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Management’s Discussion and Analysis COGECO CABLE INC. 2008 23
FISCAL 2007 ADJUSTMENTS RELATED TO FISCAL 2006 BUSINESS ACQUISITION
On June 2, 2006, the Corporation entered into an agreement with Cable Satisfaction International Inc. (“CSII”), Catalyst Fund
Limited Partnership I and Cabovisão, to purchase, for a total consideration of €461.8 million ($667.5 million), all the shares of
Cabovisão, the second largest cable telecommunications company in Portugal, an indirect wholly-owned subsidiary of CSII. The
price includes the purchase of senior debt and reimbursement of certain other Cabovisão liabilities. The acquisition was completed
on August 1, 2006. The final purchase price has been determined following completion of a post-closing working capital adjustment
that occurred on March 9, 2007. According to the agreement, the final purchase price was reduced by an amount of €2.2 million
($3.4 million).
The acquisition was accounted for using the purchase method. The results of Cabovisão have been consolidated as of the
acquisition date.
In 2007, management completed its valuations of tangible and intangible assets acquired and liabilities assumed and the final
allocation is as follows:
(in thousands of dollars) $
CONSIDERATION PAID
PURCHASE PRICE OF SHARES 304,188
WORKING CAPITAL ADJUSTEMENT (3,371)
SECURED LENDERS’ DEBT AND CERTAIN SPECIFIED CABOVISÃO LIABILITIES 274,761
ACQUISITION COSTS 6,299
581,877
NET ASSETS ACQUIRED
CASH AND CASH EQUIVALENTS 5,711
RESTRICTED CASH 489
ACCOUNTS RECEIVABLE 16,570
PREPAID EXPENSES 1,324
FIXED ASSETS 323,796
CUSTOMER RELATIONSHIPS 71,684
GOODWILL 344,004
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ASSUMED (60,433)
OTHER SPECIFIED CABOVISÃO LIABILITIES ASSUMED (91,914)
FUTURE INCOME TAX LIABILITIES (29,354)
581,877
The final allocation resulted in an increase in fixed assets of $36.1 million, an increase in customer relationships of $71.7 million and
an increase in future income tax liabilities of $29.4 million, as well as a decrease in accounts payable and accrued liabilities
assumed of $4.9 million. The net impact of these adjustments combined with the reduction of the purchase price reduced goodwill
by $87 million (see note 10 B) of the consolidated financial statements on page 58).
Also, in accordance with the 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 filed 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 filed by
Cabovisão on July 28, 2006, and Cabovisão has not yet obtained a response from the tax authorities. Consequently, the tax
benefits of the losses generated prior to the acquisition have not been included in the purchase price allocation, but will be recorded
as a reduction of goodwill upon realisation (see note 6 of the consolidated financial statements on page 54).