Cogeco 2011 Annual Report Download - page 34

Management’s Discussion and Analysis (MD&A) COGECO CABLE INC. 2011 33
Capital expenditures and increase in deferred charges
Capital expenditures, segmented according to the National Cable Television Association (“NCTA”) standard reporting categories, are as
follows:
Years ended August 31, 2011 2010
(in thousands of dollars) $$
Customer premise equipment(1) 125,679 115,926
Scalable infrastructure(2) 88,282 72,293
Line extensions 16,779 27,746
Upgrade/rebuild 45,001 55,902
Support capital 49,979 37,182
Total capital expenditures(3) 325,720 309,049
(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 2011, the variances related to capital expenditures are mainly attributable to the following factors:
• An increase in scalable infrastructure in the Canadian operations to improve network capacity in existing areas served;
• An increase in support capital spending stemming from the construction of new facilities and the acquisition of new service vehicles
in the Canadian operations;
• An increase in customer premise equipment spending mainly due to the timing of equipment purchases to support RGU growth in
the Canadian operations. This increase was partly offset by the decrease in customer premise equipment spending reflecting lower
RGU growth in the European operations combined with the impact of the lower value of the Euro relative to the Canadian dollar
when compared to the prior year;
• Decreases in upgrades and rebuilds and in line extensions stemming from the timing of the various initiatives undertaken by the
Corporation in order to expand its network and improve its capacity.
Cogeco Cable incurs significant costs to reconnect or activate additional services for Basic Cable, HSI, Digital Television and Telephony
customers. The increase in deferred charges remained essentially the same in fiscal 2011 at $10.9 million when compared to $10.6 million in
fiscal 2010.
Free cash flow and financing activities
For fiscal 2011, free cash flow of $103.8 million was generated, $71.4 million, or 40.8%, lower than in fiscal 2010. The decline in free cash flow
when compared to fiscal 2010 is due to an increase of $103.7 million in current income tax expense stemming primarily from the fiscal 2010
modifications to the corporate structure, the increase in financial expense, and the increase in capital expenditures, which offset the increase in
operating income before amortization in the current fiscal year.
During fiscal 2011, the level of Indebtedness affecting cash increased by $4.3 million, mainly due to the business acquisitions for a total of
$132.3 million, the dividend payments of $34.5 million described below and the increase in cash and cash equivalents of $19.6 million, offset
by the free cash flow of $103.8 million and the cash inflows of $75 million from the changes in non-cash operating items. Indebtedness mainly
decreased through the repayment, on December 22, 2010, of the $175 million Senior Secured Notes Series B due on October 31, 2011 and
the related make-whole premium on early repayment, combined with a net repayment of $16.2 million on the Corporation’s Term Revolving
Facility. The Senior Secured Notes Series B were repaid from the net proceeds of $198.3 million as a result of the issuance, on
November 16, 2010, of Senior Secured Debentures Series 2 (“Fiscal 2011 debentures”).
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
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.
Total dividends of $0.71 per share, comprised of quarterly dividends of $0.17 per share in the first three quarters of the year and a dividend of
$0.20 per share in the last quarter, were paid during fiscal 2011, for a total of $34.5 million. In fiscal 2010, quarterly dividends of $0.14 per
share, totalling $0.56 per share were paid, for an amount of $27.2 million. The 27% increase in the total dividend in fiscal 2011 reflects the
progression of the Corporation’s financial results.