Cogeco 2012 Annual Report Download - page 30

Management’s Discussion and Analysis (MD&A) COGECO CABLE INC. 2012 29
In the normal course of business, Cogeco Cable enters into agreements containing features that meet the criteria for a guarantee.
In connection with the acquisition or sale of businesses or assets, in addition to possible indemnification relating to failure to perform covenants
and breach of representations and warranties, the Corporation has agreed to indemnify the seller or the purchaser against claims related to
events that occurred prior to the date of acquisition or sale. The term and amount of such indemnification will sometimes be limited by the
agreement. The nature of these indemnification agreements prevents the Corporation from estimating the maximum potential liability required
to be paid to guaranteed parties. In management’s opinion, the likelihood that a significant liability will be incurred under these obligations is
low. The Corporation has purchased directors and officers’ liability insurance with a deductible per loss. As at August 31, 2012 and 2011, no
liability associated with these indemnifications has been recorded.
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, 2012 and 2011, no liability associated
with these indemnifications has been recorded.
During fiscal 2008, 2010, and 2011, the Corporation issued letters of credit amounting to €1.7 million, €2.2 million, and €6.8 million to
guarantee the payment by Cabovisão of stamp taxes for the 2000 through 2002 years and stamp taxes and withholding taxes for the year 2005
and 2006 assessed by the Portuguese tax authorities, which were being challenged by Cabovisão. As a result of the sale of its Portuguese
subsidiary, on February 29, 2012, the letters of credits were released.
SEGMENTED OPERATING RESULTS
As discussed in the “Overview of the business” section, the Corporation reported its operating results in two operating segments: Cable
services and Enterprise services.
Cable services Enterprise services
Inter-segment
eliminations and
other(1) Consolidated
Years ended August 31, 2012 2011 Change 2012 2011 Change 2012 2011 2012 2011
(in thousands of dollars, except percentages) $$% $$%$$$$
Revenue 1,188,717 1,123,652 5.8 89,831 61,031 47.2 (850) 1,277,698 1,184,683
Operating expenses 614,644 581,489 5.7 51,649 35,754 44.5 12,868 12,907 679,161 630,150
Management fees – COGECO Inc.     9,485 9,172 9,485 9,172
Operating income before depreciation and
amortization 574,073 542,163 5.9 38,182 25,277 51.1 (23,203) (22,079) 589,052 545,361
Operating margin 48.3% 48.3% 42.5% 41.4%  46.1% 46.0%
(1) The inter-segment eliminations and other eliminate any intercompany transactions included in each segment’s results and include head office activities.
CABLE SERVICES
CUSTOMER STATISTICS
Net additions (losses) % of penetration
(1)
August 31, Years ended August 31, August 31,
2012 2012 2011 2012 2011
PSU 1,969,133 71,664 106,310
Television service customers(2) 863,115 (14,870) 3,480 52.4 54.1
HSI service customers 634,534 33,320 42,157 38.5 37.1
Telephony service customers 471,484 53,214 60,673 28.6 25.8
(1) As a percentage of homes passed.
(2) The number of Television service customers includes 771,503 Digital Television service customers.
During fiscal 2012, PSU net additions were lower than in the comparable period of the prior year mainly as a result of category maturity,
competitive offers and tightening of our credit controls and processes. For the year ended August 31, 2012, net customer losses for Television
service customers stood at 14,870 compared to 3,480 net additions for the prior year. Television service customer net losses are mainly due to
the competitive promotional offers for the video service combined with the tightening of our credit controls. For the year ended
August 31, 2012, Telephony service customers grew by 53,214 compared to 60,673 last year, and the number of net additions to the HSI
service stood at 33,320 customers compared to 42,157 customers for the prior year. HSI and Telephony net additions continue to stem from
the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection) of Television, HSI and Telephony