Cogeco 2010 Annual Report Download - page 27

26 COGECO CABLE INC. 2010 Management’s Discussion and Analysis (MD&A)
Net income (loss)
Fiscal 2010 net income amounted to $157.3 million, or $3.24 per share compared to a net loss of $258.2 million, or $5.32 per share in
fiscal 2009. The net income in fiscal 2010 includes a favourable impact of $29.8 million from the reduction of the Ontario provincial corporate
income tax rates. Net loss for fiscal 2009 was affected by the impairment loss of $383.6 million net of related income taxes recorded on the
Corporation’s investment in Cabovisão, as described in the “Impairment of goodwill and intangible assets” section. Furthermore, the net loss
reported in 2009 included an unfavourable impact of $6.1 million from the utilization of Cabovisão’s pre-acquisition tax losses and a favourable
impact from the reduction of withholding and stamp tax contingent liabilities in the amount of $16.1 million described above, both in Cabovisão,
and the impact of $13.4 million from the Part II licence fee favourable settlement agreement net of related income taxes. Excluding the effect of
these items, adjusted net income for fiscal 2010 would have amounted to $127.5 million, or $2.63 per share(1), compared to $102 million, or
$2.10 per share in 2009, increases of 25% and 25.2%, respectively. Please consult the “Non-GAAP financial measures” section for further
details. Net income progression has resulted from the growth in the Canadian operations’ financial results, partly offset by the decline of the
European operations’ financial results.
The Corporation’s return on equity(2) for the year ended August 31, 2010 amounted to 14.7% as a result of the factors mentioned above. In
fiscal 2009, the Corporation obtained a negative return on equity of 22.6% due to the impairment loss recorded on the Corporation’s investment
in Cabovisão as a result of recurring competitive pressure resulting in subscriber losses in Portugal that were more severe than originally
anticipated. On the basis of adjusted net income, return on equity would have amounted to 11.9% in fiscal 2010 compared to 8.9% in
fiscal 2009.
Cash flow analysis
Years ended August 31, 2010 2009
(1)
(in thousands of dollars) $$
Operating activities
Cash flow from operations 494,814 384,206
Changes in non-cash operating items (77,530) 30,963
417,284 415,169
Investing activities(2) (319,373) (283,742)
Financing activities(2) (100,183) (128,348)
Effect of exchange rate changes on cash and cash equivalents denominated in a foreign currency (1,344) 8
Net change in cash and cash equivalents (3,616) 3,087
Cash and cash equivalents, beginning of year 39,458 36,371
Cash and cash equivalents, end of year 35,842 39,458
(1) Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information has been restated to reflect the
application of the CICA Handbook Section 3064. Please refer to the “Critical accounting policies and estimates” section on page 11 for more details.
(2) Excludes assets acquired under capital leases.
Operating activities
Fiscal 2010 cash flow from operations was greater than fiscal 2009 by $110.6 million, or 28.8%, at $494.8 million, primarily due to the reduction
in income tax payments stemming from modifications to the corporate structure. Changes in non-cash operating items required cash outflows
of $77.5 million, mainly as a result of a decrease in income tax liabilities combined with increases in income taxes receivable and accounts
receivable, partly offset by an increase in deferred and prepaid revenue and other liabilities. The cash inflows of $31 million in the prior year
were mainly due to an increase in accounts payable and accrued liabilities which was offset by the Part II licence fee favourable settlement
agreement, and an increase in income tax liabilities.
(1) Adjusted earnings per share does not have a standardized definition prescribed by Canadian GAAP and therefore, may not be comparable to similar measures
presented by other companies. For further details, please consult the “Non-GAAP financial measures” section on page 40.
(2) Return on equity is defined as net income divided by average shareholders’ equity (computed on the basis of the beginning and ending balance for a given
fiscal year).