Cogeco 2007 Annual Report Download - page 15

Management’s Discussion and Analysis COGECO CABLE INC. 2007 13
liabilities are calculated according to enacted or substantially enacted income tax rates expected to be applied to taxable
income in the years in which those temporary differences are expected to be recovered or settled. Future income tax assets
are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax
assets will be realized. Accordingly, changes in assumptions will directly impact the reported amount of income tax expenses.
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 currencies 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 are 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, which is designated as a hedge of a net investment in a self-sustaining
foreign subsidiary that are included in the foreign currency translation adjustment account net of income taxes.
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 Inc. which holds 32.5% of the Corporation’s equity shares, representing 82.8%
of the votes attached to 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 319,647 stock options to its offi cers,
who also are COGECO’s offi cers, during the 2007 fi scal year, compared to 31,743 in the 2006 fi scal year. During fi scal
2007, Cogeco Cable charged COGECO an amount of $0.3 million with regards to Cogeco Cable’s options granted to
COGECO’s employees.
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, 2007,
the maximum amount of $8.6 million was paid to COGECO, compared to $8.4 million in 2006, which represents about
0.9% of the Corporation’s total revenue for fi scal 2007 compared to 1.4% for fi scal 2006. 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 with respect to services provided to the Corporation
under the Management Agreement. In fi scal 2008, the management fee will be increased, pursuant to the Management
Agreement, by 1.7%, which is equal to the increase in the Consumer Price Index in Canada.