Cogeco 2013 Annual Report Download - page 29

28 COGECO CABLE INC. 2013 Management's discussion and analysis (“MD&A”)
OPERATING EXPENSES AND MANAGEMENT FEES
For fiscal 2013, operating expenses amounted to $902.4 million, an increase of $223.2 million, or 32.9%, 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 cable services related to the deployment and support costs incurred in fiscal 2012 for the
migration of Television service customers from analogue to digital. For further details on the Corporation’s operating expenses, please refer to
the “Segmented operating results” sections.
Management fees paid to COGECO Inc. amounted to $9.6 million compared to $9.5 million in fiscal 2012, and are discussed in detail in the
“Related party transactions” section.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND OPERATING
MARGIN
Fiscal 2013 operating income before depreciation and amortization increased by $191.5 million, or 32.5%, to reach $780.5 million as a result of
the recent acquisitions and the improvement in the Canadian cable services segment. Cogeco Cable’s operating margin remained the same at
46.1% when compared to the prior year. For further details on the Corporation’s operating income before depreciation and amortization and
operating margin, please refer to the “Segmented operating results” sections.
FIXED CHARGES
Years ended August 31, 2013 2012 Change
(in thousands of dollars, except percentages) $$ %
Depreciation and amortization 382,714 275,003 39.2
Financial expense 128,314 64,007 —
Fiscal 2013 depreciation and amortization expense reached $382.7 million compared to $275.0 million in the prior year. The increase resulted
mainly from the recent acquisitions and from additional acquisitions of property, plant and equipment in the Enterprise services segment, offset
by higher fiscal 2012 depreciation expense related to the reduction of useful lives for certain home terminal devices for the Canadian cable
services segment.
For fiscal 2013, financial expense increased by $64.3 million to reach $128.3 million, compared to $64.0 million in the prior year. Financial expense
increased as a result of the recent acquisitions financing costs , including costs of approximately $5.7 million to refinance certain long-term debt
with respect to these recent acquisitions as well as a make-whole premium of $10.2 million on the early repayment of the Senior Secured
Debentures Series 1 on July 29, 2013. For further details, please refer to the “Capital resources and liquidity” section.
INCOME TAXES
Fiscal 2013 income tax expense amounted to $62.8 million, compared to $78.7 million in the prior year. The decrease in fiscal 2013 is mostly
attributable to the increase in financial expense, depreciation and amortization as well as the tax structure from the recent acquisitions, partly
offset by the improvement in operating income before depreciation and amortization and last year's impact of $11.7 million deferred income tax
expense as a result of change in the corporate income tax rate in Ontario.
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS
Fiscal 2013 profit for the year from continuing operations amounted to $185.1 million, or $3.80 per share compared to a profit for the year from
continuing operations of $169.5 million, or $3.48 per share for the prior year. Profit for the year from continuing operations progression is mostly
attributable to the improvement of operating income before depreciation and amortization generated by the Canadian cable services segment
and by the recent acquisitions and the decrease in income taxes as explained above, partly offset by additional depreciation and amortization
and financial expense also explained above as well as the recent acquisition costs.
PROFIT FOR THE YEAR
Fiscal 2013 profit for the year amounted to $185.1 million or $3.80 per share, compared to $225.0 million, or $4.62 per share in fiscal 2012. The
decline for the year is mostly attributable to last year's profit from the sale of the Portuguese subsidiary, Cabovisão - Televisão por Cabo, S.A.
(“Cabovisão”), reported as discontinued operations in 2012 and by the increases in depreciation and amortization, financial expense and acquisition
costs all related to the recent acquisitions, partly offset by the improvement of operating income before depreciation and amortization generated
by the Canadian cable services segment and by the recent acquisitions as well as the decrease in income taxes.
The Corporation obtained a return on equity(1) of 14.6% for the year ended August 31, 2013 compared to 20.3% in the prior year. The decrease
in return on equity is mainly attributable to last year's profit of $55.4 million from the sale of the Portuguese subsidiary explained above.
(1) Return on equity is defined as profit for the year divided by average shareholders' equity (computed on the basis of the beginning and ending balance for a
given fiscal year).