Cogeco 2008 Annual Report Download - page 26

Management’s Discussion and Analysis COGECO CABLE INC. 2008 25
INCREASE IN DEFERRED CHARGES
The increase in deferred charges amounted to $27.6 million in fiscal 2008 compared to $30 million in fiscal 2007. A breakdown of
the increase in deferred charges is presented in the table below:
YEARS ENDED AUGUST 31, 2009 2008 2007
GUIDELINES(1)
(in thousands of dollars) $ $ $
EQUIPEMENT SUBSIDIES 100 437 1,508
RECONNECT COSTS 26,900 27,159 28,401
OTHER – –133
27,000 27,596 30,042
(1) SEE THE “FISCAL 2009 FINANCIAL GUIDELINES” SECTION ON PAGE 37 FOR FURTHER DISCUSSION.
Equipment subsidies mainly relate to subsidies on sales of digital terminals in Canada and cable modems in Portugal. During fiscal
2008, the lower increase in deferred charges related to equipment subsidies is the result of lower RGU growth in European
operations. The lower increase in reconnect costs is due to lower RGU growth in Canadian operations.
FREE CASH FLOW AND FINANCING ACTIVITIES
For fiscal 2008, free cash flow of $98.9 million was generated, an increase of $68.3 million over fiscal 2007, as a result of an
increase in operating income before amortization and a reduction in financial expense net of increases in capital expenditures and
current income taxes.
During fiscal 2008, the level of Indebtedness affecting cash increased by $79.4 million, mainly due to the recent acquisitions for an
aggregate amount of $231 million, offset by the generated free cash flow of $98.9 million, a reduction of $27.8 million in cash and
cash equivalents and an increase of $32.5 million in non-cash operating items. In addition, on March 5, 2008, the Corporation
issued a $100 million Senior Unsecured Debenture by way of a private placement, the proceeds of which were primarily used to
finance the recent acquisitions. The Senior Unsecured Debenture bears interest at a fixed rate of 5.936%, is redeemable at the
Corporation’s option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium
and will mature on March 5, 2018.
In the prior year, Indebtedness affecting cash decreased by $299.6 million. The decrease was due to the completion of two public
offerings totalling 8,000,000 subordinate voting shares, as described below, 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 free cash flow 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.
During fiscal 2007, the Corporation completed two public offerings for a total issuance of 8,000,000 subordinate voting shares for
combined gross proceeds of $346 million. On February 2, 2007, the Corporation announced the completion of its first public offering
of 5,000,000 subordinate voting shares for gross proceeds of $192.5 million and on August 9, 2007, the Corporation completed its
second public offering of 3,000,000 subordinate shares for gross proceeds 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 debt and the working capital
deficiency.
Dividends of $0.40 per share, totalling $19.4 million, were paid during fiscal 2008 compared to dividends of $0.24 per share, totalling
$10.3 million, the year before.
FINANCIAL POSITION
Since August 31, 2007, there have been major changes to the balances of fixed assets, cash and cash equivalents, accounts
payable and accrued liabilities, income tax liabilities, accounts receivable, future income tax assets, future income tax liabilities,
goodwill, customer relationships, accumulated other comprehensive income (loss) and Indebtedness.
The $138.5 million increase in fixed assets is mainly related to increased capital expenditures to sustain RGU growth, the fixed
assets acquired through the recent acquisitions and to the appreciation of the Euro over the Canadian dollar. The $27.8 million
decrease in cash and cash equivalents is mainly due to the reduction of Indebtedness. The $37.1 million increase in accounts