Cogeco 2013 Annual Report Download - page 21

20 COGECO CABLE INC. 2013 Management's discussion and analysis (“MD&A”)
RELATED PARTY TRANSACTIONS
Cogeco Cable is a subsidiary of COGECO Inc., which holds 32.1% of the Corporation’s equity shares, representing 82.5% of the Corporation’s
voting shares. On September 1, 1992, Cogeco Cable executed a management agreement with COGECO Inc. under which the parent company
agreed to provide certain executive, administrative, legal, regulatory, strategic and financial planning services and additional services to the
Corporation and its subsidiaries (the “Management Agreement”). These services are provided by COGECO Inc.’s senior executives, including
the President and Chief Executive Officer, the Senior Vice President and Chief Financial Officer, the Vice President, Corporate Affairs, the Vice
President Chief Legal Officer and Secretary, the Vice President, Corporate Development, the Vice President and Treasurer, the Vice President,
Public Affairs and Communications and the Vice President, Internal Audit. No direct remuneration is payable to such senior executives by the
Corporation. However, the Corporation granted 71,233 stock options (47,729 in 2012) to these senior executives as executives of Cogeco Cable
during fiscal year 2013. During fiscal 2013, the Corporation charged COGECO Inc. an amount of $386,000 ($324,000 in 2012) with regard to the
Corporation’s stock options granted to these senior executives.
During fiscal year 2013, the Corporation also granted 12,280 (11,006 in 2012) Incentive Share Units (“ISUs”) to these senior executives as
executives of Cogeco Cable. During fiscal 2013, the Corporation charged COGECO Inc. an amount of $452,000 ($390,000 in 2012) with regard
to the Corporation’s ISUs granted to these senior executives.
Under the Management Agreement, the Corporation pays monthly fees equal to 2% of its total revenue to COGECO Inc. for the above-mentioned
services. In 1997, the management fee was capped at $7 million per year, subject to annual upward adjustment based on increases in the
Consumer Price Index in Canada. This limit can be increased under certain circumstances upon request to that effect by COGECO Inc. For fiscal
year 2013, management fees have been set at a maximum of $9.6 million ($9.5 million in 2012). In addition, the Corporation reimburses COGECO
Inc.’s out-of-pocket expenses incurred with respect to services provided to the Corporation under the Management Agreement.
CONTROLS AND PROCEDURES
The President and Chief Executive Officer (“CEO”) and the Senior Vice President and Chief Financial Officer (“CFO”), together with Management,
are responsible for establishing and maintaining adequate disclosure controls and procedures and internal controls over financial reporting, as
defined in National Instrument 52-109. Cogeco Cable’s internal control framework is based on the criteria published in the report Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
IFRS.
The CEO and CFO, supported by Management, evaluated the design and effectiveness of the Corporation’s disclosure controls and procedures
and internal controls over financial reporting as of August 31, 2013, and have concluded that they are effective. Furthermore, no significant
changes to the internal controls over financial reporting occurred during the year ended August 31, 2013, except as described below with respect
to PEER 1.
On January 31, 2013 and on April 3, 2013, the Corporation acquired 100% of the issued and outstanding shares of PEER 1. Due to the short
period of time between those acquisition dates and the certification date on October 30, 2013, management was unable to complete its review
of the design and effectiveness of Internal Controls Over Financial Reporting ("ICFR") for this acquisition. At August 31, 2013, risks were however
mitigated as management was fully apprised of any material events affecting this acquisition. In addition, all the assets and liabilities acquired
were valued and recorded in the consolidated financial statements as part of the purchase price allocation process and PEER 1 results of
operations were also included in the Corporation's consolidated results. PEER 1 constitutes 6% of revenue, -7% of profit of the year, 19% of the
total assets, 7% of the current assets, 20% of the non-current assets, 8% of the current liabilities and 16% of the non-current liabilities of the
consolidated financial statements for the year ended August 31, 2013. In the coming fiscal year, management will complete its review of the
design of ICFR for PEER 1 and assess its effectiveness. The business combinations of fiscal 2013 under the "Cash flow analysis" section of this
MD&A presents summary financial information about the preliminary purchase price allocation, assets acquired and liabilities assumed as well
as other financial information about PEER 1's business impact on the consolidated results of the Corporation.
UNCERTAINTIES AND MAIN RISK FACTORS
This section outlines general as well as more specific risks faced by Cogeco Cable and its subsidiaries that could significantly affect the financial
condition, operating results or business of the Corporation. It does not purport to cover all contingencies, or to describe all possible factors that
might have an influence on the Corporation or its activities at any point in time. Furthermore, the risks and uncertainties outlined in this section
may or may not materialize in the end, may evolve differently than expected or may have different consequences than those that are currently
anticipated.
Cogeco Cable applies an on-going risk management process that includes a quarterly assessment of risks for the Corporation and its subsidiaries,
under the oversight of the Audit Committee. As part of this process, the Corporation endeavors to identify risks that are liable to have a major
impact on the Corporation’s financial situation, revenue or activities, and to mitigate such risks proactively as may be reasonable and appropriate
in the circumstances. This section reflects management’s current views on uncertainties and main risk factors.
We conduct our business activities in highly competitive industries that are experiencing rapid technological developments. Our ability
to compete successfully within one or more of our market segments may thus decline in the future.
The industries in which we operate are very competitive, and we expect competition to increase and intensify from a number of sources in the
future. There are now several terrestrial and satellite transmission technologies available to deliver a range of electronic communications services
to homes and to commercial establishments with varying degrees of flexibility and efficiencies, and thus compete with cable telecommunications.