADA 65,394 73,979 80,315 91,612 103,288
Penetration as a
percentage of
homes passed 3.9% 4.5% 4.9% 5.6% 6.3%
US 89,736 91,010 95,461 0 0
Penetration as a
percentage of
homes passed 17.4% 17.6% 18.5% 0 0
----------------------------------------------------------------------------
High Speed
Internet service
customers 826,495 824,144 814,932 634,534 628,852
CANADA 650,325 649,165 645,379 634,534 628,852
Penetration as a
percentage of
homes passed 39.0% 39.1% 39.0% 38.5% 38.3%
US 176,170 174,979 169,553 0 0
Penetration as a
percentage of
homes passed 34.1% 33.9% 32.9% 0 0
----------------------------------------------------------------------------
Telephony service
customers 564,384 561,659 556,109 471,484 464,449
CANADA 485,621 482,683 477,795 471,484 464,449
Penetration as a
percentage of
homes passed 29.1% 29.1% 28.9% 28.6% 28.3%
US 78,763 78,976 78,314 0 0
Penetration as a
percentage of
homes passed 15.2% 15.3% 15.2% 0 0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Represents the sum of Television, High Speed Internet ("HSI") and
Telephony service customer.
(2) In the third quarter of fiscal 2013, PSU from ABB at November 30, 2012
and February 28, 2013 have been adjusted downwards to comply with Cogeco
Cable's and Canadian practices mostly related to reporting the number of
hotels and hotel units.
FOR FURTHER INFORMATION PLEASE CONTACT:
Source:
COGECO Inc.
Pierre Gagne
Senior Vice President and Chief Financial Officer
514-764-4700
Information:
Media
Rene Guimond
Vice-President, Public Affairs and Communications
514-764-4700
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