Cogeco 2004 Annual Report Download - page 22

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MANAGEMENT’S DISCUSSION AND ANALYSIS
20 Cogeco Cable Inc. 2004
FINANCIAL POSITION
Since August 31, 2003, there have been significant changes on
the balance sheet in fixed assets, Indebtedness, future income tax
liabilities and shareholders’ equity.
Fixed assets declined by $35.3 million as amortization exceeded
capital expenditures. As mentioned above, an increase in amor-
tization of $20.1 million was recorded mainly as a result of a
change in the estimated useful life of home terminal devices.
At August 31, 2004, the Corporation performed an impairment
test of the value of the customer base and concluded that no
impairment existed.
Indebtedness declined by $48.3 million mostly due to generated
Free Cash Flow of $43.5 million and an increase of $4.3 million in
non-cash working capital items and long-term deferred and prepaid
income. Future income tax liabilities increased by $35.1 million
predominantly because of the income tax adjustment described
under the “Income Taxes” section on page 17. Finally, shareholders’
equity declined by $31.6 million, mainly on account of the net loss
generated during fiscal 2004. As previously mentioned, this loss
is derived from non-cash adjustments for amortization and income
taxes totaling $45.6 million in fiscal 2004.
CAPITAL RESOURCES
AND LIQUIDITY
Capital Structure
The table below summarizes debt-related financial ratios over the
last two fiscal years and the fiscal 2005 guidelines.
Years ended August 31, 2005 2004 2003
Guidelines
(1)
(restated)
Average cost of
Indebtedness 7.3% 7.2% 7.3%
Fixed rate Indebtedness 97% 92% 86%
Average term:
long-term debt 3.3 years 4.3 years 5.5 years
Indebtedness/
Shareholders’ equity 1.0 1.1 1.1
Indebtedness/
Operating Income 3.2 3.7 4.6
Operating Income/
Financial expense 3.9 3.5 2.9
(1)
See the “Fiscal 2005 Financial Guidelines” section on page 24 for
further discussion.
The average cost of Indebtedness has declined because average
short-term interest rates on the Term Facility have declined from
4.6% in fiscal 2003 to 3.8% in fiscal 2004. In fiscal 2005, the fixed-
rate portion of Indebtedness is expected to increase as the amount
drawn under the Term Facility should continue to significantly
decline due to Free Cash Flow. The average tenure of long-term
debt will decline by one year as no new refinancings are planned
for fiscal 2005.
Financial leverage and interest coverage ratios should continue to
improve in fiscal 2005 as management expects further Operating
Income growth and debt reductions. See “Fiscal 2005 Financial
Guidelines” on page 24 for further details.
Outstanding Share Data
A description of Cogeco Cable’s share data as at September 30,
2004 is presented in the table below. Additional details are
provided in Note 9 on page 40.
Number of shares/ Amount
options
(in thousands of dollars)
Common Shares
Multiple voting shares 15,691,100 98,346
Subordinate voting shares 24,232,815 531,070
Options to Purchase
Subordinate Voting Shares
Outstanding options 509,515
Exercisable options 250,774