Cogeco 2008 Annual Report Download - page 65

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64 COGECO CABLE INC. 2008 Notes to the Consolidated Financial Statements
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:
2008 2007
(in thousands of dollars)
CARRYING
AMOUNT
$
ESTIMATED
FAIR VALUE
$
CARRYING
AMOUNT
$
ESTIMATED
FAIR VALUE
$
LONG-TERM DEBT 1,055,041 1,049,329 947,706 964,828
DERIVATIVE FINANCIAL INSTRUMENTS LIABILITY 79,791 79,791 80,220 83,499
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 judgement and, therefore,
cannot be determined with precision. Changes in assumptions could significantly 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 financial institutions that carry a credit rating equal to
or superior to its own credit rating. In addition, since the Corporation has a large and diversified clientele, credit risk concentration
from customers is minimal.
INTEREST RATE RISK
The Corporation has exposure to interest rate risks for both fixed interest rate and floating interest rate instruments. Fluctuations in
interest rates will have an effect on the valuation and collection or repayment of these instruments.
FOREIGN EXCHANGE RISK
The Corporation’s net investments in self-sustaining foreign subsidiaries are exposed to market risk attributable to fluctuations in
foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the Euro. This risk is mitigated since
the major part of the purchase price for Cabovisão was borrowed directly in Euros. As at August 31, 2008, the net investments
totalled €446,051,000 (€449,941,000 in 2007) while long-term debt denominated in Euros totalled €237,455,000 (€318,835,000 in
2007).
The Corporation is also exposed to foreign exchange risk due to cash and cash equivalents, bank indebtedness and accounts
payable denominated in US dollars or Euros. As at August 31, 2008, the bank indebtedness denominated in US dollars totalled
US$286,000 (cash and cash equivalents of US$2,407,000 in 2007) while accounts payable denominated in US dollars totalled
US$16,121,000 (US$10,360,000 in 2007). At August 31, 2008, Euro-denominated cash and cash equivalents totalled €219,000
(€4,441,000 in 2007).