Cogeco 2006 Annual Report Download - page 15

Management’s Discussion and Analysis COGECO CABLE INC. 2006 13
FOREIGN CURRENCY TRANSLATION
Financial statements of self-sustaining foreign subsidiaries are translated in Canadian dollars using the rate in effect at the
balance sheet date for asset and liability items, and using the average exchange rates during the period for revenue and
expenses. Adjustments arising from this translation are deferred and recorded in the foreign currency translation adjustment
account and are included in income only when a reduction in the investment in these foreign subsidiaries is realized.
Other assets and liabilities denominated in foreign currency are translated in Canadian dollars at exchange rates prevailing
at the balance sheet date for monetary items and at transaction date for non-monetary items. Revenue and expenses are
translated at average rates prevailing during the period except for transactions being hedged which were translated using
the terms of the hedges. Amounts payable or receivable on cross-currency swaps, all of which are used to hedge foreign
currency debt obligations are recorded concurrently with the unrealized gains and losses on the obligations being hedged.
Other foreign exchange gains and losses are included in net income, except for unrealized foreign exchange gains and
losses on long-term debt denominated in foreign currencies, that is designated as a hedge of a net investment in a
self-sustaining foreign subsidiary, which are included in the foreign currency translation adjustment account.
CONTINGENCIES AND COMMITMENTS
The Corporation is subject to various claims and contingencies related to lawsuits, taxes and commitments under contractual
and other commercial obligations. The contractual and other commercial obligations primarily relate to network fees and
operating lease agreements for use of transmission facilities. The Corporation recognizes liabilities for contingencies
and commitments when a loss is probable and can be estimated. Signifi cant changes in assumptions as to the likelihood
and estimates of a loss could result in the recognition of an additional liability.
RELATED PARTY TRANSACTIONS
Cogeco Cable is a subsidiary of COGECO which holds 39.2% of the Corporation’s equity shares, representing 86.6% of the
Corporation’s voting shares. As of September 1, 1992, Cogeco Cable executed a management agreement with COGECO
under which the parent company agreed to provide certain executive, administrative, legal, regulatory, strategic and fi nancial
planning services and additional services to the Corporation and its subsidiaries (the “Management Agreement”). These
services are provided by COGECO’s offi cers, including the President and Chief Executive Offi cer; the Vice President, Finance
and Chief Financial Offi cer; and the Vice President, Corporate Affairs. No direct remuneration is payable to such offi cers
by the Corporation. The Corporation granted 31,743 stock options to its offi cers, who also are COGECO’s offi cers, during
the 2006 fi scal year, compared to 38,397 in the 2005 fi scal year.
Under the Management Agreement, the Corporation pays monthly fees equal to 2% of its total revenue to COGECO for
the above-mentioned services. In 1997, the management fee was capped at $7 million per year, subject to annual upward
adjustments based on increases in the Consumer Price Index in Canada. Accordingly, for the year ended August 31, 2006,
the maximum amount of $8.4 million was paid to COGECO, compared to $8.2 million in 2005, which represents about 1.4%
of the Corporation’s total revenue for fi scal 2006 compared to 1.5% for fi scal 2005. The Audit Committee of the Corporation
can increase the cap under certain circumstances upon request to that effect by COGECO. In addition, the Corporation
reimburses COGECO’s out-of-pocket expenses incurred in respect to services provided to the Corporation under the
Management Agreement. In fi scal 2007, the management fee will be increased, pursuant to the Management Agreement,
by 2.1% which is equal to the increase in the Consumer Price Index in Canada.