Cogeco 2010 Annual Report Download - page 28

Management’s Discussion and Analysis (MD&A) COGECO CABLE INC. 2010 27
Investing activities
Capital expenditures
Capital expenditures, segmented according to the National Cable Television Association (“NCTA”) standard reporting categories, are as
follows:
Years ended August 31, 2010 2009
(in thousands of dollars) $$
Customer premise equipment(1) 115,926 99,604
Scalable infrastructure(2) 72,293 73,042
Line extensions 27,746 24,452
Upgrade/rebuild 55,902 48,861
Support capital 37,182 32,062
Total capital expenditures(3) 309,049 278,021
(1) Includes mainly home terminal devices as well as new and replacement drops.
(2) Includes head-end equipment and expenditures related to Telephony.
(3) Includes capital leases that are excluded from the statements of cash flows.
In fiscal 2010, the variances related to capital expenditures are mainly attributable to the following factors:
• An increase in customer premise equipment spending required to support RGU growth partly offset by depreciation of the Euro over the
Canadian dollar;
• An increase in upgrade and rebuild and in line extensions, primarily in the Canadian operations to improve network capacity in existing
areas served and to extend territories in new areas;
• An increase in support capital spending due to the acquisition of new facilities in the Canadian operations.
Increase in deferred charges
The increase in deferred charges amounted to $10.6 million in fiscal 2010 compared to $10.8 million in fiscal 2009. A breakdown of the
increase in deferred charges is presented in the table below:
Years ended August 31, 2010 2009
(1)
(in thousands of dollars) $$
Reconnect and additional service activation costs 10,633 10,773
Equipment subsidies – –
10,633 10,773
(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.
Cogeco Cable incurs significant costs to reconnect or activate additional services for Basic Cable, HSI, Digital Television and Telephony
customers. Equipment subsidies, which were mainly related to subsidies on sales of digital terminals in Canada and cable modems in Portugal
are now recorded as operating expenses as a result of the application of CICA Handbook Section 3064. The fiscal 2010 increase in deferred
charges is essentially equivalent to the comparable amount in fiscal 2009.
Fiscal 2009 adjustments related to a fiscal 2008 business acquisition
In fiscal 2009, management finalized the purchase price allocation for the acquisition of CDS. The final allocation resulted in an increase in
future income tax assets of $0.4 million as well as a decrease in future income tax liabilities of $0.3 million. The net impact of these adjustments
combined with an increase in acquisition costs of $0.1 million, reduced goodwill by $0.6 million at August 31, 2009.
Free cash flow and financing activities
For fiscal 2010, free cash flow of $175.1 million was generated, $79.7 million, or 83.6%, higher than in fiscal 2009, as a result of an increase in
cash flow from operations outpacing the increase in capital expenditures.
During fiscal 2010, the level of Indebtedness affecting cash decreased by $66.2 million, mainly due to the free cash flow of $175.1 million,
partly offset by the outflows related to non-cash operating items of $77.5 million, the payment of dividends totalling $27.2 million described