Cogeco 2007 Annual Report Download - page 28

26 COGECO CABLE INC. 2007 Management’s Discussion and Analysis
Also, in accordance with the Portuguese Companies Income Tax Code (CIRC), accumulated tax losses cannot be deducted
if the ownership of at least 50% of the social capital changes from the moment when the tax losses were generated, unless
a request is fi led before such change in the ownership takes place, subject to approval by the Portuguese tax authorities.
To this effect, a request for preservation of tax losses was fi led by Cabovisão on July 28, 2006 and Cabovisão has not
yet
received a reply. Consequently, the tax benefi ts of these losses have not been included in the purchase price allocation,
but will be recorded as a reduction of goodwill upon realisation.
CAPITAL EXPENDITURES
Capital expenditures, segmented according to the National Cable Television Association (NCTA) standard reporting categories,
are as follows:
YEARS ENDED AUGUST 31, 2008 2007 2006
GUIDELINES(1)
(in thousands of dollars) $ $ $
CUSTOMER PREMISE EQUIPMENT(2) 103,900 98,192 59,441
SCALABLE INFRASTRUCTURE(3) 39,100 43,392 25,298
LINE EXTENSIONS 22,300 11,164 11,205
UPGRADE/REBUILD 46,600 58,640 39,709
SUPPORT CAPITAL 25,700 12,578 8,186
TOTAL CAPITAL EXPENDITURES(4) 237,600 223,966 143,839
(1) SEE “FISCAL 2008 FINANCIAL GUIDELINES” SECTION FOR FURTHER DISCUSSION ON PAGE 38.
(2) INCLUDES MAINLY NEW AND REPLACEMENT DROPS AS WELL AS HOME TERMINAL DEVICES.
(3) INCLUDES HEAD END EQUIPMENT AND EXPENDITURES RELATED TO TELEPHONY.
(4) INCLUDES CAPITAL LEASES THAT ARE EXCLUDED FROM THE STATEMENTS OF CASH FLOW.
In fi scal 2007, the variances related to capital expenditures are mainly attributable to the following factors:
• The capital expenditures from the Portuguese operations amounted to $41.6 million essentially to support RGU growth
and the early stage of deployment of the Digital Television service in the last few months of fi scal 2007.
•
In Canada, the increase in customer premise equipment expenditures resulted from a greater demand for HSI and
Telephony services, a rise in the number of HD terminals and a greater ratio of digital terminals per digital home.
• The growth in capital expenditures for scalable infrastructure is mainly attributable to the support of the Telephony service
rollout for the Canadian operations
•
The increase in capital expenditures associated with the network upgrade and rebuild program for the Canadian operations
was due to the acceleration of the program to expand the bandwidth to 750 MHz and 550 MHz for the Ontario and
Québec networks, respectively, and to improve network reliability. An increase in the number of homes passed with access
to the two-way service was also a factor and the percentage of customers with access to the two-way service rose from
93% as at August 31, 2006 to 94% as at August 31, 2007.
For fi scal 2008, capital expenditures should reach approximately $238 million, an increase of $14 million compared to
fi scal 2007.
The increase in capital expenditures in Portugal will stand mainly from the continuation of the launch of Digital Television
service. The rise in capital expenditures for the Canadian operations will stand from a $5.7 million increase in customer
premise equipment to serve RGU growth, from $11.1 million in line extensions to serve an increased number of homes passed
and from a $13.1 million increase in support capital mainly for improvements in facilities and information systems. The scalable
infrastructure should decrease by $4.3 million due to the infrastructure for the Telephony service rollout that was intensively
built in fi scal 2007, and capital expenditures related to upgrade/rebuild should also decrease by $12 million due to an
exceptional period of network rebuild in fi scal 2007 that should come back to a more regular level in fi scal 2008.