Cogeco 2011 Annual Report Download - page 29

28 COGECO CABLE INC. 2011 Management’s Discussion and Analysis (MD&A)
Performance highlights
Financial results and cash flows
For the 2011 fiscal year, Cogeco Cable achieved consolidated revenue growth of $79.8 million, or 6.2%, to reach $1,361.2 million, primarily
due to strong RGU growth in the Canadian operations which offset the decline in Basic Cable service customers in the European operations
and the depreciation of the Euro in relation to the Canadian dollar. For further details on the Corporation’s operating results, please refer to the
“Canadian operations” and “European operations” sections. As the fiscal 2011 consolidated results are within 1% of the revised projection,
issued on January 12, 2011, of $1,360 million, management considers that the revenue projection for fiscal 2011 has been achieved.
As a result of the revenue growth exceeding the growth in operating costs, consolidated operating income before amortization rose by
$55.9 million, or 11% to reach $566 million. For further details on the Corporation’s operating results, please refer to the “Canadian operations”
and “European operations” sections on pages 38 and 39, respectively. The consolidated fiscal 2011 operating income before amortization
surpassed the revised projection of $545 million issued on January 12, 2011.
Amortization expense decreased by $11.7 million at $247.2 million, mainly from the impairment loss in the third quarter of fiscal 2011 in the
European operations, partly offset by capital expenditures and deferred charges related to RGU growth and other fiscal 2010 and 2011
initiatives in the Canadian operations. Amortization expense for the 2011 fiscal year was well below the Corporation’s revised projections of
$265 million.
Financial expense increased by $6.7 million to $71.6 million. Fiscal 2011 financial expense includes the payment of a make-whole premium
amounting to $8.8 million on the early repayment, on December 22, 2010, of the $175 million Senior Secured Notes Series B due on
October 31, 2011. However, the financial expense was reduced by the impact of fluctuations in the level of bank indebtedness, combined with
the impact of the lower interest rate on the $200 million Senior Secured Debentures Series 2 issued on November 16, 2010. As the fiscal 2011
financial expense is within 1% of the revised projection of $72 million, management considers that the financial expense projection has been
achieved.
In the third quarter of fiscal 2011, a write-off of the Corporation’s net investment in Cabovisão was recorded through a non-cash impairment
loss on goodwill and fixed assets (the “impairment loss”) in the amount of $225.9 million as a result of the severe decline in the economic
environment in Portugal, with the Country ultimately requiring financial assistance from the International Monetary Fund and the European
Central Bank, combined with subscriber losses in the third quarter despite additional marketing initiatives designed to generate RGU growth in
the near term. For further details on the impairment loss recorded in the 2011 fiscal year, please refer to the “Impairment of goodwill and fixed
assets” section on page 30.
Cogeco Cable reported a net loss of $47.7 million as a result of the impairment loss, partly offset by the growth in operating income before
amortization and the decrease in amortization expense. Excluding the impact of the impairment loss described above, adjusted net income(1)
would have amounted to $178.2 million for the year. At $47.7 million, fiscal 2011 net loss was significantly lower than the revised net loss
projection of $85 million issued on July 6, 2011. Accordingly, management considers that this projection was surpassed.
Capital expenditures and the increase in deferred charges amounted to $336.6 million, were primarily the result of RGU growth and expansions
and improvements to the network infrastructure in the Canadian operations during the year. Capital expenditures and the increase in deferred
charges for the current year were below the revised projections of $340 million.
As a result of the Corporation surpassing the revised projections for net loss, the fiscal 2011 free cash flow of $103.8 million largely surpassed
the revised fiscal 2011 free cash flow target of $70 million issued on January 12, 2011.
(1) Adjusted net income 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 45.