Cogeco 2010 Annual Report Download - page 39

38 COGECO CABLE INC. 2010 Management’s Discussion and Analysis (MD&A)
European operations was $1.3154 per Euro compared to $1.5701 per Euro for the comparable period of fiscal 2009. Revenue from the
European operations in the local currency for the fourth quarter amounted to €32.1 million, a decrease of €1.2 million, or 3.6% when compared
to the prior year.
For the fourth quarter of fiscal 2010, operating costs increased by $22.2 million at $186.1 million, an increase of 13.6% compared to the prior
year. The increase in operating costs is mainly attributable to servicing additional RGU, the launch of new HD channels, additional marketing
initiatives and the new levy amounting to 1.5% of gross Cable Television service revenue imposed by the CRTC in order to finance the LPIF in
Canada. Fourth-quarter operating costs were also favourably affected by the decline of the value of the Euro over the Canadian dollar, which
surpassed increases in operating costs related to additional marketing initiatives and the launch of new channels, net of the impact of cost
reduction initiatives implemented by Cabovisão in the European operations. Fiscal 2009 also included, in the Canadian operations, the impact
of $19.8 million from the Part II licence fee favourable settlement agreement.
Fiscal 2010 fourth-quarter operating income before amortization decreased by $5.7 million, or 4%, to reach $138.2 million, as a result of the
increase in operating costs exceeding the growth in revenue. Fiscal 2009 operating income before amortization included the $19.8 million
impact from the fiscal 2009 Part II licence fee favourable settlement agreement. The operating margin in Canada decreased to 46.1% from
52.2%. Notwithstanding the Part II licence fee favourable settlement agreement, the operating margin increased year over year as a result of
the introduction of HSI usage billing and various rate increases implemented at the end of fiscal 2009 and in fiscal 2010, partly offset by the
launch of new services which generate lower margins, the migration of customers from Analogue to Digital Television services and the revenue
from the new LPIF which does not generate operating income before amortization. The European operating margin decreased to 19.1% from
20.1%. The consolidated operating margin for the fourth quarter decreased to 42.6% compared to 46.7% in the fourth quarter of fiscal 2009.
Cash flow analysis
Quarters ended August 31, 2010 2009
(1)
(in thousands of dollars) $ $
Operating activities
Cash flow from operations 127,024 108,631
Changes in non-cash operating items 67,390 66,819
194,414 175,450
Investing activities(2) (107,776) (91,399)
Financing activities(2) (65,204) (87,651)
Effect of exchange rate changes on cash and cash equivalents denominated in a foreign currency 402 546
Net change in cash and cash equivalents 21,836 (3,054)
Cash and cash equivalents, beginning of period 14,006 42,512
Cash and cash equivalents, end of period 35,842 39,458
(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.
(2) Excludes assets acquired under capital leases.
During the fourth quarter of 2010, cash flow from operations reached $127 million, 16.9% higher than the comparable period last year, primarily
due to the reduction in income tax payments stemming from modifications to the corporate structure. Changes in non-cash operating items
generated cash inflows of $67.4 million, mainly as a result of an increase in accounts payable and accrued liabilities. In the fourth quarter of the
prior year, cash inflows of $66.8 million mainly stemmed from increases in accounts payable and accrued liabilities which were partly offset by
the Part II licence fee favourable settlement agreement, an increase in income tax liabilities and a decrease in income taxes receivable.
Investing activities in the fourth quarter of 2010 amounted to $107.8 million compared to $91.4 million for the same period the year before. The
increase of $16.4 million, or 17.9% is primarily due to an increase in customer premise equipment spending required to support RGU growth
partly offset by depreciation of the Euro over the Canadian dollar.
In the fourth quarter of 2010, Cogeco Cable generated free cash flows of $19.2 million compared to $14.8 million in the prior year. The increase
in free cash flow is the result of an increase in cash flow from operations outpacing the increase in capital expenditures.
In the fourth quarter of 2010, Indebtedness affecting cash decreased by $53.4 million mainly due to the inflows generated by changes in non-
cash operating items of $67.4 million and the free cash flow of $19.2 million, partly offset by the increase in cash and cash equivalents of
$21.8 million and the payment of dividends totalling $6.8 million described below and an increase in deferred transaction costs of $5.2 million.
Indebtedness reduced mainly through a decrease of $44.7 million in bank indebtedness and net repayments on the Corporation’s term and
revolving loans of $7.6 million. During the fourth quarter of 2009, Indebtedness affecting cash decreased by $81.8 million mainly due to the
increase in non-cash operating items of $66.8 million, the free cash flows of $14.8 million and the decrease in cash and cash equivalents of
$3.1 million, net of the dividend payment of $5.8 million described below. Indebtedness mainly decreased through the net repayments on the
Corporation’s term and revolving loans of $175.4 million, the repayment of $150 million Senior Secured Debentures Series 1 at maturity on
June 4, 2009, and by a decrease of $52.2 million in bank indebtedness, partly offset by the issuance on June 9, 2009 of Senior Secured
Debentures Series 1 for $300 million maturing June 9, 2014.