Cogeco 2010 Annual Report Download - page 73

72 COGECO CABLE INC. 2010 Consolidated Financial Statements
19. Commitments, contingencies and guarantees
Commitments
As at August 31, 2010, the Corporation and its subsidiaries are committed under operating lease agreements and other long-term contracts to
make annual payments as follows:
2011 2012 2013 2014 2015 Thereafte
r
(in thousands of dollars) $ $ $ $$$
Operating lease agreements 17,859 16,146 15,042 14,864 14,502 28,564
Other long term contracts 6,037 5,612 5,218 1,154 750 3,000
23,896 21,758 20,260 16,018 15,252 31,564
Contingencies
The Corporation and its subsidiaries are involved in matters involving litigation arising out of the ordinary course and conduct of its business.
Although such matters cannot be predicted with certainty, management does not consider the Corporation’s exposure to litigation to be
significant to these financial statements.
Guarantees
In the normal course of business, the Corporation enters into agreements containing features that meet the criteria of a guarantee including the
following:
Stamp taxes and withholding taxes
During fiscal 2008 and 2010, the Corporation issued letters of credit amounting to €1.7 million and €4.2 million to guarantee the payment by
Cabovisão of stamp taxes for the 2000 through 2002 years and withholding taxes for the years 2004 and 2005 assessed by the Portuguese tax
authorities, which are all currently being challenged by Cabovisão. Even though the principal amounts in dispute are fully recorded in the books
of its subsidiary Cabovisão, the Corporation may be required to pay the amounts following final judgements, up to a maximum aggregate
amount of €5.9 million ($7.9 million), should Cabovisão fail to pay such required amounts.
Business acquisitions and asset disposals
In connection with the acquisition or sale of a business 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. At August 31, 2010 and 2009, no
liability has been recorded associated with these indemnifications.
Long-term debt
Under the terms of the Senior Secured Notes, the Corporation has agreed to indemnify the other parties against changes in regulations 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. At August 31, 2010 and 2009, no liability has been
recorded associated with these indemnifications.
20. Related party transactions
Cogeco Cable Inc. is a subsidiary of COGECO Inc., which holds 32.3% of the Corporation’s equity shares, representing 82.7% of the votes
attached to the Corporation’s voting shares. As of September 1, 1992, Cogeco Cable Inc. executed a management agreement with COGECO
Inc. 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 Inc.’s senior executives, including the President and Chief Executive Officer, the Senior Vice President and Chief Financial Officer,
the Vice President, Corporate Affairs, the Vice President, Chief Legal Officer and Secretary and the Vice President and Treasurer. No direct
remuneration is payable to such senior executives by the Corporation. The Corporation granted 33,266 stock options and 9,981 incentive share
units (29,711 stock options in 2009) to these senior executives, who also are COGECO Inc.’s senior executives during fiscal year 2010. During
fiscal 2010, the Corporation charged COGECO Inc. an amount of $338,000 ($363,000 in 2009) with regards to the Corporation’s stock options
and Incentive Share Units granted to COGECO Inc.’s employees.