Cogeco 2003 Annual Report Download - page 38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
36 Cogeco Cable Inc. 2003
11 Capital stock (continued)
The fair value of stock options granted for the year ended August 31, 2003 was $2.42 per option ($7.40 per option in 2002).
For purpose of pro forma disclosures, stock-based compensation is amortized to expense on a straight-line basis over the vesting
period, which is four years.
The Binomial option pricing model was developed for use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option pricing models require the use of highly subjective assumptions
including the expected stock price volatility. Because the Corporation’s employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective assumptions can have a material effect on the fair
value estimate, in management’s opinion, the existing option pricing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
Performance Unit Plan
The Corporation has also adopted a Performance Unit Plan for key employees. The value of a performance unit granted is
equal to the closing price of the subordinate voting shares of the Corporation on the Toronto Stock Exchange on the trading day
preceding the date of grant of the unit. The units credited to the participant’s account will become vested to the participant on
the third anniversary of the date of grant of the said performance units. The units will be redeemed only at the termination of the
participant’s employment or in case of retirement or death. Each unit credited gives the right to a Dividend Equivalent equal to
the amount of dividend per share paid on the subordinate voting shares of the Corporation. The Dividend Equivalent is converted
into additional units. The units do not confer on the participant the right to acquire shares or other securities of the Corporation
under any circumstances and the participant shall not, by holding units or otherwise be considered a shareholder of the
Corporation nor have any rights to become a shareholder as a result. An amount of $128,000 ($118,000 in 2002) has been
recorded as a reduction of expenses related to this plan.
12 Earnings per share
The following table provides a reconciliation between basic and diluted earnings per share:
13 Financial instruments
Description of derivative financial instruments
Foreign exchange forward contracts
In June 2003, the Corporation entered into foreign exchange forward contracts to hedge a portion of anticipated purchases
in US dollars. At August 31, 2003, foreign exchange forward contracts have a nominal value of US $13,301,000 and expire
at different dates until August 16, 2004. The exchange rate of these forward contracts is CDN $1.3873.
Fair value
The Corporation uses the following methods and assumptions to evaluate fair market value of financial instruments:
Accounts receivable, accounts payable and accrued liabilities
The carrying amount in the consolidated balance sheets approximates fair value because of the short-term nature
of these instruments.
2003 2002
Net income $7,879 $3,788
Weighted average number of multiple voting and
subordinate voting shares outstanding 39,881,871 39,871,601
Effect of dilutive stock options 59,001 14,578
Weighted average number of diluted multiple
voting and subordinate voting shares outstanding 39,940,872 39,886,179
Earnings per share
Basic $0.20 $0.10
Diluted 0.20 0.09