Cogeco 2009 Annual Report Download - page 35

34 COGECO CABLE INC. 2009 Management’s discussion and analysis
The Corporation has also entered into cross-currency swap agreements to set the liability for interest and principal payments on its
US$190 million Senior Secured Notes Series A maturing in October 1, 2015. These agreements have the effect of converting the
U.S. interest coupon rate of 7.00% per annum to an average Canadian dollar interest rate of 7.24% per annum. The exchange rate
applicable to the principal portion of the debt has been fixed at $1.0625 per US dollar. Since the issuance on October 1, 2008,
amounts due under the US$190 million Senior Secured Notes Series A increased by $6.2 million due to the US dollar’s appreciation
over the Canadian dollar. The fair value of cross-currency swaps increased by a net amount of $4.2 million, of which an increase of
$6.2 million offsets the foreign exchange loss on the debt denominated in US dollars. The difference of $1.9 million was recorded as
a decrease of other comprehensive income, net of income taxes of $0.5 million.
Furthermore, the Corporation’s net investment in self-sustaining foreign subsidiaries is exposed to market risk attributable to
fluctuations in foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the Euro. This risk is
mitigated since the major part of the purchase price for Cabovisão was borrowed directly in Euros. This debt is designated as a
hedge of a net investment in self-sustaining foreign subsidiaries and, accordingly, the Corporation recorded a foreign exchange gain
of $8 million in fiscal 2009, which is deferred and recorded in the consolidated statement of comprehensive income. The exchange
rate used to convert the Euro currency into Canadian dollars for the balance sheet accounts as at August 31, 2009 was $1.5698 per
Euro compared to $1.5580 per Euro as at August 31, 2008. The average exchange rate prevailing during fiscal 2009 used to
convert the operating results of the European operations was $1.5889 per Euro compared to $1.5098 per Euro for fiscal 2008. Since
the Corporation’s consolidated financial statements are expressed in Canadian dollars but a portion of its business is conducted in
the Euro currency, exchange rate fluctuations can increase or decrease revenue, operating income before amortization, net income
and the carrying value of assets and liabilities.
The following table shows the Canadian dollar equivalents of the Euro-denominated results of operations. Based on the
Corporation’s fiscal 2009 results, a 10% change in the average exchange rate of the Euro currency into Canadian dollars would
increase or decrease the full-year results by the following amounts:
YEAR ENDED AUGUST 31, 2009 AS REPORTED EXCHANGE RATE IMPACT
(in thousands of dollars) $ $
REVENUE 233,092 23,309
OPERATING INCOME BEFORE AMORTIZATION 64,119 6,412
IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS 399,648 39,965
NET LOSS (388,976) (38,898)
ADJUSTED NET LOSS (15,334) (1,533)
COMMITMENTS AND GUARANTEES
Cogeco Cable’s contractual obligations as at August 31, 2009 are shown in the table below:
YEARS ENDED AUGUST 31, 2010 2011 2012 2013 2014
THERE-
AFTER
TOTAL
(in thousands of dollars) $ $ $ $ $ $ $
LONG-TERM DEBT(1) 41,031 172,104 175,000 – 300,000 356,875 1,045,010
CAPITAL LEASE OBLIGATIONS(2) 4,224 3,273 2,258 852 – – 10,607
OPERATING LEASES AND OTHERS 19,904 15,343 13,390 12,233 12,425 23,043 96,338
OTHER LONG-TERM OBLIGATIONS(3) – – – – – – 3,113
TOTAL CONTRACTUAL OBLIGATIONS(4) 65,159 190,720 190,648 13,085 312,425 379,918 1,155,068
(1) INCLUDES PRINCIPAL REPAYMENTS AND THE IMPACT OF SWAP AGREEMENTS, BUT EXCLUDES CAPITAL LEASES.
(2) INCLUDES PRINCIPAL REPAYMENTS AND FINANCIAL EXPENSE.
(3) OTHER LONG-TERM OBLIGATIONS REFLECTED ON COGECO CABLE’S BALANCE SHEET INCLUDE PENSION PLAN LIABILITIES AND ACCRUED EMPLOYEE BENEFITS. THE
NATURE OF THOSE OBLIGATIONS PREVENTS THE CORPORATION FROM ESTIMATING AN ANNUAL BREAKDOWN.
(4) ANNUAL BREAKDOWN EXCLUDES OTHER LONG-TERM OBLIGATIONS.
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