Cogeco 2002 Annual Report Download - page 12

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Cogeco Cable Inc.
On November 16, 2001, Cogeco Cable completed the
transition of its high-speed Internet service in Ontario to
become a fully integrated service provider, and ceased
to do business with Excite@HomeT M, which was in financial
d i fficulty. For fiscal year 2002, the net cost savings from the
transition have had the effect of increasing operating
income before depreciation and amortization by
$2.4 million. During the fourth quarter of fiscal year 2002,
the monthly increase in operating income before depre-
c i a t i o n and amortization per high-speed Internet cus-
tomer amounted to an average of $2.72.
Other operating costs, expressed as a percentage of
revenue, declined in 2001–2002. The decrease in other
operating costs is the result of an overall cost re d u c t i o n
plan started in the second quarter of fiscal year 2001.
Cogeco Cable further reduced its staff by appro x i m a t e l y
100 full-time employees during the first quarter of fiscal
year 2002, which has led to significant cost reductions.
Management fees to COGECO Inc. re p resented appro x i-
mately 1.7% of revenue in fiscal year 2002, unchanged
f rom fiscal year 2001. For fiscal year 2003, management
expects these fees to be indexed, based on the Consumer
Price Index, and to re p r esent a marginally smaller pro p o r-
tion of re v e n u e .
Operating Income before
Depreciation and Amortization
Operating income before depreciation and amortization
totaled $168.3 million, an increase of $7.8 million or 4.9%.
The operating margin before depreciation and amortization
increased from 36.6% to 37.6%. The increase is the result
of Cogeco Cable’s cost reduction initiatives.
Depreciation, Amortization and
Financial Expense
As a result of the adoption by the Corporation of the
new accounting requirements of the Canadian Institute
of Chartered Accountants (“CICA”), the customer base
ceased to be amortized effective September 1, 2001.
Amortization of the customer base amounted to $10.4
million ($9.4 million after income taxes) during fiscal
year 2001. The new recommendations also require that
the Corporation review its intangible assets for
impairment as of the date of adoption of the new
recommendations, and at least annually in subsequent
periods. Management has completed its review, which
indicates that intangible assets are not impaired as at
August 31, 2002.
D e p reciation and amortization rose by 3.3%, from
$92.1 million in fiscal year 2001 to $95.1 million in fiscal
year 2002, (excluding amortization of the customer base
in 2001, depreciation and amortization increased by
16.4% in 2002). The increase stemmed mainly from the
following: the network modernization program, capital
e x p e n d i t u re s related to high-speed Internet and digital
s e r v i c e s, higher deferred charges principally resulting
from subsidies on sales of 71,233 digital terminals during
fiscal year 2002, and cable system acquisitions during
fiscal year 2001.
Financial expense climbed by 10.8%, from $53.8 million in
fiscal year 2001 to $59.6 million in fiscal year 2002. Major
factors explaining this increase were: cable systems
acquired during fiscal year 2001, the higher interest rates
on the Senior Secured Notes issued on November 1,
2001, compared to those of the Term Facility, and the
cost to finance the portion of capital expenditures and
d e f e r re d charges exceeding Cash Flow.
Unusual Items
In 2001–2002, Cogeco Cable incurred an expense of
$4.9 million before income taxes as a result of staff
reductions. In 2000–2001, the Corporation elected to
write off its investment in IP telephony for $29.3 million
and other assets for $1.2 million, for an aggregate
amount of $30.5 million before income taxes.