Cogeco 2008 Annual Report Download - page 34

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Management’s Discussion and Analysis COGECO CABLE INC. 2008 33
REVENUE
For fiscal 2008, revenue amounted to $243.7 million compared to $224.8 million, an increase of 8.4%. Revenue from the European
operations in the local currency for fiscal 2008 amounted to €161.3 million, an increase of €9.5 million or 6.2%, which is slightly
below the Corporation’s 2008 guidelines provided in the 2007 Annual Report. The growth for fiscal 2008 is mainly due to following
monthly rate increases implemented by Cabovisão: an increase of $1 (€0.65) per Basic Cable service customer effective in March
2007, an increase averaging $1.50 (€1) per Basic Cable customer and an increase averaging $0.90 (€0.60) per HSI customer
effective in January 2008, as well as to the increase in RGU including the launch of the Digital Television service. The Portuguese
ARPU stood at $68.53 for fiscal 2008 compared to $63.66 in 2007.
OPERATING COSTS
For fiscal 2008, European operations’ operating costs increased by $8.2 million to reach $155.2 million, an increase of 5.6%
compared to last year. Operating costs from the European operations in the local currency amounted to €102.5 million, an increase
of €3.3 million or 3.3%. The increase in operating costs is mainly attributable to the launch of Digital Television service, the cost of
servicing additional RGU, the additional investment into certain marketing initiatives, including a major campaign to increase brand
awareness, and costs related to the design of internal controls and review of business processes to comply with National Instrument
52-109.
OPERATING INCOME BEFORE AMORTIZATION
Operating income before amortization increased to $88.5 million from $77.9 million, an increase of 13.7%. Operating income before
amortization from the European operations in the local currency for fiscal 2008 amounted to €58.8 million, an increase of
€6.2 million or 11.8%. Operating income before amortization increased due to revenue growth outpacing the rise in operating costs.
Fiscal 2008 operating margin increased to 36.3% from 34.6% and attained the management objective of approximately 36% for the
2008 year.
NON-GAAP FINANCIAL MEASURES
This section describes non-GAAP financial measures used by Cogeco Cable throughout this MD&A. It also provides reconciliations
between these non-GAAP measures and the most comparable GAAP financial measures. These financial measures do not have
standard definitions prescribed by Canadian GAAP and may not be comparable with similar measures presented by other
companies. These measures include “cash flow from operations”, “cash flow from operations per share”, “free cash flow”, “operating
income before amortization” and “operating margin”.
CASH FLOW FROM OPERATIONS, CASH FLOW FROM OPERATIONS PER SHARE AND FREE CASH FLOW
Cash flow from operations is used by Cogeco Cable’s management and investors to evaluate cash flows generated by operating
activities excluding the impact of changes in non-cash operating items. This allows the Corporation to isolate the cash flow from
operating activities from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating
the non-GAAP measure, “free cash flow”. Cash flow from operations per share is used by Cogeco Cable’s management and
investors to supplement the Corporation’s consolidated financial statements and allows the Corporation to evaluate the
effectiveness of its use of assets to increase shareholder value. Free cash flow is used by Cogeco Cable’s management and
investors to measure the Corporation’s ability to repay debt, distribute capital to its shareholders and finance its growth.
The most comparable Canadian GAAP financial measure is cash flow from operating activities. Cash flow from operations and cash
flow from operations per share are calculated as follows:
YEARS ENDED AUGUST 31, 2008 2007
(in thousands of dollars, except number of shares and per share data) $ $
CASH FLOW FROM OPERATING ACTIVITIES 392,883 211,810
CHANGES IN NON-CASH OPERATING ITEMS (32,481) 72,755
CASH FLOW FROM OPERATIONS 360,402 284,565
WEIGHTED AVERAGE NUMBER OF MULTIPLE VOTING
AND SUBORDINATE VOTING SHARES OUTSTANDING 48,472,364 43,246,025
CASH FLOW FROM OPERATIONS PER SHARE 7.44 6.58