Cogeco 2011 Annual Report Download - page 77

76 COGECO CABLE INC. 2011 Consolidated financial statements
The following table summarizes the contractual maturities of the financial liabilities and related capital amounts:
2012 2013 2014 2015 2016 Thereafte
r
Total
$ $ $ $ $ $ $
A
ccounts payable and accrued liabilities(1) 237,249 – – – – – 237,249
Long-term debt(2) – – 410,000 – 186,086 355,000 951,086
Balance due on a business acquisition – 11,400 – – – – 11,400
Derivative financial instruments
Cash outflows (Canadian dollar) – – – – 201,875 – 201,875
Cash inflows (Canadian dollar
equivalent of US dollar) – – – – (186,086) – (186,086)
Obligations under capital leases(3) 2,251 871 7 – – – 3,129
239,500 12,271 410,007 – 201,875 355,000 1,218,653
(1) Excluding accrued interest.
(2) Principal excluding obligations under capital leases.
(3) Including interest.
The following table is a summary of interest payable on long-term debt (excluding interest on capital leases) that are due for each of the next
five years and thereafter, based on the principal and interest rate prevailing on the current debt at August 31, 2011 and their respective
maturities:
2012 2013 2014 2015 2016 Thereafte
r
Total
$ $ $ $ $ $ $
Interest payments on long-term debt 55,692 55,692 55,142 33,442 26,929 68,672 295,569
Interest payments on derivative financial
instruments 14,614 14,614 14,614 14,614 7,307 – 65,763
Interest receipts on derivative financial
instruments (13,026) (13,026) (13,026) (13,026) (6,513) – (58,617)
57,280 57,280 56,730 35,030 27,723 68,672 302,715
Interest rate risk
The Corporation is exposed to interest rate risks for both fixed interest rate and floating interest rate instruments. Fluctuations in interest rates
will have an effect on the valuation and collection or repayment of these instruments. At August 31, 2011, all of the Corporation’s long-term
debt was at fixed rate, except for the Corporation’s Term Revolving Facility. The sensitivity of the Corporation’s annual financial expense to a
variation of 1% in the interest rate applicable to the Term Revolving Facility is approximately $1.1 million based on the current debt at
August 31, 2011.
Foreign exchange risk
The Corporation is exposed to foreign exchange risk related to its long-term debt denominated in US dollars. In order to mitigate this risk, the
Corporation has established guidelines whereby currency swap agreements can be used to fix the exchange rates applicable to its US dollar
denominated long-term debt. All such agreements are exclusively used for hedging purposes. Accordingly, on October 2, 2008, the Corporation
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 issued on October 1, 2008. These agreements have the effect of converting the US 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. The Corporation elected to apply cash flow hedge accounting on these derivative financial instruments.
The Corporation is also exposed to foreign exchange risk on cash and cash equivalents, bank indebtedness and accounts payable
denominated in US dollars or Euros. At August 31, 2011, cash and cash equivalents denominated in US dollars amounted to US$8.8 million
(US$13.6 million at August 31, 2010) while accounts payable denominated in US dollars amounted to US$30.9 million (US$15.9 million at
August 31, 2010). At August 31, 2011, Euro-denominated cash and cash equivalents amounted to €353,000 (€187,000 at August 31, 2010).
Due to their short-term nature, the risk arising from fluctuations in foreign exchange rates is usually not significant. The impact of a 10% change
in the foreign exchange rates (US dollar and Euros) would change financial expense by approximately $2.1 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 was mitigated since the
major part of the purchase price for Cabovisão was borrowed directly in Euros. At August 31, 2011, the net investment amounted to €6.1 million
(€182.1 million at August 31, 2010) while no long-term debt is denominated in Euros (€90 million at August 31, 2010). The exchange rate used
to convert the Euro currency into Canadian dollars for the balance sheet accounts at August 31, 2011 was $1.4071 per Euro compared to
$1.3515 per Euro at August 31, 2010. The impact of a 10% change in the exchange rate of the Euro into Canadian dollars would change other
comprehensive income by approximately $0.9 million.