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Management’s Discussion and Analysis COGECO CABLE INC. 2007 27
On the network side, numerous technology advancements will also help reduce capital expenditures in general. Improvements
in compression and multiplexing techniques will continue to occur, as they did signifi cantly in the past few years, and will
allow for more video signals to be transmitted within a given bandwidth without signal degradation. A good part of the
increased bandwidth needs, generated by growth in narrowcast digital services such as HD, Internet and VOD, will be
accommodated through further cost-effi cient node splitting. Future migration to more advanced DOCSIS standards will
allow for the use of more robust modulation techniques in the return path as well as substantially higher transmission
speeds. More importantly, the gradual migration of cable systems to all-digital networks will allow operators to recuperate
the bandwidth currently used for analogue distribution and use it for digital signal distribution, including HD television
signals. This migration to all-digital systems will take some time to complete and capacity upgrades should be completed
by 2010. As a result, capacity upgrades will consume relatively less capital than has been the case in the past.
INCREASE IN DEFERRED CHARGES
Increase in deferred charges rose to $30.4 million in fi scal 2007 compared to $20.6 million in fi scal 2006. A breakdown
of the increase in deferred charges is presented in the table below:
YEARS ENDED AUGUST 31, 2008 2007 2006
GUIDELINES(1)
(in thousands of dollars) $ $ $
EQUIPMENT SUBSIDIES 600 1,508 273
RECONNECT COSTS 21,900 28,800 19,954
NEW SERVICE LAUNCH COSTS AND OTHERS 100 133 380
22,600 30,441 20,607
(1) SEE THE “FISCAL 2008 FINANCIAL GUIDELINES” SECTION ON PAGE 38 FOR FURTHER DISCUSSION.
Equipment subsidies mainly relate to subsidies on sales of digital terminals in Canada and from cable modems in Portugal.
During fi scal 2007, the increase in deferred charges related to equipment subsidies is the result of the consolidation of
the full year of operations of Cabovisão. Reconnect costs increase is due to the higher-than-anticipated demand for Basic
Cable, HSI, Telephony and Digital Television services. New services launch costs consist mainly of marketing costs associated
with the launch of Telephony in new markets.
FREE CASH FLOW AND FINANCING ACTIVITIES
For fi scal 2007, free cash fl ow of $30.6 million was generated, an increase of $0.3 million over fi scal 2006, as a result of
an increase in cash fl ow from operations, partly offset by increases in capital expenditures and deferred charges.
During fi scal 2007, the Corporation completed two public offerings for a total issuance of 8,000,000 subordinate voting
shares for a combined gross proceed of $346 million. On February 2, 2007, the Corporation announced the completion of
its fi rst public offering in fi scal 2007 of 5,000,000 subordinate voting shares for a gross proceed of $192.5 million and on
August 9, 2007, the Corporation completed its second public offering of fi scal 2007 of 3,000,000 subordinate shares for
a
gross proceed of $153.5 million. These offerings resulted in net proceeds to Cogeco Cable of approximately $331.1 million,
which was used to reduce long-term indebtedness and working capital defi ciency.
In fi scal 2007, the level of Indebtedness decreased by $299.6 million. The decrease in the level of Indebtedness is due to
the completion of two public offerings totalling 8,000,000 subordinate voting shares for net proceeds of approximately
$331.1 million that were used to reimburse the Second Secured Debentures Series A and a portion of the Term Facility, the
generated free cash fl ow of $30.6 million, and a reduction of $7.3 million in cash and cash equivalents, partly offset by a
decline of $72.8 million in non-cash operating items, and $4.6 million from the appreciation of the euro currency over
the
Canadian dollar. For the same period last year, Indebtedness grew by $631.7 million due to the acquisition of Cabovisão
completed on August 1, 2006, the increase in cash and cash equivalents of $71.5 million and the fees related to the new
Term Facility of $900 million, partly offset by generated free cash fl ow of $30.3 million.