Cogeco 2005 Annual Report Download - page 51

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11 FINANCIAL INSTRUMENTS
Fair value
The Corporation uses the following methods and assumptions to evaluate fair market value of financial instruments:
Accounts receivable, cash and cash equivalents, bank indebtedness and 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.
Long-term debt
a) Financial expense under the terms of the Corporation’s Term Facility is based upon bankers’ acceptance plus stamping fees or bank prime
rates plus stamping fees. Therefore, carrying value is considered to represent fair market value for the Term Facility.
b) The fair value of the Senior Secured Debentures Series 1, Senior Secured Notes Series A and B, and Second Secured Debentures Series A,
is based upon current trading values for similar financial instruments.
c) The carrying values of obligations under capital leases and other items of the long-term debt approximate fair value of these financial
instruments due to their terms.
d) The fair value of the derivative financial instruments is based upon available information about the financial instruments and market conditions.
The estimated fair values of long-term debt instruments and derivative instruments are as follows:
2005 2004
Carrying Estimated Carrying Estimated
(amounts are in thousands of dollars) amount fair value amount fair value
$$$$
Long-term debt 631,896 679,461 711,023 722,431
Derivative financial instruments – liability position 60,585 74,972 41,700 45,622
Fair values are estimated at a specific point in time, based on relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the estimates.
Credit risks
The Corporation’s credit risk arises from the possibility that counterparts to the foreign exchange forward contracts and the cross-currency
swap agreements may default on their obligations. The Corporation reduces risk by completing transactions with financial institutions that
carry a credit rating equal or superior to A+. In addition, since the Corporation has a large and diversified clientele, credit risk concentration
from customers is minimal.
Cogeco Cable Inc. 2005
49
Notes to Consolidated Financial Statements