Cogeco 2003 Annual Report Download

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2003 Annual Report

Table of contents

  • Page 1
    2003 Annual Report

  • Page 2
    ... prices, and striving to provide both superior customer care and growing profitability. Glossary Digital services : digital video services. HSI : high-speed HSI Lite : high- Internet services. speed Internet product with download speed of up to 150 Kbps. HSI Pro : highspeed Internet product...

  • Page 3
    ...in thousands of dollars, except rates of return and ratios, customers and terminals, ARPU and per share data) Financial Highlights 2003 Operations Revenue Operating Income (1) Net income from recurring operations Net income Cash Flow (1) Free Cash Flow ARPU (1) (1) 2002 Change $ 479,293 183,344...

  • Page 4
    ... year, despite the $5 rate increase introduced in the second half of fiscal 2002. Thus, we added 46,987 new customers, to reach 205,179. In most of our service areas, the Cogeco high-speed Internet service is operated at downstream speeds that beat the digital subscriber line (DSL) competition by...

  • Page 5
    ... to receive and decrypt unauthorised US satellite services free of charge. Through programs such as the Coalition Against Satellite Signal Theft (CASST) and other collective and individual anti-piracy initiatives, we hope to see: stricter, well publicized enforcement of the law by law enforcement...

  • Page 6
    ... on our mission to tap a greater share of the discretionary spending of the customers we serve, on home information, entertainment and communications, adding more services on top of basic video, such as digital services, including VOD, and high-speed Internet. As regards telephony, we are still...

  • Page 7
    ...mid-August of this year. Our personnel worked beyond the call of duty. As a result, all our services were quickly reestablished to customers once power was restored. Heartfelt thanks to all our dedicated Cogeco Cable team members! lower than necessary price competition that prevailed in the 2000 to...

  • Page 8
    ... tables on selected quarterly data for fiscal 2003 and 2002. (1) Overview of Our Business Cogeco Cable is the second largest cable operator in each of Ontario and Québec and the fourth largest in Canada based on the number of basic service customers it serves. Cogeco Cable provides video, digital...

  • Page 9
    ... added bundles In line with its objective of offering customers more choices at affordable prices, Cogeco Cable is in the process of launching new services including: • Smaller and more affordable digital theme packs in Québec to better respond to the French language market demand. • Increased...

  • Page 10
    ... retail price cutting to value propositions in the form of bundles of discrete services for a single price, incentives on terminal equipment required to receive the services, and time-limited introductory offers for new customers. Largely as a result of this shift in competitive pricing strategies...

  • Page 11
    ...meantime, funds available for system capacity upgrades required to distribute highdefinition and other additional video services to the same extent as satellite distributors may be constrained. Work on improvements to back-up and redundancy capabilities for Cogeco Cable's plant, head end and server...

  • Page 12
    ... the authority of the Costs Cost of sales is mainly comprised of network fees for programming services, copyright fees and IP transport fees for HSI. Cable distributors throughout North America have been faced Telecommunications Act (Canada) to set terms for access to municipal street allowances...

  • Page 13
    ... 39,658 53,760 NA NA NA NA 28.5 22.8 35.1 22.1 18.4 28.9 Digital terminals (3) Bundled service customers (4) (1) (2) As a percentage of basic service customers in areas served. 5,652 HSI Lite and 577 HSI Pro customers are included. Taking into account pending orders, the number would amount to...

  • Page 14
    ... to basic service only. Cogeco Cable introduced further rate adjustments effective in June for the Ontario customer base and in July for the Québec digital customer base. These adjustments resulted in incremental average monthly rates of approximately $1.75 per basic service customer in Ontario and...

  • Page 15
    ... to sales of home terminal devices and a portion of advertising expenses related to net additions of digital and HSI customers. Amortization also includes new services launch costs and up-front financing costs related to recent debt financings. by $0.9 million or 9% despite the 30% increase in...

  • Page 16
    ... Corporation recorded no unusual items. In fiscal 2002, Cogeco Cable incurred an expense of $4.9 million before income taxes as a result of staff reductions. (4) Cash Flow Analysis Operating Activities Cash ï¬,ow from operating activities includes Cash Flow, net changes in non-cash working capital...

  • Page 17
    ... Wallaceburg St. Clair Beach Belle River Puce Tecumseh Sarnia Wyoming Petrolia Oil City Oil Springs Dresden Sto Wellington Trenton Brighton Colborne London Waterdown Hamilton Dundas Ancaster Thorold Smithville LAKE ONTARIO Niagara on the Lake St. Catharines Niagara Falls Fort Erie Welland...

  • Page 18
    ... narrowcast digital services such as Internet and VOD will be accommodated through further cost efficient node splitting. Québec Inter-City Fiber Deployment Optic Cable Network: 3,600 km Optic Fiber: 43,900 km Sept-Îles Port-Cartier ST. LAWRENCE RIVER Baie-Comeau Forestville Matane Alma Gasp...

  • Page 19
    ...S I S Costs associated with the launch of new services mainly relate to the introduction of 50 new digital channels in fiscal 2002 and the rollout of VOD service in fiscal 2003. Equipment subsidies and advertising relate to subsidies on sales of 50,946 and 71,233 digital terminals in fiscal 2003...

  • Page 20
    ... the US interest coupon rate of 6.83% Fiscal 2003 leverage and interest coverage ratios improvement should continue in fiscal 2004 as management expects further Operating Income growth and debt reductions. Of all Cogeco Cable's debt instruments, the bank facilities set the most restrictive...

  • Page 21
    ... increases. Commitments Cogeco Cable's contractual obligations as of August 31, 2003, are shown in the table above. (7) Fiscal 2004 Financial Guidelines Effective marketing and customer service combined with the continued success of bundling services should further improve customer retention...

  • Page 22
    ...Emerging Issues Committee also issued in June 2002 EIC-28, Accounting for Measure ARPU Definition Average monthly revenue per basic service customer is computed on the basis of annual revenue divided by average basic service customers during the year divided by twelve. trading speculative or non...

  • Page 23
    ...Information Operating Results 2003 Q U A R T E R S E N D E D (in thousands of dollars, except per share data) Nov. 30 Feb. 28 May 31 Aug. 31 Total...The addition of quarterly per share information may not correspond to the total given the fluctuation in the number of shares outstanding. C o g e...

  • Page 24
    ... 7,625,980 $ 20.60 16.25 16.50 4,121,531 21,381,824 2002 Q U A R T E R S E N D E D Nov. 30 Feb. 28 May 31 Aug. 31 Total The Toronto Stock Exchange High Low Close Volume (shares) $ 27.45 18.30 22.00 2,782,586 $ 24.35 20.16 21.70 3,370,460 $ 22.00 16.55 17.02...

  • Page 25
    Consolidated Financial Statements 24 24 25 25 26 27 28 Management's Responsibility Auditors' Report Consolidated Statements of Income Consolidated Statements of Retained Earnings Consolidated Balance Sheets Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements C o g e c ...

  • Page 26
    ... to issue an opinion on the statements. The external auditors have free access to the Audit Committee, with or without the presence of management. Their report follows. Signed Louis Audet Louis Audet President and Chief Executive Officer Signed Pierre Gagné Pierre Gagné Vice-President, Finance and...

  • Page 27
    ...except per share data) Consolidated Statements of Income 2003 Revenue Operating costs Management fees - COGECO Inc. (...Retained Earnings 2003 Balance at beginning Net income Excess of the attributed value of subordinate voting shares purchased over price paid Balance at end $ $ 87,771 7,879 27 95,677...

  • Page 28
    ... Customer base (note 7) Accounts receivable Income tax receivable Prepaid...stock (note 11) Retained earnings 629,015 95,677 724,692 $ 1,830,517 $ 1,830,282 $ 3,091 820,649 4,830 1,147 97,849 - 17,055 168,864 1,113,485 629,026 87,771 716,797 $ 1,830,282 On behalf of the Board of Directors, Signed...

  • Page 29
    ... and amortization (note 2) Amortization of long-term financing costs Future income taxes (note 4) Future income taxes related to unusual item Other Cash ï¬,ow from operating activities before undernoted items Unusual item Changes in non-cash working capital items (note 14a)) $ 7,879 - 7,879 107,158...

  • Page 30
    ... control. Other investments are recorded at cost. Revenue recognition Revenue from cable television and related services, and from high-speed Internet access are recognized when services are provided. Revenue generated from sales of equipment with or without programming credits, which are accounted...

  • Page 31
    ... credited to capital stock. The supplementary information required is presented in note 11. Segmented information The Corporation considers its cable distribution and high-speed Internet access activities as a single operating segment. Employees future benefits Pension costs are determined using...

  • Page 32
    ...contract or an indemnification agreement that contingently requires the Corporation to make payments based on changes in an underlying, related... 2002, the Corporation completed a staff reduction program and as a result, a charge of $4,925,000 has been recorded for the payment of employee severances...

  • Page 33
    ... Other Total future income tax assets Future income tax liabilities Fixed assets Deferred charges Customer base Total future income...2003 Cost Land Buildings Cable systems Equipment, programming equipment, furniture and fixtures Decoders, modems and customer's premises devices Rolling stock under...

  • Page 34
    ... 2003 Cost Accumulated amortization $ 1,040,333 50,781 $ 989,552 2002 $ 1,040,333 50,781 $ 989,552 At August 31, 2003 and 2002, the Corporation tested the value of customer base for impairment and concluded that no impairment existed as at those dates. 8 Bank indebtedness The operating line of...

  • Page 35
    ... note 9 c)). 11 Capital stock Authorized Unlimited number of: Class A Preference shares, without voting rights, redeemable by the Corporation and retractable at the option of the holder at any time at a price of $1 per share, carrying a cumulative preferential cash dividend at a rate of 11% of the...

  • Page 36
    ..., up to 40,000 annually, under this plan. Stock Option Plan A total of 1,832,500 subordinate voting shares are reserved for the purpose of the Stock Option Plan. The minimum purchase price at which options are granted is not less than the market value of such shares at the time the option is granted...

  • Page 37
    ...CICA Handbook Section 3870, the Corporation does not record any compensation expense for options granted to employees. If compensation cost had been recognized using the fair value-based method at the grant date, the Corporation's net income and earnings per share for the years ended August 31, 2003...

  • Page 38
    ...shareholder as a result. An amount of $128,000 ($118,000 in 2002) has been recorded as a reduction of expenses related to this plan. 12 Earnings per share The following table provides a reconciliation between basic and diluted earnings per share: 2003 Net income Weighted average number of multiple...

  • Page 39
    ... a credit rating equal or superior to A+. In addition, since the Corporation has a large and diversified clientele, credit risk concentration from customers is minimal. 14 Statements of cash flow a) Changes in non-cash working capital items 2003 Accounts receivable Income tax receivable Prepaid...

  • Page 40
    ... pension plan. The following table provides a reconciliation of the change in the plans' benefit obligations and fair value of plan assets and a statement of the funded status as at August 31: 2003 Change in accrued benefit obligation Accrued benefit obligation at beginning of year Service cost...

  • Page 41
    ... indemnifications. 17 Related party transactions Cogeco Cable Inc. is a subsidiary of COGECO Inc., which holds 39.3% of the Corporation's participating shares. COGECO Inc. and the Corporation executed, on September 1, 1992, a management agreement under which the parent company agreed to provide...

  • Page 42
    ..., 2001, the ratio includes financial results for periods less than twelve months of the acquisitions of Cablevue (Quinte) Limited and related companies, of Harrowby Communications and related companies, of Muskoka Cable Systems Limited and related companies, of Huntsville Cable Services Limited, of...

  • Page 43
    ... results of cable system exchange with Shaw Communications Inc. for a two-month period only. (9) For the fiscal year ended August 31, 1997, the ratio includes financial results of the cable systems acquired from Rogers Cablesystems Limited and certain of its related companies for a nine-month...

  • Page 44
    ... credit ratings have a stable trend. DBRS BB (High) BB (High) S&P BBB- BB+ A S A T A U G U S T 3 1 , 2 0 0 3 Share Information Number of multiple voting shares (10 votes per share) outstanding Number of subordinate voting shares (1 vote per share) outstanding Stock exchange listing Trading...

  • Page 45
    ... advantages of digital service and high-speed Internet service. Basic Service Homes Passed Breakdown by province Ontario Québec Total in Canada (1) (2) Discretionary Services % of Penetration (2) Basic service Distribution by province as a % Customers % of Penetration (1) Customers 954,912...

  • Page 46
    ... Manager, Cable Ontario Jules Grenier Vice-President and General Manager, Cable Québec Christian Jolivet Chief Legal Officer and Secretary Yves Mayrand Vice-President, Corporate Affairs Ron A. Perrotta Vice-President, Marketing and Sales Louise St-Pierre Vice-President and Chief Information Officer...

  • Page 47
    ... other than a change of address, financial information or a change of registration of shares, please contact the Legal Affairs Department. Duplicate Communications Some shareholders may receive more than one copy of publications such as Quarterly Reports and the Annual Report. Every effort is...

  • Page 48
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