Cogeco 2011 Annual Report Download - page 79

78 COGECO CABLE INC. 2011 Consolidated financial statements
The following table summarizes certain of the key ratios used by management to monitor and manage the Corporation’s capital structure:
2011 2010
Net senior indebtedness(1) / operating income before amortization 1.4 1.6
Net indebtedness(2) / operating income before amortization 1.6 1.8
Operating income before amortization / financial expense 7.9 7.9
(1) Net senior indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments, less
cash and cash equivalents and principal on Senior Unsecured Debenture.
(2) Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt, balance due on a business acquisition and obligations unde
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derivative financial instruments, less cash and cash equivalents.
18. Commitments, contingencies and guarantees
Commitments
As at August 31, 2011, the Corporation and its subsidiaries are committed under operating lease agreements and other long-term contracts to
make annual payments as follows:
2012 2013 2014 2015 2016 Thereafte
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(in thousands of dollars) $ $ $$$$
Operating lease agreements 18,653 17,075 16,862 16,510 16,211 27,695
Other long term contracts 8,017 7,211 1,432 750 750 2,250
26,670 24,286 18,294 17,260 16,961 29,945
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 years 2008, 2010 and 2011, the Corporation issued letters of credit amounting to €1.7 million, €2.2 million and €6.8 million to
guarantee the payment by Cabovisão of stamp taxes for the 2000 through 2002 years and stamp taxes and withholding taxes for the year 2005
and 2006 assessed by the Portuguese tax authorities, which are all currently being challenged by Cabovisão. Even though the principal
amounts in dispute are recorded as necessary in the books of its subsidiary Cabovisão, the Corporation may be required to pay the amounts
following final judgments, up to a maximum aggregate amount of €10.6 million ($15 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, 2011 and 2010, no
liability has been recorded associated with these indemnifications.