Cogeco 2007 Annual Report Download - page 22

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20 COGECO CABLE INC. 2007 Management’s Discussion and Analysis
RISKS PERTAINING TO INFORMATION SYSTEMS
Flexible, reliable and cost-effective information systems are an essential requirement for the handling of sophisticated
service options, customer account management, internal controls, provisioning, billing and the rollout of new services.
The Corporation uses different customer relations management tools and databases for its operation respectively in
Ontario, Québec and Portugal. The agreement with the main third-party supplier of information systems in Ontario will
expire in 2008, and the terms that would apply for the continued use of the relevant information systems in Ontario are
under negotiation.
RISKS PERTAINING TO DISASTERS AND OTHER CONTINGENCIES
The Corporation has a disaster recovery plan for dealing with the occurrence of natural disasters, quarantine, power failures,
terrorist acts, intrusions, computer hacking or data corruption, but the operations and facilities of Cabovisão are not yet
integrated into this plan. Cabovisão’s insurance coverage has been integrated into Cogeco Cable’s insurance coverage. The
emergency plans and procedures that are in place cannot provide the assurance that the effect of any disaster can and will
be mitigated as planned. Cogeco Cable is not insured against the loss of data, hacking or malicious interference with its
electronic communications and systems, or against losses resulting from natural disasters. In Canada, it relies on data
protection and recovery systems that it has put in place with third-party service providers. In Portugal, similar arrangements
with third parties have not been implemented as yet.
FINANCIAL RISKS
Cable telecommunications is a very capital-intensive business that requires substantial and recurring investment in property,
plant, equipment and customer acquisition. Cogeco Cable depends on capital markets for the availability of additional
capital that it must deploy to support its internal and external growth. There is no assurance that future capital requirements
will be met when needed, or that the cost to secure such needed incremental capital will not increase the Corporation’s
overall cost of capital.
Cogeco Cable’s debt fi nancing structure involves the borrowing of money from third parties by Cogeco Cable and the
subsequent investment of equity and debt by the Corporation into its direct and indirect subsidiaries. This fi nancing structure
requires that Cogeco Cable be able to receive upstream fl ows of funds from its subsidiaries through capital repayments,
interest payments, dividend payments, management fees or other distributions that are suffi cient to meet its corporate debt
obligations. Future changes to corporate, tax, currency exchange and other legal requirements applicable to the Corporation,
or to its direct or indirect subsidiaries could adversely affect such upstream fl ow of funds or the effectiveness of the
Corporation’s existing debt fi nancing structure.
The Corporation’s leverage and corporate risk profi le is liable to vary from time to time as a result of new developments in
its business activities and the investments required to support internal growth as well as external growth through acquisitions.
The development of new services or additional lines of business, and the acquisition of new business properties, may not
necessarily generate the anticipated results or benefi ts. There is no assurance that Cogeco Cable will be able to maintain
or increase distributions to shareholders by way of dividends or otherwise.
The acquisition of Cabovisão has been fi nanced through corporate credit facilities of Cogeco Cable. The major part of the
purchase price for the shares of Cabovisão (approximately ¤461.8 million) was borrowed directly in euros and a second
tranche of $150 million was borrowed in Canadian dollars and subsequently converted into euros (¤104 million). The
remainder of the purchase price is assumed liabilities. There are no fi nancial hedging arrangements in effect at this time
for currency fl uctuation risk on interest payments resulting from these borrowings, but there is a natural hedging effect
between the borrowings in euros and the inter-corporate debt interest payments and cash distributions in euros originating
from the European subsidiaries. Also, for the purposes of this acquisition, Cogeco Cable has set up an acquisition structure
involving one of its operating Canadian subsidiaries and intermediate holding and fi nancing entities located in Luxembourg
with a view to maximizing returns. The Corporation is still considering various options to extend the term with euro-
denominated alternate sources of fi nancing.