Cogeco 2006 Annual Report Download - page 24

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22 COGECO CABLE INC. 2006 Management’s Discussion and Analysis
FINANCIAL RESULTS AND CASH FLOW
For the 2006 fi scal year, Cogeco Cable achieved revenue growth of 11.8%. The Canadian operations revenue rose by 8.8%,
surpassing the initial 6% to 7% target. The revenue growth for the Canadian operations is primarily the result of an
increase in basic service rates, higher penetration of HSI, Digital Telephony, basic cable and Digital Television services.
The acquisition of Cabovisão was completed on August 1, 2006. For fi scal 2006, the Portuguese operations generated
$16.9 million for its fi rst month of operations as a subsidiary of Cogeco Cable. Operating income before amortization rose by
11.2% as Canadian operations increased by 9%, thus exceeding the initial objective of 3% to 4%. This result is attributable
to higher revenue per basic service customer, cost controls and process improvement measures.
Financial expense increased by 3%, slightly higher than expected, as a higher level of Indebtedness was required to fi nance
the acquisition of the Portuguese subsidiary, Cabovisão. Amortization declined by 3.4%, which is less than expected, due
to the higher capital expenditures arising from the demand for customer premise equipment, scalable infrastructure,
upgrade/rebuild, support capital and deferred charges. Amortization for the one-month operation of Cabovisão amounted to
$4.4 million. Cogeco Cable reports net income higher than initial forecasts, standing at $65.6 million, mainly due to operating
income before amortization that was higher than expected and to a non-cash adjustment of about $20 million in income
taxes attributable to a change in Canadian enacted tax rate.
Capital expenditures, including assets acquired under capital leases, and the increase in deferred charges amounted to
$164.4 million, $24.4 million more than initially expected. This variance is primarily due to an increase in purchases of
customer premise equipment, resulting from the greater number of RGUs, to increased upgrade and reconstruction
activities and to the one-month capital expenditures of Cabovisão. The deferred charges increase resulted from reconnect
costs due to the higher-than-anticipated RGU growth. Free cash fl ow of $30.3 million was generated, lower than the
$35 million to $40 million target initially expected. Free cash fl ow was about $5 million to $10 million less than anticipated
and is attributable to increased capital expenditures and deferred charges to support the overall RGU growth, including
improved service penetration, as well as the launch of Digital Telephony service, partly offset by an increase in operating
income before amortization.
OPERATING AND FINANCIAL RESULTS
OPERATING RESULTS
YEARS ENDED AUGUST 31, 2006 2005 CHANGE
(in thousands of dollars except percentage) $ $ %
REVENUE 620,001 554,404 11.8
OPERATING COSTS 358,631 318,704 12.5
MANAGEMENT FEES – COGECO INC. 8,392 8,179 2.6
OPERATING INCOME BEFORE AMORTIZATION 252,978 227,521 11.2
OPERATING MARGIN 40.8% 41.0%