Cogeco 2010 Annual Report Download - page 29

28 COGECO CABLE INC. 2010 Management’s Discussion and Analysis (MD&A)
below and an increase in deferred transaction costs of $5.2 million. Indebtedness mainly decreased through net repayments on the
Corporation’s term and revolving loans of $62.4 million.
In fiscal 2009, 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 term and 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 Senior Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured Notes
Series B maturing October 1, 2018.
Dividends of $0.56 per share, totalling $27.2 million, were paid during fiscal 2010 compared to dividends of $0.48 per share, totalling
$23.3 million, the year before.
Financial position
During the year ended August 31, 2010, there have been major changes to the balances of “accounts receivable”, “fixed assets”, “goodwill”,
“accounts payable and accrued liabilities”, “deferred and prepaid revenue and other liabilities”, “income tax receivable”, “income tax liabilities”,
“future income tax assets”, “future income tax liabilities” and “long-term debt”.
The increase of $7 million in accounts receivable is mainly due to the increase in revenue in the Canadian operations. The $22.8 million
increase in fixed assets is mainly related to increases in capital expenditures to sustain RGU growth which exceeded the amortization expense
of the current fiscal year, partly offset by the impact of the depreciation of the Euro over the Canadian dollar since August 31, 2009. The
$9 million reduction in goodwill mainly reflects the depreciation of the Euro in relation to the Canadian dollar in the 2010 fiscal year. The
$9.1 million decrease in accounts payable and accrued liabilities is related to the timing of payments made to suppliers and the impact of the
depreciation of the Euro relative to the Canadian dollar. The increase of $11.1 million in deferred and prepaid revenue and other liabilities is
mainly due to advance billing in the data telecommunications subsidiary for services to be provided in the coming months. The $40.5 million
decrease in income tax liabilities and the $40.1 million increase in income tax receivable are due to fiscal 2010 income tax payments relating to
the 2009 fiscal year, and to the corporate structure modifications. The increases of $16.2 million in the future income tax assets and of
$81.4 million in future income tax liabilities are mainly due to modifications made to the corporate structure. Long-term debt has decreased by
$99.5 million as a result of the factors previously discussed in the “Free cash flow and financing activities” section on page 27.
Capital resources and liquidity
Capital structure
The table below summarizes debt-related financial ratios over the last two fiscal years and the fiscal 2011 guidelines.
Years ended August 31,
2011
Guidelines(1) 2010 2009
(2)
A
verage cost of indebtedness 6.6% 6.2% 5.9%
Fixed rate indebtedness(3) 89% 97% 94%
A
verage term: long-term debt (in years) 3.2 4.2 4.5
Net indebtedness(4) / shareholder’s equity 0.7 0.8 1.0
Net indebtedness(4) / operating income before amortization 1.7 1.8 2.0
Operating income before amortization / financial expense 7.6 7.9 7.3
(1) See the “Fiscal 2011 financial guidelines” section on page 39 for further details.
(2) 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.
(3) Taking into consideration the interest rate swap in effect at August 31, 2010 and 2009.
(4) Indebtedness net of cash and cash equivalents.
In 2010, the average cost of Indebtedness increased due to a lower proportion of the Term Revolving Facility relative to the Corporation’s
Indebtedness, the increase in the Benchmark rate in 2010 and the full year impact of the Senior Secured Debentures Series 1 with a coupon
rate of 5.95% which were issued on June 9, 2009. Please consult the “Financing” section for further details.
For fiscal 2010, the average tenure of the long-term debt decreased as no long-term debt issue was completed in the fiscal year. It also reflects
the lower amount drawn on the new Term Revolving Facility which replaced the Corporation’s Term Facility on July 12, 2010 as described in
the “Financing” section.
In fiscal 2011, the financial leverage ratio relating to net Indebtedness over operating income before amortization should decline slightly due to
the projected increase in operating income before amortization, combined with a reduction in Indebtedness from the free cash flow. The