Cogeco 2009 Annual Report Download - page 45

44 COGECO CABLE INC. 2009 Management’s discussion and analysis
During the fourth quarter of 2009, cash flow from operations reached $115.2 million, 15.7% higher than the comparable period last
year, due to the favourable impact of $19.8 million from the Part II licence fee settlement agreement, the increase in operating
income before amortization and the decrease in financial expense, partly offset by the increase in current income tax expense.
Changes in non-cash operating items generated cash inflows of $66.8 million, mainly as a result of increases in accounts payable
and accrued liabilities which were partly offset by the Part II licence fee settlement agreement, an increase in income tax liabilities
and a decrease in income taxes receivable in the fourth quarter of fiscal 2009. In the fourth quarter of the prior year, cash inflows of
$44.2 million were mainly a result of an increase in accounts payable and accrued liabilities and in income tax liabilities, net of
increases in accounts receivable and prepaid expenses.
Investing activities in the fourth quarter of 2009 amounted to $98 million compared to $289 million for the same period the year
before. The investing activites in the fourth quarter of 2008 included business acquisitions of $213.6 million. Excluding business
acquisitions and related adjustments, investing activities related to capital expenditures and deferred charges rose to $97.9 million
compared to $75.4 million for the corresponding period of the prior year, mainly due 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 CDS;
• An increase in support capital spending due to improvements in the information systems to sustain the business activities;
• An increase in line extensions due to the expansion of the residential and commercial networks in the Canadian operations;
• A decrease in customer premise equipment spending which reflect lower RGU growth in the Canadian operations.
In the fourth quarter of 2009, Cogeco Cable generated free cash flows of $14.8 million compared to $21.1 million in the prior year.
The decrease in free cash flow is due to an increase in capital expenditures which exceeded the increase in cash flow from
operations.
In the fourth quarter of 2009, Indebtedness affecting cash decreased by $81.8 million mainly due to the increase in non-cash
operating items of $66.8 million, the free cash flows of $14.8 million and the decrease in cash and cash equivalents of $3.1 million,
net of the dividend payment of $5.8 million described below. Indebtedness mainly decreased through the net repayments on the
Corporation’s revolving loans of $175.4 million, the repayment of $150 million Senior Secured Debentures Series 1 at maturity on
June 4, 2009, and by a decrease of $52.2 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. During the fourth quarter of 2008, Indebtedness affecting cash
increased by $104.7 million, due to the increase in long-term debt to finance the recent acquisitions completed in the quarter for an
aggregate amount of $214.8 million and the increase in bank indebtedness, partly offset by the cash inflows of $44.2 million from the
changes in non-cash operating items, the free cash flow of $21.1 million, and the use of cash and cash equivalents for an amount of
$45.1 million.
During the fourth quarter of fiscal 2009, a dividend of $0.12 per share was paid to the holders of subordinate and multiple voting
shares, totalling $5.8 million, compared to a dividend of $0.10 per share, or $4.9 million the year before.
FISCAL 2010 FINANCIAL GUIDELINES
For fiscal 2010, despite projected revenue growth, Cogeco Cable expects a decrease in operating income before amortization when
compared to the fiscal 2009 financial results. The guidelines take into consideration the global economic slowdown which is
expected to continue during 2010. In Canada, Cogeco Cable’s footprint includes certain regions in Ontario where the automobile
industry is a significant driver of economic activity. The sharp downturn experienced by the automobile industry in recent months
may have an adverse impact on the level of economic activity and consumer expenditures on goods and services within those
communities. In previous recessionary periods, demand for cable telecommunications services has generally proven to be resilient.
However, there is no assurance that demand would remain resilient in a prolonged global recession. Furthermore, fiscal 2009
financial results were favourably impacted by a one-time reduction in operating costs stemming from the Part II licence fee
settlement agreement described in the “Operating and financial results” section on page 25.
In Portugal, fiscal year 2009 was marked by a continuing difficult competitive environment in the Iberian Peninsula, recurring intense
promotions and advertising initiatives from competitors for their new respective third leg of the triple-play service in the Portuguese
market. These factors were the main contributors to the decline in Basic Cable, HSI and Telephony service customers and in the
financial results of Cabovisão in fiscal 2009. Furthermore, digital terrestrial television services were launched in Portugal in the
second half of fiscal 2009, and this development may limit the growth or result in some attrition of Basic Cable television service
customers and consequently have an adverse impact on RGU. Management has realigned its short term strategic plan in order to
curtail customer losses in fiscal 2010. In addition, Cabovisão recently launched new channels and implemented retention strategies,
which combined with new marketing and other operating initiatives, should reduce customer attrition in fiscal 2010.