Cogeco 2009 Annual Report Download - page 39

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38 COGECO CABLE INC. 2009 Management’s discussion and analysis
CASH FLOW FROM OPERATIONS 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”. 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 is
calculated as follows:
YEARS ENDED AUGUST 31, 2009 2008
(in thousands of dollars) $ $
CASH FLOW FROM OPERATING ACTIVITIES
431,688 392,883
CHANGES IN NON-CASH OPERATING ITEMS
(30,963) (32,481)
CASH FLOW FROM OPERATIONS
400,725 360,402
Free cash flow is calculated as follows:
YEARS ENDED AUGUST 31, 2009 2008
(in thousands of dollars) $ $
CASH FLOW FROM OPERATIONS
400,725 360,402
ACQUISITION OF FIXED ASSETS
(273,360) (228,441)
INCREASE IN DEFERRED CHARGES
(27,292) (27,596)
ASSETS ACQUIRED UNDER CAPITAL LEASES —
AS PER NOTE 17 B) ON PAGE 73
(4,661) (5,475)
FREE CASH FLOW
95,412 98,890
OPERATING INCOME BEFORE AMORTIZATION AND OPERATING MARGIN
Operating income before amortization is used by Cogeco Cable’s management and investors to assess the Corporation’s ability to
seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income
before amortization is a proxy for cash flows from operations excluding the impact of the capital structure chosen, and is one of the
key metrics used by the financial community to value the business and its financial strength. Operating margin is a measure of the
proportion of the Corporation's revenue which is left over, before taxes, to pay for its fixed costs, such as interest on Indebtedness.
Operating margin is calculated by dividing operating income before amortization by revenue.
The most comparable Canadian GAAP financial measure is operating income. Operating income before amortization and operating
margin are calculated as follows:
YEARS ENDED AUGUST 31, 2009 2008
(1)
(in thousands of dollars, except percentages) $ $
OPERATING INCOME
253,965 217,153
AMORTIZATION
270,430 228,299
OPERATING INCOME BEFORE AMORTIZATION
524,395 445,452
REVENUE
1,217,837 1,076,787
OPERATING MARGIN
43.1% 41.4%
(1) CERTAIN COMPARATIVE FIGURES HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT YEAR’S PRESENTATION. FINANCIAL INFORMATION FOR THE PREVIOUS
YEAR HAS BEEN RESTATED TO REFLECT THE PRESENTATION OF FOREIGN EXCHANGE GAINS OR LOSSES AS FINANCIAL EXPENSE INSTEAD OF OPERATING COSTS.