Cogeco 2006 Annual Report Download - page 60

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58 COGECO CABLE INC. 2006 Notes to Consolidated Financial Statements
(amounts are in thousands of dollars) 2006 2005
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
$ $ $ $
LONG-TERM DEBT 1,244,122 1,264,034 631,896 679,461
DERIVATIVE FINANCIAL INSTRUMENTS – LIABILITY POSITION 72,855 82,910 60,585 74,972
Fair values are estimated at a specifi c point in time, based on relevant market information and information about the
fi nancial instrument. These estimates are subjective in nature and involve uncertainties and matters of signifi cant judgment
and, therefore, cannot be determined with precision. Changes in assumptions could signifi cantly affect the estimates.
CREDIT RISK
The Corporation’s credit risk arises from the possibility that counterparts to the cross-currency swap agreements may
default on their obligations. The Corporation reduces risk by completing transactions with fi nancial institutions that carry
a credit rating equal to or superior to its own credit rating. In addition, since the Corporation has a large and diversifi ed
clientele, credit risk concentration from customers is minimal.
14. FINANCIAL INSTRUMENTS
FAIR VALUE
The Corporation uses the following methods and assumptions to evaluate fair market value of fi nancial instruments:
Cash and cash equivalents, restricted cash, accounts receivable, 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, on bankers’ acceptance, LIBOR, EURIBOR,
bank prime rate loan or U.S. base rate loan 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 fi nancial instruments.
c) The carrying values of obligations under capital leases approximate fair value of these fi nancial instruments due to
their terms.
d) The fair value of the derivative fi nancial instruments is based upon available information about the fi nancial instruments
and market conditions.
The estimated fair values of long-term debt instruments and derivative instruments are as follows: