Cogeco 2008 Annual Report Download - page 47

46 COGECO CABLE INC. 2008 Notes to the Consolidated Financial Statements
Transaction costs
Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a reduction of the related
financing, except for transaction costs on the revolving loan and the swingline facility, which are presented as deferred charges.
These costs are amortized over the term of the related financing using the effective interest rate method, except for transaction
costs on the revolving loan and the swingline facility, which are amortized over the term of the related financing on a straight-line
basis. Previously, all transaction costs were capitalized and amortized on a straight-line basis over the term of the related financing,
a period not exceeding five years. The impact of these adjustments at September 1, 2007 reduced deferred charges by $1.2 million,
reduced long-term debt by $3.1 million, increased future income tax liabilities by $0.6 million and increased retained earnings by
$1.3 million.
Cash flow hedge
All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of income unless they
are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives are recorded in other
comprehensive income, to the extent effective, until the variability of cash flows relating to the hedged asset or liability is recognized
in the consolidated statements of income. Any hedge ineffectiveness is recognized in the consolidated statements of income
immediately. Accordingly, the Corporation’s cross-currency swap agreements must be measured at fair value in the consolidated
financial statements. Since these cross-currency swap agreements are used to hedge cash flows on Senior Secured Notes Series A
denominated in US dollars, the changes in fair value are recorded in other comprehensive income. The impact of measuring the
cross-currency swap agreements at fair value on September 1, 2007, increased derivative financial instrument liabilities by
$83.5 million, decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by
$1.1 million and decreased opening accumulated other comprehensive income by $2.2 million. The impact of measuring the cross-
currency swap agreements at fair value on the consolidated financial statements for the year ended August 31, 2008 decreased
derivative financial instrument liabilities by $3.7 million, increased future income tax liabilities by $0.9 million and increased
accumulated other comprehensive income by $1.9 million.
Net investment hedge
Financial statements of self-sustaining foreign subsidiaries are translated 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 as foreign currency translation adjustments in accumulated other comprehensive income and
are included in income only when a reduction in the investment in these foreign subsidiaries is realized. Unrealized foreign
exchange gains and losses on long-term debt denominated in foreign currency that is designated as a hedge of net investments in
self-sustaining foreign subsidiaries are recorded as foreign currency translation adjustments in accumulated other comprehensive
income, net of income taxes. As a result, an amount of $4.5 million was reclassified as at September 1, 2006 from the foreign
currency translation adjustment to accumulated other comprehensive income and the Corporation’s comparative consolidated
financial statements were restated in accordance with transitional provisions.
Embedded derivatives
All embedded derivatives that are not closely related to the host contracts are measured at fair value, with changes in fair value
recorded in the consolidated statements of income. On September 1, 2007 and as at August 31, 2008, there were no significant
embedded derivatives or non-financial derivatives that require separate fair value recognition on the consolidated balance sheets. In
accordance with the new standards, the Corporation selected September 1, 2002, as its transition date for adopting the standard
related to embedded derivatives.
ii. ACCOUNTING CHANGES
In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous standard. A
reporting entity may not change its accounting method unless required by a primary source of GAAP or to provide a reliable and
more relevant presentation of the financial statements. In addition, changes in accounting methods must be applied retroactively
and additional information must be disclosed. This Section applies to interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2007. During the first quarter of fiscal 2008, the Corporation adopted this new standard and
concluded that it had no significant impact on these consolidated financial statements.
FUTURE ACCOUNTING PRONOUNCEMENTS
iii. FINANCIAL INSTRUMENTS
In December 2006, the CICA issued Section 3862, Financial Instruments – Disclosures, Section 3863, Financial Instruments –
Presentation, and Section 1535, Capital Disclosures. All three Sections will be applicable to financial statements relating to fiscal
years beginning on or after October 1, 2007. Accordingly, the Corporation will adopt the new standards for its fiscal year beginning
September 1, 2008. Section 3862 on financial instrument disclosures requires the disclosure of information about the significance of