Cogeco 2011 Annual Report Download - page 35

34 COGECO CABLE INC. 2011 Management’s Discussion and Analysis (MD&A)
Financial position
During the year ended August 31, 2011, there have been significant changes to the balances of “fixed assets”, “goodwill”, “intangible assets”,
“income tax liabilities”, “future income tax liabilities”, “future income tax assets”, “income taxes receivable”, “cash and cash equivalents”, “long-
term debt”, “accounts payable and accrued liabilities”, “derivative financial instruments”, “balance due on a business acquisition” and “accounts
receivable”.
The decrease of $70.5 million in fixed assets reflects the impairment loss recorded in the European operations in fiscal 2011 and the impact of
the depreciation of the Euro in relation to the Canadian dollar. This decrease was partly offset by the capital expenditures discussed in the
“Cash flow analysis” section which surpassed the amortization expense, the assets acquired through the business acquisitions completed in
the year. The increases of $66.3 million in goodwill, $29.5 million in intangible assets and $11.4 million in balance due on a business
acquisition primarily reflect the acquisitions of Quitettouch and MTO in fiscal 2011, with the increase in goodwill partly offset by the impairment
loss recorded in the European operations. The increases of $58.8 million in income taxes liabilities and $10.2 million in future income tax
liabilities and the decreases of $6.7 million in future income tax assets and $6.4 million in income taxes receivable primarily reflect the timing of
the recognition of income tax liabilities as a result of modifications made to the corporate structure combined with the increase in operating
income before amortization and the impact of the fiscal 2011 business acquisitions. The increase of $19.6 million in cash and cash equivalents
and the decrease of $6.1 million in long-term debt are due to the factors previously discussed in the “Cash flow analysis” section combined with
the fluctuations in foreign exchange rates. The $19.9 million increase in accounts payable and accrued liabilities is related to the timing of
supplier payments and the impact of the business acquisitions in the year. The $18.3 million decrease in derivative financial instruments is due
to the factors discussed in the “Financial management” section. The increase of $7.7 million in accounts receivable is mainly attributable to the
business acquisitions and the growth in revenue in fiscal 2011.
Capital resources and liquidity
Capital structure
The table below summarizes debt-related financial ratios over the last two fiscal years and the fiscal 2012 guidelines.
Years ended August 31,
2012
Guidelines(1) 2011 2010
A
verage cost of indebtedness 6.2% 5.9% 6.2%
Fixed rate indebtedness(2) 98% 87% 97%
A
verage term: long-term debt (in years) 4.2 5.0 4.2
Net senior indebtedness(3) / operating income before amortization 1.3 1.4 1.6
Net indebtedness(4) / operating income before amortization 1.4 1.6 1.8
Operating income before amortization / financial expense 9.2 7.9 7.9
(1) See the “Fiscal 2012 financial guidelines” section on page 44 for further details.
(2) Taking into consideration the interest rate swap in effect at August 31, 2010.
(3) Net senior indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments, less
cash and cash equivalents and principal on Senior Unsecured Debenture.
(4) Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt, balance due on a business acquisition and obligations under
derivative financial instruments, less cash and cash equivalents.
In 2011, the average cost of Indebtedness decreased due to the lower interest rate on the $200 million Senior Secured Debentures Series 2
issued on November 16, 2010, the proceeds of which were used to repay the $175 million Senior Notes Series B on December 22, 2010. This
decrease was partly offset by the higher prevailing rate on the Term Revolving Facility. Please consult the “Financing” section for further
details. For fiscal 2011, the average tenure of the long-term debt increased as a result of the issuance of the Senior Secured Debentures
Series 2 described above.
In fiscal 2012, the financial leverage ratios relating to net indebtedness and net senior 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 financial expense coverage ratio should increase as a result of the projected increase in operating income before
amortization and the projected decrease in financial expense. See “Fiscal 2012 financial guidelines” section on page 44 for further details.