Cogeco 2013 Annual Report Download - page 32

Management's discussion and analysis (“MD&A”) COGECO CABLE INC. 2013 31
ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE AND OTHER
ASSETS
Investing activities, including acquisition of property, plant and equipment segmented according to the National Cable Television Association
(“NCTA”) standard reporting categories, are as follows:
Years ended August 31, 2013 2012
(in thousands of dollars) $$
Customer premise equipment(1) 72,333 93,186
Scalable infrastructure(2) 101,569 112,596
Line extensions 22,939 18,073
Upgrade / Rebuild 44,169 42,671
Support capital 23,311 34,000
Acquisition of property, plant and equipment - Canadian and American cable services 264,321 300,526
Acquisition of property, plant and equipment - Enterprise services(3) 125,314 59,055
Acquisitions of property, plant and equipment 389,635 359,581
Acquisition of intangible and other assets - Canadian and American cable services 15,703 12,087
Acquisition of intangible and other assets - Enterprise services 2,864 3,700
Acquisitions of intangible and other assets 18,567 15,787
408,202 375,368
(1) Includes mainly home terminal devices as well as new and replacement drops.
(2) Includes mainly head-end equipment, digital video and telephony transport as well as HSI equipment.
(3) Includes assets acquired under finance lease of $0.9 million that are excluded from the statement of cash flows.
For the year ended August 31, 2013, acquisition of property, plant and equipment amounted to $389.6 million compared to $359.6 million for
fiscal 2012. In the Canadian cable services, fiscal 2013 acquisition of property, plant and equipment amounted to $216.0 million, a decrease of
28.1% when compared to the prior year, which is in line with the Corporation's strategies to reduce capital intensity in the cable segment. For
fiscal 2013, acquisition of property, plant and equipment in the American cable services segment amounted to $48.3 million. The decreases in
the Canadian cable services segment are mainly attributable to the following factors:
• A decrease in customer premise equipment, mainly due to the completion in fiscal 2012 of the first phase in the conversion of Television
service customers from analogue to digital and the lower PSU growth as a result of service maturity in fiscal 2013; and
• A decrease in scalable infrastructure due to the timing of initiatives to improve network capacity in existing areas served.
Fiscal 2013 acquisition of property, plant and equipment in the Enterprise services segment, including the capital expenditures of the recent
acquisition of PEER 1, amounted to $125.3 million compared to $59.1 million in fiscal 2012. The increase is mainly due to the recent acquisition
of PEER 1 and the construction of a new data centre facility in Barrie (north of Toronto), Canada, opened last June, and by the expansion of data
centre facilities in Toronto, Canada and in Portsmouth, England as well as the fibre expansion in the Toronto area in order to fulfill orders from
new customers demand.
Acquisition of intangible and other assets are mainly attributable to reconnect and additional service activation costs as well as other customer
acquisition costs. Fiscal 2013 acquisition of intangible and other assets amounted to $18.6 million compared to $15.8 million for last year.
FREE CASH FLOW AND FINANCING ACTIVITIES
For fiscal 2013, free cash flow amounted to $149.8 million, $83.5 million higher than last year. Free cash flow increase over the prior year is due
to the improvement of operating income before depreciation and amortization in the Canadian cable services segment and the recent acquisitions
as well as the decrease in current income taxes, partly offset by the increase in financial expense, the recent acquisition costs as well as the
increase in acquisition of property, plant and equipment.
During fiscal 2013, higher Indebtedness level provided for a cash increase of $1.8 billion, mainly due to the following issuances:
• on June 27, 2013, of a private placement of $225.3 million (US$215 million) Senior Secured Notes for net proceeds of $223.8 million,
net of transaction costs of $1.5 million;
• on May 27, 2013, of $300 million Senior Secured Debentures Series “4” (the “Debentures”) for net proceeds of $296.9 million, net of
transaction costs of $3.1 million;
• on April 23, 2013, a private placement of $410.4 million (US$400 million) Senior Unsecured Notes (the “2020 Notes”) for net proceeds
of $402.5 million, net of transaction costs of $7.9 million;
• on January 31, 2013, draw-downs of $640.3 million (net of transaction costs of $2.8 million) under new credit facilities amounting to
approximately $650 million to finance the acquisition of PEER 1; and