Cogeco 2005 Annual Report Download - page 27

Cogeco Cable Inc. 2005
25
Management’s Discussion and Analysis
CAPITAL RESOURCES
AND LIQUIDITY
Capital Structure
The table below summarizes debt-related financial ratios over
the last two fiscal years and the fiscal 2006 guidelines.
Years ended August 31, 2006 2005 2004
Guidelines
(1)
Average cost
of Indebtedness 7.7 %7.5% 7.2%
Fixed rate Indebtedness 100% 100% 92%
Average term:
long-term debt 2.3 years 3.3 years 4.3 years
Net Indebtedness
(2)
/Shareholders’ equity 0.9 1.0 1.1
Net Indebtedness
(2)
/
Operating Income 2.8 3.0 3.7
Operating Income/
Financial expense 4.2 4.1 3.5
(1)
See the “Fiscal 2006 Financial Guidelines” section on page 28
for further discussion.
(2)
Indebtedness net of cash and cash equivalents.
The average cost of Indebtedness has increased due to the higher
fixed-rate portion of Indebtedness, whose average interest rate
is higher than that of the variable-rate Term Facility. The average
tenure of long-term debt will decline by one year as no new
debenture and note refinancings are planned for fiscal 2006.
Financial leverage and interest coverage ratios should continue
to improve in fiscal 2006 as management expects Operating
Income growth and a reduction in Indebtedness net of cash
and cash equivalents. See “Fiscal 2006 Financial Guidelines”
on page 28 for further details.
Outstanding Share Data
A description of Cogeco Cable’s share data as at September 30, 2005
is presented in the table below. Additional details are provided in
Note 9 on page 44.
Number of shares/ Amount
options (in thousands
of dollars)
Common Shares
Multiple voting shares 15,691,100 98,346
Subordinate voting shares 24,293,486 531,874
Options to Purchase
Subordinate Voting Shares
Outstanding options 590,723
Exercisable options 326,851
Financing
The Corporation benefits from a $270 million Term Facility and
a $25 million operating line of credit with a group of financial
institutions. These bank facilities are not guaranteed by the parent
company, COGECO Inc. As of August 31, 2005, the Corporation
had repaid its Credit Facility from the Free Cash Flow generated
over the course of the fiscal year. Cogeco Cable could have used
all the committed amount under its Term Facility without breaching
any of its covenants under its financing agreements.
Cogeco Cable continues to satisfy the various conditions stipulated
in its financing agreements whilst being on schedule to meet
interest and principal repayment obligations. Of all Cogeco Cable’s
debt instruments, the bank facilities usually set the most restrictive
limitations on the Corporation’s activities and operations. The most
important restrictions cover maintaining certain financial ratios,
authorised investments, disposal of assets, reimbursement
of long-term debt and distributions to shareholders.
During the next five years, Cogeco Cable’s required principal
repayments on its long-term debt, excluding those under capital
leases, amount to $513.7 million. The $125 million Second Secured
Debentures will have to be repaid in fiscal 2007. The $150 million
Senior Secured Debentures and the US$150 million Senior Secured
Notes will have to be repaid in fiscal 2009 for a total amount
of CDN$388.7 million (the Senior Secured Notes are converted
into CDN$ using the exchange rate on the cross-currency
swap agreements).