Cogeco 2006 Annual Report Download - page 33

Management’s Discussion and Analysis COGECO CABLE INC. 2006 31
FOREIGN EXCHANGE MANAGEMENT
The Corporation has established guidelines whereby currency swap agreements can be used to manage risks associated
with fl uctuations in exchange rates related to its US-dollar denominated long-term debt. All such agreements are exclusively
used for hedging purposes. In order to minimize the risk of counter-party default, Cogeco Cable completes transactions
with fi nancial institutions that carry a credit rating equal or superior to its own credit rating.
Cogeco Cable has entered into cross-currency swap agreements to fi x the liability for interest and principal payments on
its US$150 million Senior Secured Notes. These agreements have the effect of converting the US interest coupon rate of
6.83% per annum to an average Canadian dollar fi xed interest rate of 7.254% per annum. The exchange rate applicable
to the principal portion of the debt has been fi xed at CDN$1.5910. Amounts due under the US$150 million Senior Secured
Notes Series A declined by CDN$12.3 million at the end of fi scal 2006 compared to August 31, 2005 due to the
strengthening of the Canadian dollar. Since the Senior Secured Notes Series A are fully hedged, the decline is fully offset
by an increase in deferred credit described in Note 10 e) on page 53. This $72.9 million deferred credit represents the
difference between the year-end exchange rate and the exchange rate on the cross-currency swap agreements, which
determines the liability for interest and principal payments on the Senior Secured Notes Series A.
COMMITMENTS AND GUARANTEES
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 of business or sale of assets, in addition to possible indemnifi cation 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 which occurred prior to the date of acquisition or sale. The term
and amount of such indemnifi cation will sometimes be limited by the agreement. The nature of these indemnifi cation
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 signifi cant liability will be incurred under these obligations is low.
the Corporation has purchased directors’ and offi cers’ liability insurance with a deductible per loss. As at August 31, 2006
and 2005 no liability associated with these indemnifi cations has been recorded.
Under the terms of the Term Facility, the Senior Secured Notes and the Second Secured Debentures Series A, 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 indemnifi cations extend for the term of the related fi nancings and
do not provide any limit on the maximum potential liability. The nature of the indemnifi cation agreement prevents the
Corporation from estimating the maximum potential liability it could be required to pay. As at August 31, 2006 and 2005,
no liability associated with these indemnifi cations has been recorded.
Supplementary information on guarantees is presented in Note 17 on page 62.
Cogeco Cable’s contractual obligations as at August 31, 2006 are shown in the table below:
YEARS ENDED AUGUST 31, 2007 2008 2009 2010 2011 THEREAFTER TOTAL
(in thousands of dollars) $ $ $ $ $ $ $
LONG-TERM DEBT(1) 125,000 15,000 411,150 37,500 548,318 175,000 1,311,968
CAPITAL LEASE OBLIGATIONS(2) 2,158 1,786 1,190 450 — — 5,584
OPERATING LEASES AND OTHERS 17,978 16,873 15,296 13,929 10,590 11,276 85,942
OTHER LONG-TERM OBLIGATIONS(3) 230,252
TOTAL CONTRACTUAL OBLIGATIONS(4) 145,136 33,659 427,636 51,879 558,908 186,276 1,633,746
( 1 ) INCLUDES PRINCIPAL REPAYMENTS AND THE IMPACT OF CROSS-CURRENCY SWAP AGREEMENTS BUT EXCLUDES CAPITAL LEASES.
(2) INCLUDES PRINCIPAL REPAYMENTS AND FINANCIAL EXPENSE.
(3) OTHER LONG-TERM LIABILITIES REFLECTED ON COGECO CABLE’S BALANCE SHEET INCLUDE DEFERRED AND PREPAID INCOME, PENSION PLAN LIABILITIES AND
ACCRUED EMPLOYEE BENEFITS AND FUTURE INCOME TAX LIABILITIES. THE NATURE OF THOSE OBLIGATIONS PREVENTS THE CORPORATION FROM ESTIMATING
AN ANNUAL BREAKDOWN.
(4) ANNUAL BREAKDOWN EXCLUDES OTHER LONG-TERM OBLIGATIONS.