Cogeco 2010 Annual Report Download - page 33

32 COGECO CABLE INC. 2010 Management’s Discussion and Analysis (MD&A)
Under the terms of the Senior Secured Notes, Cogeco Cable has agreed to indemnify the other parties against changes in regulation relative to
withholding taxes and costs incurred by the lenders due to changes in laws. These indemnifications extend for the term of the related
financings and do not provide any limit on the maximum potential liability. The nature of the indemnification agreement prevents the
Corporation from estimating the maximum potential liability it could be required to pay. As at August 31, 2010 and 2009, no liability associated
with these indemnifications has been recorded.
During fiscal 2008 and 2010, the Corporation issued letters of credit amounting to €1.7 million and €4.2 million to guarantee the payment by
Cabovisão of stamp taxes for the 2000 through 2002 years and withholding taxes for the 2004 and 2005 years assessed by the Portuguese tax
authorities, which are all currently being challenged by Cabovisão. Even though the principal amounts in dispute are fully recorded in the books
of its subsidiary Cabovisão, the Corporation may be required to pay the amounts following final judgements, up to a maximum aggregate
amount of €5.9 million ($7.9 million), should Cabovisão fail to pay such required amounts.
Canadian operations
Customer statistics
Net additions % of penetration
(1)
August 31, Years ended August 31, August 31,
2010 2010 2009 2010 2009
RGU 2,350,577 190,714 167,955
Basic Cable service customers 874,505 9,700 7,711
HSI service customers(2) 559,057 44,005 41,585 66.2 62.0
Digital Television service customers 559,418 61,020 56,652 64.8 58.5
Telephony service customers(3) 357,597 75,989 62,007 44.4 36.1
(1) As a percentage of Basic Cable service in areas served.
(2) Customers subscribing to the HSI service without the Basic Cable service totalled 101,762 as at August 31, 2010 compared to 78,056 as at
August 31, 2009.
(3) Customers subscribing to the Telephony service without the Basic Cable service totalled 39,804 as at August 31, 2010 compared to 24,698 as at
August 31, 2009.
During fiscal 2010, the number of RGU grew by 190,714, or 8.8%, to reach 2,350,577, compared to a growth of 167,955 in fiscal 2009, all
services generated higher growth in fiscal 2010 compared to fiscal 2009 and showed resilience despite early signs of maturation for some
services. The increase in RGU stems from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete
Connection) of Cable Television, HSI and Telephony services, and promotional activities. The net additions of Basic Cable service customers
reached 9,700 mainly from expansions of the network, compared to 7,711 customers in fiscal 2009. The net additions of HSI service customers
stood at 44,005 compared to 41,585 in fiscal 2009. Telephony service customers grew by 75,989 to reach 357,597 mainly due to the increased
penetration in areas where the service is already offered and to new areas where the service was launched. Telephony service coverage, as a
percentage of homes passed, was above 90% at both August 31, 2010 and 2009. Finally, the net additions of Digital Television service
customers stood at 61,020 compared to 56,652 in fiscal 2009, and are due to targeted marketing initiatives to improve penetration and to the
continuing strong interest for HD television services.
Operating results
Years ended August 31, 2010 2009
(1)
Change
(in thousands of dollars, except percentages) $ $ %
Revenue 1,093,620 984,745 11.1
Operating costs 607,072 531,920 14.1
Management fees — Cogeco Inc. 9,019 9,019 –
Operating income before amortization 477,529 443,806 7.6
Operating margin 43.7% 45.1%
(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.
Revenue
For fiscal 2010, revenue for the Canadian operations rose by $108.9 million, or 11.1%, compared to fiscal 2009, driven by increased RGU, the
introduction of HSI usage billing, various rate increases implemented at the end of fiscal 2009 and during fiscal 2010, and the revenue related
to the new levy amounting to 1.5% of gross Cable Television service revenue imposed by the CRTC in order to finance the new LPIF.