Cogeco 2010 Annual Report Download - page 24

Management’s Discussion and Analysis (MD&A) COGECO CABLE INC. 2010 23
revised projection, issued on January 12, 2010, of $1,290 million, management considers that the revenue projection for fiscal 2010 has been
achieved.
Consolidated operating income before amortization rose by $2.2 million, or 0.4% to reach $510.1 million. The growth in operating income
before amortization stems from the increase in revenue outpacing the growth in operating costs. Fiscal 2009 operating income before
amortization included a favourable impact of $19.8 million from the settlement of the Part II licence fees payable to the CRTC for the 2007 to
2009 fiscal years (the “Part II licence fee favourable settlement agreement”) as described in the “Operating and financial results” section on
page 23. For further details on the Corporation’s operating results, please refer to the “Canadian operations” and “European operations”
sections on pages 32 and 33, respectively. The consolidated fiscal 2010 operating income before amortization achieves the revised projection
of $505 million issued on January 12, 2010.
Amortization expense increased by $2.8 million to reach $258.9 million, mainly due to additional capital expenditures arising from customer
premise equipment acquisitions to sustain RGU growth, partly offset by a decrease in amortization of intangible assets reflecting the
impairment loss on intangible assets recorded in the 2009 fiscal year. Amortization expense for the 2010 fiscal year was well below the
Corporation’s revised projections of $273 million.
Financial expense decreased by $4.8 million at $64.9 million, mainly due to a decrease in Indebtedness (defined as the total of bank
indebtedness, principal on long-term debt and obligations under derivative financial instruments), partly offset by the increase in the average
cost of Indebtedness when compared with the 2009 fiscal year. Financial expense for the 2010 fiscal year was better than management’s
revised guideline of $69 million.
During the 2009 fiscal year, the Corporation recorded a $399.6 million non-cash impairment loss on its investment in Cabovisão as a result of
recurring competitive pressure resulting in subscriber losses that were more severe than originally anticipated. For further details on the
impairment loss recorded in the previous fiscal year, please refer to the “Impairment of goodwill and intangible assets” section on page 25.
Cogeco Cable reported net income of $157.3 million, a significant improvement when compared to fiscal 2009, primarily due to the decrease in
the Ontario provincial corporate income tax rates and the decrease in financial expense, coupled with the growth in operating income before
amortization. The increase in net income was partly offset by the increase in amortization expense. Excluding the impact of the decrease in
corporate income tax rates described above, adjusted net income(1) would have amounted to $127.5 million for the year. At $157.3 million,
fiscal 2010 net income significantly exceeded the revised projection issued on January 12, 2010 of $125 million.
Capital expenditures, including assets acquired under capital leases, and the increase in deferred charges amounted to $319.7 million, were
primarily the result of RGU growth and expansions and improvements to the network infrastructure during the year. Capital expenditures and
the increase in deferred charges for the current year were below the revised projections of $341 million.
Free cash flows of $175.1 million were generated as a result of an increase in cash flow from operations, partly offset by an increase in capital
expenditures to support RGU growth. The Corporation largely surpassed the revised fiscal 2010 free cash flow target of $135 million issued on
January 12, 2010.
Operating and financial results
Operating results
Years ended August 31, 2010 2009
(1)
Change
(in thousands of dollars, except percentages) $$%
Revenue 1,281,376 1,217,837 5.2
Operating costs 762,261 700,942 8.7
Management fees – COGECO Inc. 9,019 9,019 –
Operating income before amortization 510,096 507,876 0.4
Operating margin 39.8% 41.7%
(1) Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
application of the CICA Handbook Section 3064. Please refer to the “Critical accounting policies and estimates” section on page 11 for more details.
Revenue
Fiscal 2010 consolidated revenue increased by $63.5 million, or 5.2%, compared to the same period last year to reach $1,281.4 million. The
Canadian operations contributed an increase of $108.9 million, or 11.1% which offset a decline in revenue in the European operations of
$45.3 million, or 19.4%, in the 2010 fiscal year. For further details on the Corporation’s operating results, please refer to the “Canadian
operations” and “European operations” sections on pages 32 and 33, respectively.
(1) Adjusted net income does not have a standardized definition prescribed by Canadian GAAP and therefore, may not be comparable to similar measures
presented by other companies. For further details, please consult the “Non-GAAP financial measures” section on page 40.