Cogeco 2009 Annual Report Download - page 31

30 COGECO CABLE INC. 2009 Management’s discussion and analysis
CAPITAL EXPENDITURES
Capital expenditures, segmented according to the National Cable Television Association (“NCTA”) standard reporting categories,
are as follows:
YEARS ENDED AUGUST 31, 2009
2008
(in thousands of dollars) $ $
CUSTOMERS PREMISE EQUIPMENT(1) 99,604 96,326
SCALABLE INFRASTRUCTURE(2) 73,042 47,006
LINE EXTENSIONS 24,452 13,929
UPGRADE/REBUILD 48,861 56,873
SUPPORT CAPITAL 32,062 19,782
TOTAL CAPITAL EXPENDITURES (3) 278,021 233,916
(1) INCLUDES MAINLY HOME TERMINAL DEVICES AS WELL AS NEW AND REPLACEMENT DROPS.
(2) INCLUDES HEAD-END EQUIPMENT AND EXPENDITURES RELATED TO TELEPHONY.
(3) INCLUDES CAPITAL LEASES THAT ARE EXCLUDED FROM THE STATEMENTS OF CASH FLOWS.
In fiscal 2009, the variances related to capital expenditures are mainly attributable to the following factors:
• An increase in scalable infrastructure capital spending mainly due to the timing of the expansion and head-end improvements,
system powering and equipment reliability to sustain increased customer demand for HSI and Telephony services in Canada,
and due to the expansion of the high-speed data network for the recent acquisitions;
• An increase in support capital spending due to improvements in the information systems to sustain the business activities and
the acquisition of a new facility in the Canadian operations, and to the acquisition of a power generator for CDS;
• An increase in line extensions due to the expansion of the residential and commercial networks in the Canadian operations;
• An increase from the appreciation of the Euro and the US dollar over the Canadian dollar;
• A decrease in capital expenditures associated with network upgrades and rebuilds due to the timing of these initiatives.
INCREASE IN DEFERRED CHARGES
The increase in deferred charges amounted to $27.3 million in fiscal 2009 compared to $27.6 million in fiscal 2008. A breakdown of
the increase in deferred charges is presented in the table below:
YEARS ENDED AUGUST 31, 2009 2008
(in thousands of dollars) $ $
EQUIPEMENT SUBSIDIES 16 437
RECONNECT AND ADDITIONAL SERVICE ACTIVATION COSTS 27,276 27,159
27,292 27,596
Cogeco Cable incurs significant costs to reconnect or activate additional services for Basic Cable, HSI, Digital Television and
Telephony customers. Equipment subsidies are mainly related to subsidies on sales of digital terminals in Canada and cable
modems in Portugal. During fiscal 2009, the lower increase in deferred charges is the result of lower RGU growth.
FREE CASH FLOW AND FINANCING ACTIVITIES
For fiscal 2009, free cash flow of $95.4 million was generated, $3.5 million lower than in fiscal 2008, as a result of an increase in
capital expenditures outpacing the increase in cash flow from operations.
During fiscal 2009, the level of Indebtedness affecting cash decreased by $106 million, mainly due to the free cash flow of
$95.4 million and inflows from non-cash operating items of $31 million, partly offset by the payment of dividends totalling
$23.3 million described below. Indebtedness decreased through net repayments on the Corporation’s revolving loans of
$254.9 million, the repayment of US$150 million Senior Secured Notes Series A and the related derivative financial instrument, both
maturing on October 31, 2008, for a total of $238.7 million, the repayment of $150 million Senior Secured Debentures Series 1 at
maturity on June 4, 2009, and by a decrease of $10.3 million in bank indebtedness, partly offset by the issuance on June 9, 2009 of
Senior Secured Debentures Series 1 for $300 million maturing June 9, 2014 and the issuance on October 1, 2008 of US$190 million