Cogeco 2014 Annual Report Download - page 22

MD&A COGECO CABLE INC. 2014 21
At August 31, 2014, PSU reached 2,442,184 of which 1,946,022 came from the Canadian cable services segment and 496,162 came from the
American cable services segment. Fiscal 2014 PSU net losses stood at 25,473 compared to net additions of 7,423 for the prior year. Fiscal 2014
net losses for Television services customers stood at 43,858 compared to 33,476 for the prior year mainly as a result of service category maturity
and competitive offers in the industry. Fiscal 2014 HSI service customers grew by 31,008 compared to 28,437 and the Telephony services
customers net losses stood at 12,623 compared to net additions of 12,462 for the prior year. HSI net additions continued to stem from the
enhancement of the product offering and the positive impact of the bundle offer. The decrease in telephony services customers is mainly attributable
to the increasing mobile penetration rate in North America and various unlimited offers launched by mobile operators causing customers to cancel
their landline Telephony services for mobile Telephony services only.
In the Canadian cable services segment, PSU decreased by 34,100 in fiscal 2014 compared to to an increase of 5,068 in the previous year. The
decrease is explained by service category maturity and a more competitive environment for all services.
In the American cable services segment, PSU increased by 8,627 in fiscal 2014 compared to an increase of 2,355 in the prior year. The PSU
growth stem primarily from additional HSI and Telephony services combined with a lower decrease in the Television service. The comparable
figures include only nine months of net additions since Atlantic Broadband acquisition occurred at the end of the first quarter of fiscal 2013.
For further details on the Corporation’s customer statistics, please refer to the “Segmented operating results" section.
RELATED PARTY TRANSACTIONS
Cogeco Cable Inc. is a subsidiary of COGECO Inc., which holds 32.0% of the Corporation’s equity shares, representing 82.5% of the Corporation’s
voting shares. On September 1, 1992, Cogeco Cable Inc. executed a Management Agreement with COGECO 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’s senior executives, including the
President and Chief Executive Officer, the Senior Vice President and Chief Financial Officer, the Vice President, Regulatory Affairs and Copyright,
the Vice President, Corporate Affairs, 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 and Risk Management. No direct
remuneration is payable to such senior executives by the Corporation. However, the Corporation granted 84,250 stock options (71,233 in 2013)
to these senior executives as senior executives of Cogeco Cable during fiscal 2014. During fiscal 2014, the Corporation charged COGECO an
amount of $293,000 ($386,000 in 2013) with regards to the Corporation’s stock options granted to these senior executives.
During fiscal 2014, the Corporation also granted 12,550 (12,280 in 2013) Incentive Share Units (“ISUs”) to these senior executives as executives
of Cogeco Cable. During fiscal 2014, the Corporation charged COGECO Inc. an amount of $681,000 ($452,000 in 2013) with regards 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 for the above-mentioned
services subject to a maximum amount which was set to $9.7 million in fiscal 2014 ($9.6 million in 2013) and paid within the first half of the fiscal
year. The management fees are 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. In addition, the Corporation reimburses COGECO's out-of-
pocket expenses incurred with respect to services provided to the Corporation under the Management Agreement.
CASH FLOW ANALYSIS
Years ended August 31, 2014 2013 (1)
(in thousands of dollars) $$
Operating activities
Cash flow from operations 690,148 557,581
Changes in non-cash operating activities 48,603 (23,331)
Amortization of deferred transaction costs and discounts on long-term debt (7,568)(11,233)
Income taxes paid (63,168) (100,110)
Current income taxes 82,752 84,676
Financial expense paid (122,620) (91,343)
Financial expense 130,221 128,770
Cash flow from operating activities 758,368 545,010
Investing activities (413,714) (2,409,788)
Financing activities (321,900) 1,685,864
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies 1,502 3,098
Net change in cash and cash equivalents 24,256 (175,816)
Cash and cash equivalents, beginning of year 39,575 215,391
Cash and cash equivalents, end of year 63,831 39,575
(1) Comparative figures have been adjusted to comply with the adoption of IAS 19 Employee Benefits. For further details, please refer to Note 3 of the consolidated
financial statements.